<PAGE>
As filed with the Securities and Exchange Commission on March 13, 2000
Registration No. 333-95813
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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INVENTA TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<CAPTION>
Delaware 7371 77-0217480
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
255 Shoreline Drive, Suite 200
Redwood Shores, CA 94065
(650) 413-1100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
David A. Lavanty
President and Chief Executive Officer
Inventa Technologies, Inc. 255 Shoreline Drive, Suite 200 Redwood Shores, CA
94065 (650) 413-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<CAPTION>
Michael J. O'Donnell Richard Capelouto
<S> <C>
Richard L. Picheny Daniel Clivner
Wilson Sonsini Goodrich & Rosati Simpson Thacher & Bartlett
Professional Corporation 3373 Hillview Avenue, Suite 250
650 Page Mill Road Palo Alto, CA 94304
Palo Alto, CA 94304 (650) 251-5000
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated March 13, 2000
PROSPECTUS
3,500,000 Shares
[Inventa Logo]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our shares.
We have applied to list the shares on the Nasdaq National Market under the
symbol "INVA."
Investing in our shares involves risks. Risk Factors begin on page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price..................................... $11.00 $38,500,000
Underwriting Discount..................................... $ 0.77 $ 2,695,000
Proceeds to Inventa....................................... $10.23 $35,805,000
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 525,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
First Union Securities, Inc.
Friedman Billings Ramsey
, 2000
<PAGE>
ARTWORK AND DIAGRAMS
[TO BE FILED BY AMENDMENT]
<PAGE>
TABLE OF CONTENTS
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Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 40
Certain Relationships and Related Transactions............................. 50
Principal Stockholders..................................................... 51
Description of Capital Stock............................................... 53
Shares Eligible for Future Sale............................................ 57
Underwriting............................................................... 59
Legal Matters.............................................................. 62
Experts.................................................................... 62
Additional Information..................................................... 62
Index to Financial Statements.............................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
Investors should rely only on the information contained in this prospectus.
Inventa and the underwriters have not authorized anyone to provide any
different or additional information. This prospectus is not an offer to sell
or a solicitation of an offer to buy our common stock in any jurisdiction
where it is unlawful. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock. This preliminary
prospectus is subject to completion prior to this offering.
The Inventa name is a registered trademark of Inventa Technologies, Inc. In
addition, Inventa has filed for trademark registration of the Inventa logo,
"LightSpeed," "i2K," "eSales" and "eCare." This prospectus also includes
trademarks and tradenames of other parties.
Until , 2000, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Except as otherwise indicated, the information in this prospectus
assumes that the over-allotment option granted to the underwriters is not
exercised and that all shares of our outstanding preferred stock are converted
into our common stock.
Inventa Technologies, Inc.
Our Business
We are a leading Internet professional services firm helping businesses to
use the Internet to engage in electronic commerce activities with other
businesses in order to improve their productivity and expand their online
offerings. We principally create and support:
. Electronic markets that allow businesses to interact over the Internet
with their trading partners, conduct commerce electronically and process
business transactions in real time
. Electronic customer relationship management systems that enable
businesses to use the Internet to manage their relationships with
business customers and other trading partners
Since 1995, we have focused exclusively on engagements that enable our
client to utilize the Internet to conduct electronic commerce with other
businesses. We believe that our early focus on business-to-business electronic
commerce engagements, our experience with business processes and our
methodologies for approaching these engagements enable us to rapidly and
efficiently implement advanced Internet systems for our clients. In 1999, our
clients included Automatic Data Processing, Inc., Amkor Technology, Inc.,
Cadence Design Systems, Inc., Citigroup, Inc., Crane Co., ePolicy.com, Fujitsu
PC Corporation, GoTo.com, Inc., Pure Markets Corporation, Shaman
Botanicals.com, Siemens Corporation, SMART Modular Technologies, Inc., Sun
Microsystems, Inc. and Trade Pacific Investments Limited, or tradepac.com.
Examples of some of our recent engagements include:
. GoTo.com -- we designed an electronic customer relationship management
system that allows our client and its customers to track the progress of
customer care. Among other features, the system allows users to access
answers to frequently asked questions in real time
. Pure Markets -- we created an electronic market for commercial leasing
transactions that provides for online bidding, execution of leasing
transactions and automation of routine business processes
. tradepac.com -- we designed an electronic market for inventory
liquidation that provides for online bidding and that matches buyers
worldwide with sellers from the Asia-Pacific region
Our Solution
We deliver our services through teams of talented professionals with
extensive experience in business process analysis, project management and
software engineering. Using our proprietary LightSpeed delivery model and i2K
architectural framework, our professionals are able to quickly design and
engineer Internet-based electronic commerce applications that are integrated
with our clients' existing internal systems. Our approach allows us to quickly
deliver, with predictable fees and project schedules, complex systems that are
capable of being rapidly expanded and extended to handle large numbers of
transactions and connections to trading partners' systems.
We engineer our e-commerce systems to facilitate:
. integration of complex Internet and legacy technologies with multiple
business processes within a company and with its trading partners'
systems
1
<PAGE>
. integration of multiple databases to allow the flow of information in
multiple directions
. real-time access by trading partners from a variety of technology
platforms
. flexibility in accommodating the variety of contractual relationships,
processes and payment methods that exist between businesses
Our experience and expertise have allowed us to offer two products in the
form of packaged service offerings, eCare and eSales. eCare is our Internet-
based customer support service offering developed to enable our clients to
provide high-quality customer service and improve their customer retention.
eSales is our packaged service offering developed to help clients generate
revenue through Internet-based channels. Each of our packaged service offerings
addresses predetermined business functions and is implemented using a
combination of commercially available software and the collective knowledge of
our professionals. We believe that our packaged service offerings allow us to
leverage our extensive experience, reduce our project risk and speed the time
in which our clients reach the market.
Our Market Opportunity
Businesses are increasingly using electronic commerce to interact with other
businesses. This enhances their competitive positions by improving operating
efficiencies, strengthening their relationships with trading partners and
enabling them to identify and capitalize on business opportunities. Developing
and supporting business-to-business electronic commerce systems requires
substantial expertise with respect to, among other matters:
. design of new business processes and systems that integrate with
existing operations
. selection of appropriate Internet technologies
. management of a fast-paced implementation process
Many businesses lack this expertise. As a result, an increasing number of
businesses from start-up ventures to large corporations engage Internet
professional services firms like ours to help them design, implement and
integrate their electronic commerce systems. International Data Corporation
estimates that the market for Internet professional services will grow from
$7.8 billion in 1998 to $78.6 billion in 2003, representing a 59% compound
annual growth rate.
Our Strategy
Our strategy is to enhance our position and reputation as a leading provider
of Internet professional services for businesses to interact electronically
with other businesses. The key elements of our growth strategy are to:
. maintain our exclusive focus on engagements that enable our business
clients to utilize the Internet to engage in electronic commerce with
other businesses
. maintain our technology leadership by pursuing highly complex
engagements
. continue to offer packaged services such as eCare and eSales and
introduce new packaged services that target other business processes
. hire, train and retain skilled professionals and maintain a culture that
fosters innovation
. leverage our reputation for client satisfaction and innovation to
attract new engagements from both new and existing clients
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Inventa.. 3,500,000 shares
Common stock outstanding after
this offering................... 25,176,401 shares
Use of proceeds.................. General corporate purposes, including
reducing outstanding debt of approximately
$4.0 million; increasing our recruiting
capabilities; expanding our sales and
marketing capabilities; increasing our brand
awareness; investing in our internal systems
and processes; opening new offices; and
pursuing selected strategic investments or
acquisitions.
Proposed Nasdaq National Market
symbol.......................... "INVA"
</TABLE>
At our request, the underwriters have reserved up to 12% of the common stock
offered in this prospectus for sale at the initial public offering price to our
directors, prior investors and other persons associated with Inventa.
Common stock outstanding after this offering:
. is based on the number of shares outstanding as of February 29, 2000
. assumes the conversion of all outstanding shares of series A, B, C and D
preferred stock into an aggregate of 14,615,511 shares of common stock,
which will automatically occur at the closing of this offering
. includes 272,727 shares of common stock to be issued to holders of series
D preferred stock in a private placement to be made contemporaneously
with this offering at the initial offering price less the underwriting
discount
. includes 290,000 shares issuable at the completion of this offering in
connection with an employment agreement
. excludes 3,993,653 shares of common stock issuable upon the exercise of
stock options outstanding at February 29, 2000, at a weighted average
exercise price of $1.81 per share
. excludes 713,184 shares of common stock reserved for future grant under
our stock option plans
. excludes 160,000 shares of common stock issuable upon the exercise of
warrants outstanding at February 29, 2000, at an exercise price of $2.50
per share
Additional Information
We were incorporated in California in 1988 as Inventa Corporation. We
reincorporated in Delaware in , 2000, as Inventa Technologies, Inc. Our
principal executive offices are located at 255 Shoreline Drive, Suite 200,
Redwood Shores, CA 94065, and our telephone number is (650) 413-1100. We
maintain a site on the World Wide Web at www.inventa.com. The reference to our
web address does not constitute incorporation by reference of the information
contained at that site. The information found on our site is not part of this
prospectus and should not be relied upon when making a decision to invest in
our common stock.
3
<PAGE>
Summary Consolidated Financial Data
The following table summarizes the consolidated statement of operations and
consolidated balance sheet data for our business. For a more detailed
explanation of this financial data, see "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements located elsewhere in this
prospectus.
The unaudited pro forma consolidated balance sheet data reflects the
following assumptions:
. issuance of 1,350,000 shares of our common stock with a fair value of
$14.9 million in connection with the acquisition of XTEND-Tech, Inc.,
which had an effective date of January 1, 2000
. acquisition of assets and liabilities of XTEND-Tech. See details in
financial statements located elsewhere in this prospectus.
. receipt of approximately $22.2 million from the issuance of 3,000,000
shares of series D mandatorily redeemable convertible preferred stock on
January 19, 2000, at $7.41 per share
. conversion of 1,000,000 shares of our series A convertible preferred
stock and 13,615,511 shares of our series B, C and D mandatorily
redeemable convertible preferred stock into 14,615,511 shares of our
common stock upon the completion of this offering
See Note 1 of the notes to our consolidated financial statements for a
description of the method we used to compute our weighted average shares and
basic and diluted net loss per share and pro forma basic and diluted net loss
per share.
The unaudited pro forma, as adjusted, consolidated balance sheet data gives
effect to the sale of the shares offered by us at an assumed initial public
offering price of $11.00 per share, the midpoint of the anticipated range, and
the application of the net proceeds as described in "Use of Proceeds," after
deducting the estimated underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands, except
per share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues........................................... $ 5,196 $ 8,016 $ 13,520
Loss from operations............................... (2,795) (1,692) (10,906)
Net loss........................................... (2,964) (1,658) (15,788)
Net loss per share:
Basic and diluted................................ $ (0.65) $ (0.36) $ (3.36)
======= ======= ========
Weighted average shares.......................... 4,557 4,659 4,698
Pro forma net loss per share (unaudited):
Basic and diluted................................ -- -- $ (0.76)
========
Weighted average shares.......................... -- -- 14,447
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 3,244 $25,617 $59,862
Working capital............................... (1,842) 20,438 54,683
Total assets.................................. 9,222 40,928 75,173
Long-term borrowings and capital lease
obligations, net of current portion.......... 454 562 562
Mandatorily redeemable convertible preferred
stock........................................ 18,132 -- --
Total stockholders' equity (deficit).......... (18,138) 30,973 65,218
</TABLE>
4
<PAGE>
RISK FACTORS
Investing in shares of our common stock involves risks. You should carefully
consider the risks described below and other information in this prospectus
before making an investment decision. If any of the following risks actually
occur, our business, financial condition, results of operations and reputation
could be harmed. As a result, the trading price of our common stock may
decline, and you may lose all or part of your investment.
Risks Related to Our Business
We may have difficulty managing our growth, which could damage our ability to
retain clients and become profitable
Our growth has placed significant demands on our management and other
resources. Our revenues for the year ended December 31, 1999, increased
approximately 69% from the year ended December 31, 1998. Our staff increased
from 57 full-time employees at December 31, 1998, to 245 at February 29, 2000.
Our future success will depend on our ability to manage our growth, including:
. continuing to train, motivate, manage and retain our existing employees
and to attract and assimilate new employees
. maintaining project quality
. maintaining high rates of employee utilization
. accurately estimating time and resources required to complete engagements
. developing and improving our operational, financial, accounting and other
internal systems and controls
. improving our business development capabilities
If we are unable to manage our growth, our ability to retain clients and
become profitable could be damaged.
We have a history of operating losses, and we may never achieve significant or
sustained profitability
We reported an operating loss of $10.9 million and a net loss of $15.8
million for the year ended December 31, 1999. We anticipate incurring losses in
2000 and 2001 as well. As we strive to grow our business, we expect to spend
significant funds for general corporate purposes, including working capital,
marketing, recruiting and hiring additional personnel, upgrading our
infrastructure and expanding into new geographic markets. Although our revenues
have increased in recent periods, we may not sustain these growth rates. To the
extent that our revenues do not increase at a rate commensurate with these
costs and expenditures, our results of operations and our stock's performance
could be harmed. In particular, we expect that our plan for increases in
expenses and capital expenditures over the next year will result in higher
operating losses. If we achieve profitability in the future, it may or may not
be sustainable.
If we do not retain our key management personnel and professionals or if we
fail to recruit additional professionals, our ability to serve existing and new
clients would be impaired
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable management and
professionals. This dependence is particularly important to our business
because we believe personal relationships are critical to obtaining and
maintaining a cohesive culture. If a significant number of our senior
management personnel or professionals leave, we may be unable to complete or
retain existing engagements or bid for new projects. In addition, if any of
these key employees joins a competitor or forms a competing company, some of
our clients might choose to use the services of that competitor or new company
instead of our own.
Even if we retain our current employees, we must continually recruit and
train talented professionals in order for our business to grow. There is
currently a shortage of qualified professionals in the Internet
5
<PAGE>
professional services field, and this shortage is likely to continue.
Furthermore, there is significant competition for employees with the skills
required to perform the services we offer. We may not be able to attract a
sufficient number of qualified employees in the future, and we may not be
successful in motivating and retaining the employees we do attract. If we
cannot attract, motivate and retain qualified management and professionals, our
ability to provide our services to new and existing clients will be impaired.
Our management team has limited experience working together, which could affect
their ability to function effectively as a team
We have employed our president and chief executive officer only since
January 1999. Five of our other officers, including our chief financial
officer, have joined us within the past 12 months. Therefore, there has been
little or no opportunity to evaluate the effectiveness of our executive
management team. The failure of our executive management to function
effectively as a team may hurt our ability to manage our business and growth,
obtain and execute client engagements, maintain a cohesive culture and compete
effectively.
We depend heavily on a limited number of clients. The loss of a principal
client or a reduction in the work we perform for any particular client could
harm our reputation and reduce our revenues
We derive a significant portion of our revenue from a limited number of
clients. In 1999, our five largest clients accounted for approximately 75% of
our revenues, with ADP and ePolicy.com each accounting for over 10% of our
revenues. Our clients retain us on an engagement-by-engagement basis, rather
than under long-term contracts. Our contracts typically provide that our
clients can terminate the contracts without penalty. There is a risk that once
we complete an engagement, these principal clients may not retain us for
additional work in the future. Any cancellation, deferral or reduction in work
performed for one of these principal clients or a number of smaller clients
could harm our reputation and reduce our revenues.
Our business may be harmed by cost overruns and penalties associated with
fixed-price, fixed-time contracts if we fail to accurately estimate the time
and resources necessary for the performance of our services
For the year ended December 31, 1999, approximately 88% of our revenues was
derived from fixed-price, fixed-time contracts. We expect that most of our
future revenues will continue to be derived from fixed-price, fixed-time
contracts. Our contracts may provide for financial penalties if we do not meet
specified deadlines. To mitigate losses from fixed-price, fixed-time contracts,
we must, among other things:
. accurately estimate the resources required to perform these contracts
. complete our clients' projects on a timely basis
. effectively manage our clients' expectations
. complete projects within budget and to our clients' satisfaction
If we do not successfully manage these project risks, we could be exposed to
cost overruns and penalties. If this occurs in connection with a large project
or a sufficient number of projects, we may suffer lower gross margins and
delays in recognizing revenues, and our financial condition, results of
operations and reputation could be harmed.
Quarterly fluctuations in our revenues and earnings could affect the market
price of our common stock
Our quarterly revenues and earnings have varied in the past and may vary
significantly. This fluctuation may cause our operating results to be below the
expectations of securities analysts and investors, and the price of our stock
may fall. Factors that could cause quarterly fluctuations include:
. the number, size and scope of client engagements commenced or completed
during a quarter
6
<PAGE>
. professional staff utilization rates
. unanticipated project terminations, delays or deferrals
. the accuracy of our estimates of resources required to complete ongoing
projects
. the contractual terms and degree of completion of projects in which we
are engaged
A large percentage of our expenses, particularly employee compensation and
rent, are fixed in advance of any particular quarter. In addition, we may incur
unanticipated expenses relating to increased utilization of subcontractors. Any
decline in revenues or earnings, unanticipated project termination or delay, or
greater than expected costs for any quarter could harm our results of
operations and result in a decline in the market price of our common stock,
even if not reflective of any long-term problems with our business.
Competition from larger, more established competitors with greater financial
resources and from new competitors could result in price reductions and reduced
revenues and loss of current and future clients
The Internet professional services market is intensely competitive. We
expect competition to continue and intensify, which could result in price
reductions, reduced revenues and the loss of current and future clients. Our
competitors fall into six major categories:
. Internet professional services firms
. information technology consulting and systems integration firms
. services divisions of computer hardware and software vendors
. web design firms
. information technology strategy consulting firms
. in-house information technology departments of our current and potential
clients
Many of our competitors have longer operating histories and client
relationships, greater resources, larger client bases and greater brand or name
recognition than we have. Our competitors may be able to respond more quickly
to technological developments and changes in clients' needs. This ability of
our competitors may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives.
Further, there are low barriers to entry into our industry segment. We do
not own any technologies that preclude or inhibit potential competitors from
entering our industry. Since the potential market opportunity is large, while
costs to develop and provide Internet professional services are relatively low,
we expect to continue to face additional competition from new competitors.
If we do not keep pace with technological changes, industry standards and
client preferences, our reputation could be harmed, and we could lose clients,
which would reduce our revenues
Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in Internet
technology, evolving industry standards and changing client preferences. We may
not be successful in addressing these developments on a timely basis, or at
all. Our failure to respond quickly and cost-effectively to new developments
could harm our reputation and cause us to lose current and potential business
opportunities, resulting in reduced revenues.
In particular, we have derived a significant portion of our revenues from
projects based primarily on:
. open systems technologies
. multi-tier software architectures
. Internet-based architectures
7
<PAGE>
These areas are continuing to develop and are subject to rapid change. Any
factors impeding the acceptance of information technology systems using
Internet-based architectures could reduce our revenues and impair our results
of operations, especially if we are unable to develop skills and replacement
technologies for these types of information technology systems.
We may face intellectual property claims that could result in substantial costs
or limit our ability to use intellectual property in the future
It is possible that other parties may assert infringement claims against us
in the future or claim that we have violated their intellectual property
rights. While we know of no basis for any claims of this type, authorship of
intellectual property rights can be difficult to verify. Competitors could
assert, for example, that former employees of theirs whom we have hired have
misappropriated their proprietary information for our benefit. A successful
infringement claim against us could damage us in the following ways:
. we may be liable for damages and litigation costs, including attorneys'
fees
. we may be prohibited from further use of the intellectual property in
dispute
. we may have to license the intellectual property, incurring licensing
fees
. we may have to develop a non-infringing alternative, which could be
costly and delay projects
. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property
Regardless of the outcome, an infringement claim could result in substantial
costs, diversion of resources and management attention, clients' termination of
project engagements and harm to our financial condition and reputation.
If we are not able to resell or reuse intellectual property developed for
specific clients, our ability to provide our services efficiently would be
impaired
Our LightSpeed delivery model and i2K architectural model, as well as our
knowledge management system, known as Inside Inventa, depend heavily on using
information and techniques learned and developed during prior engagements.
Moreover, a portion of our business involves the development of software
applications for specific client engagements. Our clients generally retain
ownership of client-specific software, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with client engagements. Some clients have prohibited us from marketing the
applications developed for them, or similar applications, for specified periods
or to specified types of potential clients. Our clients may demand similar or
other restrictions in the future, and disputes may arise that affect our
ability to resell or reuse such applications, processes and other intellectual
property. These disputes could damage our relationships with our clients and
divert our management's attention. A successful suit that prevents us from
reusing information and techniques would also impair our ability to provide our
services efficiently.
If we are unable to maintain our reputation and expand our name recognition, we
may have difficulty in attracting new clients and retaining current clients and
professionals
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining our clients and
professional staff. We also believe that the importance of reputation and name
recognition will increase due to the growing number of Internet professional
services firms. If our reputation is damaged or if potential clients are not
familiar with us or the services we provide, we may become less competitive or
lose our market position. Promotion and enhancement of our name will depend
largely on our success in continuing to provide effective Internet technology
solutions. If clients do not perceive our solutions to be effective or of high
quality, our brand name and reputation will suffer. In addition, if solutions
we provide have defects, critical business functions of our clients may fail,
and we could suffer adverse publicity as well as economic liability.
8
<PAGE>
If we fail to secure written contracts, our ability to collect fees, protect
our intellectual property and protect ourselves from liability to others could
be impaired
We attempt to protect ourselves by entering into written contracts with our
clients covering the terms and contingencies of a project engagement. In most
of our engagements, we begin work for clients on the basis of a limited
statement of work or verbal agreements before a detailed written contract can
be finalized. To the extent that we fail to have detailed written contracts in
place, our ability to collect fees, recognize revenues, protect our
intellectual property and protect ourselves from liability to others may be
impaired.
We may need additional capital in the future, which may not be available to us.
The raising of any additional capital may dilute your ownership in us
In the future, we may need to raise additional funds through public or
private debt or equity financings to take advantage of expansion or acquisition
opportunities, develop new solutions or compete effectively in the marketplace.
Any additional capital raised through the sale of equity or equity-linked
debt securities would dilute your ownership percentage in us. Those securities
could also have rights, preferences or privileges senior to those of your
common stock. Furthermore, we may not be able to obtain additional financing
when needed or on terms favorable to us or our stockholders. If additional
financing is not available on favorable terms or at all, this may limit our
ability to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures.
Risks Related to Our Industry
Our business may suffer if growth in the use of the Internet declines
Because Internet technologies are central to many of our solutions, our
business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their suppliers and other trading partners.
Capacity constraints caused by growth in Internet usage may, unless resolved,
impede further growth in Internet use. Factors that may affect Internet usage
or electronic commerce adoption include:
. actual or perceived lack of security of information
. congestion of Internet traffic or other usage delays
. inconsistent quality of service
. increases in costs of accessing the Internet
. adverse government regulation
. uncertainty regarding intellectual property ownership
. reluctance of companies to adopt new business methods
. costs associated with the obsolescence of existing infrastructure
. lack of economic viability of the electronic commerce model
Our success will depend on market acceptance of our industry
Widespread market acceptance of the outsourcing of the design, development
and maintenance of Internet-based applications to Internet professional
services firms like ours is uncertain. Many of our potential clients may
ultimately decide to perform these services in-house. In-house personnel may
have better access to both key client decision-makers and the information
required to prepare proposals for such solutions. If independent providers of
Internet professional services prove to be unreliable, ineffective or too
expensive, or if software
9
<PAGE>
companies develop tools that are sufficiently user-friendly and cost-effective,
companies may instead choose to design, develop or maintain their Internet-
based applications internally. Our revenues will decline if the market for our
services does not continue to develop or develops more slowly than we expect,
or if the market does not accept our services.
Government regulation and legal uncertainties relating to the Internet could
decrease demand for our services, increase our operating costs or otherwise
harm our business
Increased regulation of the Internet or taxation of electronic commerce
might slow the growth in use of the Internet, which could decrease demand for
our services, increase our cost of doing business or otherwise harm our
business. Congress, federal regulatory agencies and the states have recently
passed legislation or taken other actions regulating certain aspects of the
Internet, including:
. online content . liability for third-party activities
. interaction with children . transmission of sexually explicit
materials
. copyright infringement . defamation
. user privacy . consumer protection
. taxation . jurisdiction
. access charges
In addition, federal, state and local governmental organizations as well as
foreign governments are considering other legislative and regulatory proposals
that would regulate these and other aspects of the Internet. We do not know how
courts will interpret laws governing the Internet or the extent to which they
will apply existing laws to the Internet. Therefore, we are not certain how
existing or future laws governing the Internet or applied to the Internet will
affect our business.
Risks Related to our Common Stock
If the market price of our common stock fluctuates significantly, you may not
be able to sell our shares at or above the initial public offering price, and
therefore, you may suffer a loss on your investment
The initial public offering price will be determined through negotiation
between us and representatives of the underwriters and may not be indicative of
the market price for our common stock after this offering.
The market price of our common stock could fluctuate significantly as a
result of:
. our susceptibility to quarterly variations in our operating results,
which may cause us to fail to meet analysts' or investors' expectations
. changes in financial estimates by the analysts following our stock
. earnings and other announcements by, and changes in investors'
evaluations of, Internet professional services firms
. economic and stock market conditions specific to Internet professional
services firms
. changes in business or regulatory conditions affecting information
technology services
. announcements or implementation by us or our competitors of technological
innovations or new products or services
. trading volume of our common stock
The securities of many companies have experienced significant price and
volume fluctuations in recent years, often unrelated to the companies'
operating performance. Specifically, market prices for securities of
10
<PAGE>
Internet-related and technology companies have frequently reached elevated
levels, often following their initial public offerings. These levels, if
attained in the future, may not be sustainable and may not bear any
relationship to these companies' operating performances. If the market price of
our common stock reaches an elevated level following this offering, it may
significantly and rapidly decline. In the past, following periods of volatility
in the market price of a company's securities, stockholders have often
instituted securities class action litigation against the company. If we were
to become involved in securities litigation, it could cause a substantial loss
and divert resources and the attention of senior management from our business.
Because an active trading market for our common stock may not develop after
this offering, it may be difficult for you to sell your shares
There is currently no trading market for our common stock. Accordingly, an
active public trading market may not develop or be sustained after this
offering. If an active and liquid trading market does not develop, you may have
difficulty selling your shares.
The sale or availability for sale of substantial amounts of our common stock
could cause our stock price to decline
Sales of substantial amounts of our common stock in the public market after
the completion of this offering or the public perception that these sales could
occur could cause a decline in the market price of our common stock and could
impair our future ability to raise capital through offerings of our common
stock. There will be 25,176,401 shares of common stock outstanding immediately
after this offering including those shares issued upon conversion of the
convertible securities, shares in the contemporaneous private placement, and
those shares issuable at the close of this offering under an employment
agreement, or 25,701,401 shares if the underwriters exercise their over-
allotment option in full. The 3,500,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless held by our "affiliates" as that term is defined in Rule
144 under the Securities Act. The remaining shares are "restricted securities,"
and will become eligible for sale in the public market at various times after
180 days after the date of this prospectus, subject to the limitations and
other conditions of Rule 144 under the Securities Act.
In connection with this offering, we, our executive officers and directors
and 21 of our stockholders and their affiliates have agreed, except in limited
circumstances, not to sell the 20,240,087 shares of common stock owned by them
for 180 days after completion of this offering without the consent of Lehman
Brothers Inc. These shares, however, may be released from these restrictions by
Lehman Brothers Inc. at any time. We cannot predict what effect, if any, market
sales of shares held by principal stockholders or any other stockholder or the
availability of these shares for future sale will have on the market price of
our common stock.
A number of our stockholders are parties to an agreement with us that
provides these stockholders with the right to require us to register the sale
of shares owned by them. These rights cover approximately 16,238,238 shares,
representing 64% of our common stock outstanding after this offering and will
also cover any shares obtained by these stockholders from time to time.
Registration of these shares of our common stock would permit the sale of these
shares without regard to the restrictions of Rule 144 and Rule 144(k).
Concentration of ownership of our common stock may limit your ability to
influence corporate matters
Immediately following this offering, our executive officers and directors,
or entities controlled by them, will own approximately 77% of the outstanding
shares of our common stock.
If our significant stockholders choose to act or vote together on corporate
matters, they will have the power to control the approval of any action
requiring the approval of our stockholders, including any mergers,
acquisitions, sales of all of our assets or amendments to our certificate of
incorporation. In addition, without the consent of these stockholders, we could
be prevented from entering into transactions that could be beneficial to us.
Also, third parties could be discouraged from making a tender offer or bid to
acquire our company at a price per share that is above the then-prevailing
market price.
11
<PAGE>
The net proceeds of this offering may be allocated in ways with which you and
other stockholders may not agree
Our management will have significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific purpose, investment or transaction, you cannot determine at
this time the value or propriety of our management's application of the
proceeds on our behalf and you and other stockholders may not agree with our
management's decisions.
Investors in this offering will experience immediate and substantial dilution
and will pay a higher price for our common stock than paid by our existing
stockholders
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$8.58 per share, representing the difference between our book value per share
as of December 31, 1999, after giving effect to this offering and the initial
public offering price. In addition, you may experience further dilution to the
extent that shares of our common stock are issued upon the exercise of stock
options or under our employee stock purchase plan. All of the shares issuable
upon the exercise of currently outstanding stock options will be issued at a
purchase price less than the public offering price per share in this offering.
Antitakeover provisions of Delaware's General Corporation Law and our
certificate of incorporation could delay or deter a change in control
Amendments to our certificate of incorporation and our bylaws, as well as
various provisions of the Delaware General Corporation Law, may make it more
difficult to effect a change in control of our company. The existence of these
provisions may adversely affect the price of our common stock, discourage third
parties from making a bid for us or reduce any premiums paid to our
stockholders for their common stock. For example, our certificate of
incorporation authorizes our board of directors to issue up to 14,779,511
shares of blank check preferred stock and to attach special rights and
preferences to this preferred stock. The issuance of this preferred stock may
make it more difficult for a third party to acquire control of us. Our
certificate of incorporation also provides for the division of our board of
directors into three classes as nearly equal in size as possible with staggered
three-year terms. This classification of the board of directors could have the
effect of making it more difficult for a third party to acquire our company or
of discouraging a third party from acquiring control of us.
Forward-looking statements contained in this prospectus may not be realized
This prospectus contains forward-looking statements that involve risk and
uncertainties. These forward-looking statements relate to, among other things,
our competition, strength of business model, strategy, plans and timing of the
introduction of new services, plans for entering into strategic relationships
and making acquisitions, and other expectations, intentions and plans contained
in this prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates," "intends,"
"plans," "may," "believes," "seeks," "estimates" and similar expressions
generally identify forward-looking statements. These statements reflect our
current expectations. They are subject to a number of risks and uncertainties,
including but not limited to, changes in technology and changes in the Internet
professional services market. In light of the many risks and uncertainties
surrounding the Internet professional services market, the forward-looking
statements contained in this prospectus may not be realized.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the offering will be
approximately $34.2 million at an assumed initial public offering price of
$11.00 per share, the mid-point of the anticipated range, and approximately
$39.6 million if the underwriters exercise the over-allotment option in full,
in each case, after deducting the estimated underwriting discount and estimated
offering expenses payable by us.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including:
. reducing outstanding debt of approximately $4.0 million, which is due
November 30, 2000, and bears interest at the prime rate plus 2.00%
(currently 10.75%). The proceeds of this loan were used to pay off our
equipment lease line with a balance of $375,000. The remaining proceeds
are being used to fund working capital and to purchase equipment.
. increasing our recruiting capabilities
. expanding our sales and marketing capabilities
. increasing our brand awareness
. investing in our internal systems and processes
. opening new offices
In addition, we may use the proceeds to make selected strategic investments
or acquisitions. We cannot specify with certainty all or particular allocations
of the use of proceeds from this offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends, and we do not anticipate
paying cash dividends in the foreseeable future. We currently intend to retain
future earnings, if any, to finance operations and the expansion of our
business. Any future determination to pay dividends will be at the sole
discretion of our board of directors and will depend upon our financial
condition, operating results, capital requirements and other factors our board
of directors deems relevant. In addition, our current lines of credit
facilities restrict our ability to declare and pay any dividends without the
prior consent of our lenders.
13
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization and our unaudited
pro forma and unaudited pro forma, as adjusted, capitalization as of December
31, 1999. You should read this information in conjunction with our consolidated
financial statements and the related notes to those consolidated financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term borrowings and capital lease
obligations, current portion.................. $ 192 $ 241 $ 241
======== ======== =======
Long-term borrowings and capital lease
obligations, net of current portion........... 454 562 562
-------- -------- -------
Mandatorily redeemable convertible preferred
stock:
Series B, $0.001 par value; 2,560,000 shares
authorized; 2,560,000 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... 4,373 -- --
Series C, $0.001 par value; 8,219,511 shares
authorized; 8,055,511 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... 13,759 -- --
Series D, $0.001 par value; 3,000,000 shares
authorized; no shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... -- -- --
-------- -------- -------
18,132 -- --
-------- -------- -------
Series A convertible preferred stock, $0.001
par value; 1,000,000 shares authorized;
1,000,000 shares issued and outstanding,
actual; no shares issued and outstanding,
pro forma and pro forma, as adjusted........ 1 -- --
Common stock, $0.001 par value; 25,000,000
shares authorized; 4,759,402 shares issued
and outstanding, actual; 20,723,475 shares
issued and outstanding, pro forma and
24,223,475 shares issued and outstanding pro
forma, as adjusted.......................... 5 20 24
Additional paid-in capital................... 1,861 67,829 102,070
Deferred stock-based compensation............ (4,662) (10,733) (10,733)
Accumulated deficit.......................... (15,343) (26,143) (26,143)
-------- -------- -------
Total stockholders' equity (deficit)....... (18,138) 30,973 65,218
-------- -------- -------
Total capitalization..................... $ 640 $ 31,776 $66,021
======== ======== =======
</TABLE>
The foregoing table excludes the following shares at December 31, 1999:
. 3,492,000 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $0.42 per share
. 1,474,000 shares of common stock available for future grant as of
December 31, 1999
For a description of the assumptions underlying the unaudited pro forma and
unaudited pro forma, as adjusted, data, see "Summary Consolidated Financial
Data."
14
<PAGE>
DILUTION
On a pro forma basis after giving effect to the conversion of 11,615,511
outstanding shares of series A, B, and C preferred stock, the issuance and
subsequent conversion of 3,000,000 shares of series D preferred stock at $7.41
per share, the issuance of 1,350,000 shares of common stock in connection with
the acquisition of XTEND-Tech, and the acquisition of the net tangible assets
of XTEND-Tech, our pro forma net tangible book value as of December 31, 1999,
was $22.2 million or $1.07 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 and divided by the total number of
shares of common stock outstanding. Our pro forma net tangible book value after
December 31, 1999, giving effect to the sale of 3,500,000 shares of common
stock offered by this prospectus at an assumed initial public offering price of
$11.00 per share and receipt of the estimated net proceeds from the sale, and
the sale of 272,727 shares at $11.00 per share in connection with our
contemporaneous private placement and receipt of the estimated net proceeds
from the sale, our pro forma net tangible book value as of December 31, 1999,
would have been approximately $59.4 million or $2.42 per share. This represents
an immediate increase in net tangible book value of $1.35 per share to existing
stockholders and an immediate dilution of $8.58 per share to the new investors.
If the initial public offering price is higher or lower, the dilution to new
investors will be, respectively, greater or less. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $11.00
------
Pro forma net tangible book value per share as of December 31,
1999......................................................... $1.07
Increase per share attributable to new investors.............. $1.35
-----
Pro forma net tangible book value per share after this
offering..................................................... $ 2.42
------
Net tangible book value dilution per share to new investors... $ 8.58
======
</TABLE>
The following table sets forth as of December 31, 1999, assuming the pro
forma effects described above, 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 the new investors at
an assumed initial public offering price of $11.00 per share for shares
purchased in this offering, before deducting the estimated underwriting
discounts and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 20,724,913 85.0% $36,021,925 46.0% $ 1.74
New investors............... 3,772,727 15.0 41,500,000 54.0 $11.00
---------- ----- ----------- -----
Total..................... 24,497,640 100.0% $77,521,925 100.0%
========== ===== =========== =====
</TABLE>
This table assumes that the underwriters do not exercise their over-
allotment option. If the underwriters' over-allotment option is exercised in
full, the pro forma, as adjusted net tangible book value per share after giving
effect to this offering would be $2.60 per share. After deducting underwriting
discounts and commissions and estimated transaction expenses, the increase in
the net tangible book value per share to existing stockholders would be $2.59
and the dilution to new public investors would be $8.41 per share.
This table also assumes that no options or warrants have been or are
exercised after December 31, 1999. As of December 31, 1999, there were
outstanding options to purchase an aggregate of 3,492,000 shares of common
stock at a weighted average exercise price of $0.42 per share, excluding
warrants to purchase 160,000 shares of series C preferred stock at $2.50 per
share. If all such options and warrants had been exercised on December 31, 1999
and the underwriters' over-allotment option is exercised in full, our net
tangible book value on this date would have been $66.7 million or $2.33 per
share, the increase in net tangible book value attributable to new investors
would have been $1.26 per share, and the dilution in net tangible book value to
new investors would have been $8.67 per share.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the consolidated balance
sheet data at December 31, 1997, 1998 and 1999, are derived from the audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated statement of operations data for the year ended
December 31, 1996, and the consolidated balance sheet data at December 31,
1996, are derived from our audited consolidated financial statements not
included in this prospectus. The selected consolidated statement of operations
data for the year ended December 31, 1995, and the consolidated balance sheet
data at December 31, 1995, are derived from our unaudited consolidated
financial statements that include, in our opinion, all adjustments, consisting
of only normal recurring adjustments, necessary for fair presentation of the
financial condition at that date and results of operations for such period. The
historical results presented below are not necessarily indicative of the
results to be expected for any future period. The selected consolidated
financial data should be read in conjunction with our consolidated financial
statements and the related notes to those consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" located elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues....................... $2,416 $5,032 $ 5,196 $ 8,016 $ 13,520
Operating expenses:
Project personnel............. 1,185 2,635 2,677 2,799 8,610
Sales and marketing........... 72 135 1,671 1,838 4,230
General and administrative.... 951 2,123 3,456 4,519 9,434
Depreciation.................. 149 131 187 252 562
Amortization of deferred
stock-based compensation..... -- -- -- 50 1,590
Non-recurring expenses on
closing of foreign
operations................... -- -- -- 250 --
------ ------ ------- ------- --------
Total operating expenses..... 2,357 5,024 7,991 9,708 24,426
------ ------ ------- ------- --------
Income (loss) from operations.. 59 8 (2,795) (1,692) (10,906)
Other income (expense), net.... (16) (51) (79) 36 (5)
------ ------ ------- ------- --------
Income (loss) before income
taxes......................... 43 (43) (2,874) (1,656) (10,911)
Income tax benefit (expense)... (16) 14 (90) (2) (15)
------ ------ ------- ------- --------
Net income (loss).............. 27 (29) (2,964) (1,658) (10,926)
Accretion of mandatorily
redeemable convertible
preferred stock to redemption
value......................... -- -- -- -- (4,862)
------ ------ ------- ------- --------
Net income (loss) attributable
to common stockholders........ $ 27 $ (29) $(2,964) $(1,658) $(15,788)
====== ====== ======= ======= ========
Net income (loss) per share:
Basic and diluted............. $ 0.01 $(0.01) $ (0.65) $ (0.36) $ (3.36)
====== ====== ======= ======= ========
Weighted average shares....... 4,529 4,541 4,557 4,659 4,698
Pro forma net loss per share
(unaudited):
Basic and diluted............. -- -- -- -- $ (0.76)
========
Weighted average shares....... -- -- -- -- 14,447
========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- --------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....... $ 68 $ 48 $ 671 $ 4,783 $ 3,244
Working capital................. 387 317 429 3,802 (1,842)
Total assets.................... 954 1,878 1,822 6,295 9,222
Long-term borrowings and capital
lease obligations, net of
current portion................ 37 70 192 373 454
Mandatorily redeemable
convertible preferred stock.... -- -- 3,200 8,270 18,132
Total stockholders' equity
(deficit)...................... 627 600 (2,496) (4,125) (18,138)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data," our consolidated financial statements and the
related notes to those consolidated financial statements located elsewhere in
this prospectus. In addition to historical information, this discussion
contains forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by such forward-
looking information due to competitive factors, risks associated with our
expansion plans and other factors discussed under "Risk Factors" and elsewhere
in this prospectus.
Overview
Revenues. Our revenues are substantially derived from fixed-price, fixed-
time contracts. Revenues earned under fixed-price, fixed-time projects are
recognized on the percentage-of-completion method based on the ratio of actual
costs incurred to total estimated costs. We recognize revenues on our other
projects on a time and materials basis. Revenues exclude reimbursable expenses
charged to clients.
Approximately 88% of our revenues for the year ended December 31, 1999, was
derived from fixed-price, fixed-time arrangements. We expect the percentage of
our revenues derived from fixed-price, fixed-time projects to decrease through
our wider use of a time and materials approach as our revenues grow and our
client base diversifies.
Due to our use of fixed-price, fixed-time contracts, our operating results
may be harmed by inaccurate estimates of costs and time required to complete
projects. Therefore, we closely monitor project progress through a series of
processes designed to help estimate cost and time to completion, including a
detailed review at the end of each project stage to determine project
percentage of completion. We typically receive an advance payment from our
clients upon contract signing, with additional payments upon our attainment of
project milestones. This practice of invoicing in advance of revenue
recognition has resulted in an increase in the current year's receivables, as a
percentage of revenues, as compared to prior years. Deferred revenues consist
primarily of payments received in advance of services rendered. We recognize
those payments as revenues upon performance of services.
Cost Structure. Project personnel expenses consist primarily of payroll,
associated taxes, employee benefits, any third-party fees and net travel costs
incurred in the delivery of our services. Sales and marketing expenses consist
primarily of personnel costs and commissions as well as the costs associated
with the development and maintenance of our marketing materials and programs.
General and administrative expenses consist primarily of the costs associated
with operations management, finance, human resources, information systems,
facilities and other administrative support for project personnel.
We regularly review the fees we charge for our services, our employee
compensation and our overhead costs in an effort to remain competitive within
our industry. In addition, we monitor the progress of our projects with our
clients' senior management. Monitoring the costs and progress associated with
each project is aided by our intranet-based project management systems. We
manage the activities of our service delivery personnel by closely monitoring
project schedules and staffing requirements for new projects. Most of our
client projects can, and may in the future, be terminated by our clients
without penalty. However, our contracts generally provide that we will be
compensated based on the percentage of work completed relative to the fixed
price of the engagement. Termination of a client project could require us to
maintain underutilized employees, resulting in a higher than expected number of
inactive professionals. We maintain a sufficient number of senior professionals
to oversee existing and anticipated client projects and participate in our
sales efforts to engage new client projects.
Variability of Operating Results. Our operating results have fluctuated from
quarter to quarter and may continue to fluctuate in the future. These
fluctuations may be significant. We may not always forecast accurately the
frequency and duration of our projects. We incur expenses, which are mainly
fixed expenses, based on our expectations concerning the costs of our future
projects. We may not be able to reduce our
18
<PAGE>
spending in a timely manner to compensate for any shortfall in our projected
revenues. In the event of such a shortfall, our expenses as a percentage of our
revenues would increase. Our quarterly operating results may not meet the
expectations of analysts or investors. This may cause a decline in the market
price of our common stock.
Recent Net Losses. Our net loss was $10.9 million for the year ended
December 31, 1999, compared to $1.7 million for the year ended December 31,
1998. We primarily attribute our increased net losses to higher project
personnel expenses, sales and marketing expenses and general and administrative
expenses. The overall increase in expenses was primarily attributable to costs
incurred to expand or increase the number of project personnel as well as
significant investment in office facilities and related infrastructure
management and administrative personnel and sales and marketing.
Recent Events. In January 2000, we acquired the business of XTEND-Tech, a
30-employee information technology consulting organization serving Global 1000
companies. This acquisition will expand the breadth of our service offerings
and contribute to our future revenue growth. XTEND-Tech has a cost structure
that is similar to ours. We issued 1,350,000 shares of our common stock in
connection with this acquisition with an estimated fair value of approximately
$14.9 million. This consideration consisted of a combination of the purchase
price paid for the outstanding common stock of XTEND-Tech and consideration to
certain employee stockholders of XTEND-Tech for continued employment with us.
The acquisition was accounted for using the purchase method of accounting. The
total amount of the consideration treated as purchase price for this
acquisition was approximately $8.8 million and was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the acquisition date. The amortization of the
intangible assets will occur over the estimated periods to be benefited. In
connection with this acquisition we signed restricted stock agreements with
certain employee stockholders of XTEND-Tech as consideration for continued
employment. The fair value of the unvested shares, which relate to these
restricted stock agreements, amounting to $6.1 million, has been recorded as
deferred stock-based compensation, which will be amortized over the three-year
vesting period of the restricted stock.
Results of Operations
The following table sets forth, as a percentage of revenues, our
consolidated statement of operations for the years ended December 31, 1997,
1998 and 1999.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues............................................... 100% 100% 100%
Operating expenses:
Project personnel..................................... 51 35 63
Sales and marketing................................... 32 23 31
General and administrative............................ 67 56 70
Depreciation.......................................... 3 3 4
Amortization of deferred stock-based compensation..... -- 1 12
Non-recurring expenses on closing of foreign
operations........................................... -- 3 --
--- --- ---
Total operating expenses............................. 153 121 180
--- --- ---
Income (loss) from operations.......................... (53) (21) (80)
Other income (expense), net............................ (2) -- --
--- --- ---
Income (loss) before income taxes...................... (55) (21) (80)
Income tax benefit (expense)........................... (2) -- --
--- --- ---
Net income (loss)...................................... (57)% (21)% (80)%
=== === ===
</TABLE>
19
<PAGE>
1999 Compared to 1998
Revenues. Our revenues increased 69% to $13.5 million for the year ended
December 31, 1999, compared to $8.0 million for the year ended December 31,
1998. We attribute our revenue growth primarily to an increase in the volume of
services delivered to new clients. We will continue to focus our efforts on new
client capture and expect this trend to continue. In 1999, our five largest
clients accounted for approximately 75% of our revenues. In 1998, our five
largest clients accounted for approximately 85% of our revenues.
Project Personnel Expenses. Project personnel expenses increased $5.8
million, or 208%, to $8.6 million for the year ended December 31, 1999, from
$2.8 million for the year ended December 31, 1998. The increase was primarily
attributable to the hiring of additional project personnel to accommodate
current and anticipated increases in demand for our services. Headcount for
project personnel as of December 31, 1999, was 112 compared to 36 as of
December 31, 1998. As a percentage of revenues, project personnel expenses were
63% for the year ended December 31, 1999, and 35% for the year ended December
31, 1998.
Sales and Marketing Expenses. Sales and marketing expenses increased $2.4
million, or 130%, to $4.2 million for the year ended December 31, 1999, from
$1.8 million for the year ended December 31, 1998. The increase was due to our
investment in our sales and marketing programs. Headcount for sales and
marketing personnel increased to 15 at December 31, 1999, from 8 at December
31, 1998. As a percentage of revenues, sales and marketing expenses were 31%
for the year ended December 31, 1999, and 23% for the year ended December 31,
1998.
General and Administrative Expenses. General and administrative expenses
increased $4.9 million, or 108%, to $9.4 million for the year ended December
31, 1999, from $4.5 million for the year ended December 31, 1998. Office rent
expenses increased to $828,000 for the year ended December 31, 1999, from
$214,000 for the year ended December 31, 1998. Headcount for managerial and
administrative personnel increased to 39 as of December 31, 1999, from 13 as of
December 31, 1998. The increases in office rent expenses accounted for 12% of
the overall increase. In addition, personnel expenses accounted for 68% of this
increase. As a percentage of revenues, general and administrative expenses were
70% for the year ended December 31, 1999, and 56% for the year ended December
31, 1998.
Depreciation. Depreciation expense increased $311,000, or 124%, to $562,000
for the year ended December 31, 1999, from $251,000 for the year ended December
31, 1998. The increase was attributable to capital expenditures for new
equipment and leasehold improvements.
Amortization of Deferred Stock-based Compensation. We recorded $1.6 million
in amortization of deferred stock-based compensation expense for the year ended
December 31, 1999. This expense represented the amortization of the difference
between the deemed fair value of the underlying options at the time of grant
and their exercise price.
Other Income (Expense), Net. Other expense was $5,000 for the year ended
December 31, 1999, compared to income of $36,000 for the year ended December
31, 1998. The variance was primarily due to an increase in interest expense.
The average aggregate balance outstanding on our line of credit and term loan
was $1.2 million during the year ended December 31, 1999, as compared to
$172,000 during the year ended December 31, 1998. Interest expense under these
facilities was $106,000 for the year ended December 31, 1999, and $56,000 for
the year ended December 31, 1998.
Income Tax Expense. We incurred income tax expense of $15,000 for the year
ended December 31, 1999, and $2,000 for the year ended December 31, 1998. As of
December 31, 1999, we had approximately $13.0 million of federal net operating
loss carryforwards and approximately $11.0 million of state net operating loss
carryforwards available to offset future taxable income. The federal net
operating loss carryforwards will expire between 2011 and 2019, and the state
net operating loss carryforwards will expire between 2004 and 2006, if not
utilized.
20
<PAGE>
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership
change of more than 50% over a three-year period, as defined. Any unused annual
limitation may be carried forward to future years for the balance of the net
operating loss carryforward period.
1998 Compared to 1997
Revenues. Our revenues increased 53% to $8.0 million for the year ended
December 31, 1998, compared to $5.2 million for the year ended December 31,
1997. We attribute approximately 35% of our revenue growth to an increase in
the volume of services delivered to new clients and approximately 65% from
additional projects for existing clients. In 1998, our five largest clients
accounted for approximately 85% of our revenues. In 1997, our five largest
clients accounted for approximately 55% of our revenues.
Project Personnel Expenses. Project personnel expenses increased by
$122,000, or 5%, to $2.8 million for the year ended December 31, 1998, from
$2.7 million for the year ended December 31, 1997. The increase was
attributable to the hiring of additional project personnel during the second
half of 1998. As a percentage of revenues, project personnel expenses declined
to 35% for the year ended December 31, 1998, compared to 51% for the year ended
December 31, 1997. The decrease in project personnel expenses in 1998 as a
percentage of revenue was a result of the deferral of headcount reporting
through the first half of 1998, resulting in a slower growth of expenses
relative to the growth in revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$167,000, or 10%, to $1.8 million for the year ended December 31, 1998, from
$1.7 million for the year ended December 31, 1997. The increase in these
expenses was primarily attributable to the hiring of business development and
marketing personnel, increased public relations activities and the
implementation of new and continuation of our existing marketing programs.
Headcount for sales and marketing personnel increased to eight at December 31,
1998, from five at December 31, 1997. As a percentage of revenues, sales and
marketing expenses were 23% for the year ended December 31, 1998, and 32% for
the year ended December 31, 1997.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 31%, to $4.5 million for the year ended December 31,
1998, from $3.5 million for the year ended December 31, 1997. The increase was
primarily attributable to expenses incurred to accommodate our current and
anticipated growth, including the expansion of our office facilities and the
increased cost of management and administrative personnel and other general
operating expenses in the areas of accounting, human resources and general
operations. Office rent expenses increased to $214,000 for the year ended
December 31, 1998, from $157,000 for the year ended December 31, 1997.
Headcount for management and administrative personnel increased to 12 at
December 31, 1998, from six at December 31, 1997. As a percentage of revenues,
general and administrative expenses were 56% for the year ended December 31,
1998, and 67% for the year ended December 31, 1997. Also, reflected in the
results for the quarter ended December 31, 1998, was a reduction in costs
associated with a decrease in hiring activity, an adjustment to the incentive
compensation accrual, based on a revision of management's estimate of the
required level, and savings associated with a reduction in professional
services expenses.
Depreciation. Depreciation increased by $64,000 to $251,000 for the year
ended December 31, 1998, from $187,000 for the year ended December 31, 1997.
The increase was related to increased investments in furniture and equipment.
Amortization of Deferred Stock-based Compensation. We recorded $50,000 in
amortization of deferred stock-based compensation expense for the year ended
December 31, 1998. This expense represented the amortization of the difference
between the deemed fair value of the underlying options at the date of grant
and their exercise price.
Non-Recurring Expenses on Closing of Foreign Operations. In November 1998,
we announced our intention to close our operations in Malaysia. In conjunction
with this announcement, we recorded a reserve of
21
<PAGE>
$250,000 for anticipated liquidation costs of our Malaysian subsidiary. This
amount consisted of $157,000 for the write-down from the liquidation of the
assets, $47,000 for remaining trade obligations and $46,000 for legal and other
professional services to be provided during the liquidation process. Operations
ceased during 1998, and all employee severance related costs were incurred
prior to December 31, 1998. During 1999, the liquidation of the assets and
settlement of the obligations was completed. As of December 31, 1999, $41,000
remains accrued to cover a pending claim from a former customer of the
Malaysian subsidiary. We anticipate that this claim will be settled during
2000.
Other Income (Expense), Net. Other income increased by $115,000 to $36,000
for the year ended December 31, 1998, from an expense of $79,000 for the year
ended December 31, 1997. The increase was primarily attributable to increased
interest income and a decrease in interest expense related to borrowings under
our revolving line of credit and capital lease obligations. Interest expense
was $56,000 for the year ended December 31, 1998, and $83,000 for the year
ended December 31, 1997.
Income Tax Expense. We incurred a $2,000 income tax expense for the year
ended December 31, 1998, as compared with $90,000 for the year ended December
31, 1997. As of December 31, 1998, we had approximately $3.0 million of federal
net operating loss carryforwards and $2.0 million of state net operating loss
carryforwards available to offset future taxable income.
22
<PAGE>
Quarterly Operating Results
The following table sets forth a summary of our unaudited quarterly
consolidated operating results for each of our eight most recently ended fiscal
quarters. We have derived this information from our unaudited quarterly
financial statements, which in our opinion, have been prepared on a basis
consistent with our audited consolidated financial statements contained
elsewhere in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation in accordance
with generally accepted accounting principles when read in conjunction with our
consolidated financial statements and the related notes included elsewhere in
this prospectus. Our quarterly consolidated operating results are not
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $1,681 $2,040 $2,280 $2,015 $ 1,818 $ 1,907 $ 4,199 $ 5,596
Operating expenses:
Project personnel...... 611 655 739 794 1,168 1,561 2,531 3,350
Sales and marketing.... 425 575 518 320 798 706 1,056 1,670
General and
administrative........ 1,134 1,212 1,266 907 1,380 2,001 2,346 3,707
Depreciation........... 52 59 63 78 84 118 164 196
Amortization of
deferred stock-based
compensation.......... -- -- -- 50 179 225 432 754
Non-recurring expense
on closing of foreign
operations............ -- -- -- 250 -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 2,222 2,501 2,586 2,399 3,609 4,611 6,529 9,677
------ ------ ------ ------ ------- ------- ------- -------
Loss from operations.... (541) (461) (306) (384) (1,791) (2,704) (2,330) (4,081)
Other income (expense),
net.................... (15) 4 21 26 17 (7) 4 (19)
------ ------ ------ ------ ------- ------- ------- -------
Loss before income
taxes.................. (556) (457) (285) (358) (1,774) (2,711) (2,326) (4,100)
Income tax expense...... -- -- -- (2) (5) (5) (5) --
------ ------ ------ ------ ------- ------- ------- -------
Net loss................ $ (556) $ (457) $ (285) $ (360) $(1,779) $(2,716) $(2,331) $(4,100)
====== ====== ====== ====== ======= ======= ======= =======
As a Percentage of
Revenue:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Project personnel...... 36 32 32 40 64 82 60 60
Sales and marketing.... 25 28 23 16 44 37 25 30
General and
administrative........ 68 59 56 45 76 105 56 66
Depreciation........... 3 3 3 4 5 6 4 3
Amortization of
deferred stock-based
compensation.......... -- -- -- 2 10 12 10 13
Non-recurring expense
on closing of foreign
operations............ -- -- -- 12 -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 132 122 114 119 199 242 155 172
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations............. (32) (22) (14) (19) (99) (142) (55) (72)
Other income (expense),
net.................... (1) -- 1 1 1 -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
income taxes .......... (33) (22) (13) (18) (98) (142) (55) (72)
Income tax benefit
(expense).............. -- -- -- -- -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....... (33)% (22)% (13)% (18)% (98)% (142)% (55)% (72)%
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
23
<PAGE>
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily from sales of
preferred stock and borrowings under a line of credit and a term loan from a
commercial bank. As of December 31, 1999, we have raised approximately $17.7
million, net of offering expenses, $13.7 million through the sale of our
preferred stock and $4.0 million from a term loan. At December 31, 1999, we had
approximately $3.2 million in cash and cash equivalents.
Net cash used in operating activities was $2.2 million for the year ended
December 31, 1997, $340,000 for the year ended December 31, 1998, and $8.7
million for the year ended December 31, 1999. Cash used in operating activities
in each of these periods was primarily the result of net losses, adjusted for
non-cash items primarily related to depreciation, increases in accounts
receivable and fees and unbilled revenues resulting from increased sales
revenue in the fourth quarter, partially offset by increases in accounts
payable and accrued expenses resulting from increased operating expenses
associated with the sales revenue growth. The effect of the losses during 1999
resulted in negative working capital of $1.9 million for the period ending
December 31, 1999, versus positive working capital of $429,000 and $3.8
million, respectively, for the periods ending December 31, 1997, and December
31, 1998.
Net cash used in investing activities was $50,000 for the year ended
December 31, 1997, $460,000 for the year ended December 31, 1998, and $1.3
million for the year ended December 31, 1999. Cash used in investing activities
in each period consisted primarily of purchases of furniture and equipment.
Net cash provided by financing activities was $2.9 million for the year
ended December 31, 1997, $4.9 million for the year ended December 31, 1998, and
$8.4 million for the year ended December 31, 1999. In 1997 and 1998, the cash
provided by our financing activities was primarily from the sale of our
preferred stock. For the year ended December 31, 1999, the cash provided from
our financing activities was primarily from the sale of our preferred stock and
borrowings under a term loan and equipment leases.
As of December 31, 1999, our principal commitments consisted of obligations
under equipment leases that funded our purchases of furniture and equipment and
proceeds from a term loan. The equipment leasing arrangements consist primarily
of us paying rental fees to third-party leasing providers at interest rates
between 11.00% and 13.00%. Borrowings under the term loan bear interest at the
prime rate plus 2.00% (10.75% currently), with accrued interest paid monthly,
and are due at November 30, 2000. As of December 31, 1999, we borrowed $4.0
million, the entire amount available under the term loan. We have $2.0 million
available under a revolving line of credit. Borrowing under the line of credit
is limited to the lesser of 80% of the amount of the eligible accounts
receivable or $2.0 million and bears interest at the prime rate plus 2.00%
(10.75% currently). We have never borrowed under the line of credit. Although
we have no material commitments for capital expenditures, we anticipate an
increase in our capital expenditures consistent with anticipated growth in our
operations, infrastructure and personnel.
Subsequent to December 31, 1999, we issued 3,000,000 shares of series D
preferred stock in a private placement for gross proceeds of approximately
$22.2 million. In February 2000, we entered into two letters of credit for
approximately $2.8 million and $198,000 to secure lease deposits to expand into
two new office facilities. These letters of credit expire in February 2001, and
are secured by certificates of deposit in the same amounts.
We believe that the net proceeds from this offering, combined with the
proceeds of the series D private placement, the proceeds of the private
placement to be closed contemporaneously with this offering, current cash
balances and borrowing capacity under our credit facilities will be sufficient
to fund our requirements for working capital and capital expenditures for at
least the next twelve months. Thereafter, we may sell additional equity or debt
securities or seek additional credit facilities. Sales of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. We may need to raise additional funds sooner in order to support
expansion, develop new or enhanced services, respond to competitive pressures,
acquire complementary businesses or technologies or take advantage of
unanticipated opportunities. Our future liquidity and capital requirements will
depend upon numerous factors, including the success of our existing and new
24
<PAGE>
service offerings and competing technological and market developments.
Additional financing, if any, may not be available on satisfactory terms.
Disclosure About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
available funds for investment and on the increase or decrease in the amount of
interest expense we must pay with respect to our various outstanding debt
instruments. The risk associated with fluctuating interest expense is limited,
however, to the exposure related to those debt instruments and credit
facilities that are tied to variable market rates. We do not plan to use
derivative financial instruments in our investment portfolio. We plan to ensure
the safety and preservation of our invested principal funds by limiting default
risks, market risk and reinvestment risk. We plan to mitigate default risk by
investing in high-credit quality securities.
All of our revenues are realized currently in U.S. dollars and are from
customers primarily in the United States. Therefore, we do not believe that we
currently have any significant direct foreign currency exchange rate risk.
25
<PAGE>
BUSINESS
Overview
We are a leading Internet professional services firm providing strategy,
technology, implementation and support services solutions to large corporations
and emerging Internet businesses that engage in e-commerce with other
businesses. We focus on helping our clients conceive and implement e-markets
and electronic customer relationship management systems. E-markets are
electronic marketplaces that enable businesses to collaborate with trading
partners, conduct e-commerce, manage distribution relationships and enhance
business partnerships. Electronic customer relationship management is an
Internet-based approach to coordinating a company's customer relationships
across communications channels, business functions and trading partners.
We believe our capabilities are well-suited to developing the extremely
complex, highly integrated systems required for effective business-to-business
e-commerce solutions. Our professionals create scalable, reliable and
integrated business systems using our proprietary LightSpeed delivery model and
i2K architectural framework. We provide our services through our staff of 168
professionals, who have an average of ten years experience in business process
analysis, technology architecture, project management and software engineering.
Industry Background
The Internet enables millions of businesses and consumers to share
information and conduct commerce electronically. Businesses initially used
their Internet sites primarily for advertising and promotional purposes. As
Internet usage increased, businesses realized the Internet could also be used
as an effective medium for directly targeting consumers, improving
communications with customers and generating business-to-consumer e-commerce
transactions. Forrester Research, Inc. estimates that the total value of goods
exchanged in the United States business-to-consumer e-commerce market will
exceed $100 billion by 2003. Driven by the scale and scope of this rapidly
emerging business opportunity, businesses began to develop increasingly
complex, higher transaction volume consumer-oriented websites.
While business-to-consumer e-commerce was evolving, companies also began to
use Internet technology to streamline their internal operations and
electronically integrate select internal processes with other businesses,
including their suppliers, distributors and key business customers. Today,
businesses are using Internet technologies to improve their competitive
positions by increasing operating efficiencies, strengthening their trading
partner relationships and identifying and capitalizing on emerging business
opportunities by developing various Internet-based business models. Forrester
Research, Inc. estimates that the total value of goods exchanged in the United
States business-to-business e-commerce market will increase from $43.1 billion
in 1998 to $2.7 trillion in 2004, representing a 99% six-year compound annual
growth rate.
An important emerging Internet-based business model is the electronic
market. Electronic markets provide Internet-based trading hubs where multiple
buyers and sellers communicate and conduct electronic commerce. The creation of
these e-markets enables innovative methods for trading between business
partners, including auctions, reverse auctions, aggregation, inventory
liquidation and on-line negotiation. These electronic markets provide
unprecedented global opportunities for businesses to exchange information and
execute transactions with the efficiency, cost effectiveness and global reach
provided by Internet technologies, while supporting individual contractual
relationships between trading partners. Examples of these e-markets include
autoExchange.com, ePolicy.com, Pure Markets, tradepac.com and VerticalNet.
Businesses are rapidly developing e-markets and other business-to-business
e-commerce systems in order to fully realize the market opportunity. Business-
to-business e-commerce systems are engineered to facilitate:
. significant increases in the value and complexity of data and
transactions processed
. improved performance and response times to support real-time access by
trading partners from a variety of technology platforms
26
<PAGE>
. improved reliability, accuracy and security for transactions
. high degrees of integration between legacy applications, networks and
technology platforms within a company as well as across diverse
businesses
. the execution of a broad variety of processes and payment methods that
exist between trading partners
These business-to-business systems are highly complex and often involve a
greater number of steps per transaction and more processes than business-to-
consumer systems, creating a longer, more intricate commerce chain and
resulting in a more complex delivery infrastructure. Some of the typical
differences between business-to-consumer and business-to-business e-commerce
are highlighted below:
<TABLE>
<CAPTION>
Characteristic Business-to-Consumer Business-to-Business
-------------- ---------------------------- -------------------------------------
<S> <C> <C>
Users and
Participants .One-to-many .Many-to-many
.Individuals .Fragmented buyers, suppliers,
partners and distributors
- -------------------------------------------------------------------------------------
Products and
Services .Standardized, mass market .Higher degrees of customization
.Convenient .Complex configuration
.Price points: $100s-$1000s .Price points: $1000s-millions
.Mission critical
.Highly time-sensitive
- -------------------------------------------------------------------------------------
Delivery and
Fulfillment .Credit card payment .Credit/financing key issues
.Straightforward fulfillment .Intricate synchronization
.Multi-stage shipping
.Customs, tariffs and inspections
- -------------------------------------------------------------------------------------
Infrastructure .Supplier-side systems only .Real-time, customized front-end
.Tight back-office integration
.Security and bandwidth for heavy
volumes
- -------------------------------------------------------------------------------------
Outcome
Objective .Building brand .Enabling commerce between businesses
</TABLE>
Developing and supporting business-to-business e-commerce systems requires
substantial expertise in designing new business processes that integrate with
existing operations, selecting and implementing the appropriate Internet
technologies and managing the implementation process to meet the time-to-market
needs characteristic of today's competitive business environment. There is a
limited supply of high-quality, experienced Internet services professionals,
and demand for these professionals is increasing rapidly. This makes it
increasingly difficult for companies seeking to internally implement business-
to-business e-commerce solutions to hire, develop and retain these
professionals. As a result, an increasing number of businesses, from start-ups
to Fortune 1000 companies, engage third-party Internet professional services
firms to help them design and implement business-to-business e-commerce
systems.
The demand for these and related Internet and e-commerce services is
projected to grow dramatically. International Data Corporation estimates that
this market will grow from approximately $7.8 billion in 1998 to $78.6 billion
in 2003, representing a 59% compound annual growth rate.
27
<PAGE>
We believe there are only a few Internet professional services firms with an
exclusive focus on business-to-business e-commerce engagements. Additionally,
we believe that in order to be successful in this market, Internet professional
services firms must possess an integrated model of business-to-business-
oriented process analysis, substantial software engineering expertise, strong
technology architecture and integration skills, and effective client and
project management capabilities.
Our Solution
We are a leading Internet professional services firm. We provide business-
to-business e-commerce systems solutions to large corporations and emerging
Internet businesses and focus on building and supporting complex e-markets and
electronic customer relationship management solutions.
The key elements of our solution are:
Early and Exclusive Business-to-Business e-Commerce Focus. We have delivered
business-to-business software applications for our clients since 1995. We
provide our services through teams of talented professionals with extensive
experience in business process analysis, project management and software
engineering. We believe our early vision and business-to-business experience
enables us to rapidly and efficiently architect and implement Internet
solutions.
Proprietary LightSpeed Delivery Model. LightSpeed, our proprietary
collection of operating principles, methods and frameworks, is an Internet-
based model for governing the way we interact with our clients, including how
we define, price, staff and manage our projects. We believe the successful
application of LightSpeed in our engagements enables us to more accurately
forecast project schedules and costs. LightSpeed also allows us to better
manage project risk and to identify, capture and reuse valuable Internet
frameworks, designs, processes and techniques that we have developed while
working on prior engagements.
Proprietary i2K Architectural Model. i2K is a collection of principles,
methods and frameworks we have created to guide development of complex
e-commerce systems. Using i2K we help our clients to develop e-markets and
electronic customer relationship management systems that leverage and integrate
information between their Internet-based and legacy systems and those of their
trading partners. We believe the successful design and implementation of
projects using our i2K model result in secure, reliable systems and a highly
extendable architectural platform.
Packaging of Services. Based on our extensive experience in business-to-
business e-markets and electronic customer relationship management solutions,
we have developed modular solutions tailored for discrete business processes.
Our packaged service offerings are comprised of three major elements: pre-
defined business functions, proven business practices and pre-defined
technology architecture. We believe packaging our services in this manner
reduces our project risk, increases our operating margins, improves our sales
force's productivity, speeds time-to-market for our clients and differentiates
us from our competition.
Integrated End-to-End Implementation Capabilities. We believe we provide the
complete range of capabilities required to deliver comprehensive business-to-
business e-commerce solutions to our clients. Our core competencies range from
business process analysis and technology architecture to Internet application
development and post-launch managed web services.
We believe our breadth of capabilities enable us to engineer and deliver
complete electronic markets and electronic customer relationship management
solutions for a fixed price and within fixed timeframes.
Knowledge Management and Transfer. We collect, store and organize
information we acquire from interaction with our clients in order to enhance
our existing base of technology and business process expertise. Inside Inventa,
our corporate intranet, is a secure integrated knowledge management repository
that facilitates the dissemination of this intellectual capital across our
organization. We believe this expanding base of readily accessible knowledge
enables us to meet our clients' ever-increasing expectations for our
performance,
28
<PAGE>
improves our ability to forecast the estimated time and resources required to
complete our client engagements and, together with Inside Inventa, increases
the reusability of our intellectual capital, thereby reducing risks to us and
our clients.
In addition, eTrack, our internal Internet-based project management system,
enables us to capture, monitor and manage information for:
. project scheduling
. project status review
. document and deliverable distribution to our professionals and our
clients
. detailed information on the resources required to achieve specific tasks
on a project
Our Strategy
Our objective is to enhance our position and reputation as a leading
provider of Internet professional services in the context of business-to-
business e-commerce. The key elements of our growth strategy are to:
Maintain Our Exclusive Business-to-Business e-Commerce Focus. We intend to
maintain our exclusive focus on business-to-business e-commerce. We believe
this segment of the market is the most strategic to our clients, is the fastest
growing segment of the e-commerce market and is best aligned with our core
competencies. Currently, we target two major business-to-business e-commerce
practice areas:
. e-markets, where we engineer and support business-to-business electronic
markets that facilitate the timely exchange of information and goods
between trading partners
. electronic customer relationship management, where we deliver solutions
for a broad range of business-to-business customer interaction processes,
including sales, marketing and customer support
We also intend to expand our service offerings by developing additional
practices to cover the full range of business-to-business e-commerce processes
and relationships in which our clients and prospective clients are likely to
engage, including electronic partner relationship management and electronic
supply chain management.
Maintain Our Technology Leadership. We believe that our clients choose to
work with us because of our reputation for technology leadership and for
successfully solving some of the most challenging business-to-business e-
commerce problems with leading-edge Internet technologies. We believe working
on complex assignments will make us more attractive to high-quality
professionals, who enlarge our technology skill set and knowledge base. We
intend to maintain our technology leadership by:
. pursuing complex engagements that allow us to refine and advance our
business-to-business e-commerce capabilities
. researching emerging technologies for their relevance and applicability
to our clients' business strategies
. refining and enhancing our proprietary i2K architectural model to take
advantage of advances in Internet technology
. deepening our current partner relationships and establishing new
partnerships to maintain our status as an early adopter of emerging
technologies and skill sets
. enhancing our knowledge management infrastructure to improve the breadth,
depth and quality of access to technology-related information by our
professionals
Continue to Package Our Services. We intend to continue to package our
services. We believe packaging our services:
. permits faster and more predictable project implementations resulting in
higher operating margins
29
<PAGE>
. facilitates marketing our services and solutions to prospective clients
. demonstrates our thought leadership and competencies
. improves training for our professional staff and increases sales force
productivity
. differentiates us from our competitors
We intend to expand our packaged service offerings beyond our current eSales
and eCare products by leveraging knowledge and experience from our engagements,
continuing to refine and enhance our LightSpeed delivery model and identifying
and establishing the partner relationships relevant to effective packaging of
our services.
Recruit and Retain Highly-Skilled Professionals. We intend to continue to
hire, train and retain individuals who are highly skilled in the engineering of
complex Internet systems and business processes . To provide an environment
conducive to recruitment and retention, we have created a corporate culture
that emphasizes balance between one's professional and personal life,
challenging work assignments, broad equity ownership, promotion from within,
opportunities for advanced training and direct involvement in growing our
business.
Further, we have designed our LightSpeed delivery model to be a key employee
recruiting and retention tool by:
. encouraging direct client contact at all levels of our project teams
. basing our teams at our facilities to reduce professionals' travel time
. conducting our engagements using small, highly-specialized project teams
We will continue to expand our in-house recruiting staff and to invest in
initiatives focused on direct and Internet-based recruitment, employee referral
programs and on-campus recruiting. In addition, we intend to expand the
geographic reach of our recruitment efforts and to advertise and promote our
brand to generate awareness of our company among potential employees in
relevant markets.
Expand Existing and Establish New Client Relationships. We believe our track
record of successful engagements has resulted in strong relationships with our
clients. As a result, our clients often request that we expand the scope and
complexity of our engagements. This reinforces our growing reputation as an
innovative provider of business-to-business e-commerce solutions. We intend to
leverage our reputation for client satisfaction and innovation to attract new
engagements with our existing clients and to capture new clients through
referral-driven sales.
In addition, we intend to engage new clients by continuing to:
. expand our direct sales force in our current geographic markets
. invest in promotional activities designed to improve brand awareness and
provide sales leads
. establish new strategic business and technology alliances
. expand geographically, both within the United States and internationally
Our Services
We have developed a broad range of capabilities in designing and
implementing business-to-business e-commerce systems and applications for our
clients, from integrating demand-side Internet applications with front- and
back-office systems to supply-side Internet applications for servicing trading
partners. Our capabilities include:
. competitive assessment of our clients' Internet strategies and
capabilities
30
<PAGE>
. business process analysis
. application portfolio definition and functionality prioritization
. requirements definition and concept prototyping
. technology architecture design and engineering
. custom Internet application development
. e-commerce software implementation
. systems integration
. enterprise application integration (within and between businesses)
. applications management and enhancement
. service productization
We leverage these skill sets and our substantial expertise in two major
business-to-business e-commerce practice areas, e-markets and electronic
customer relationship management, as described below:
Electronic Markets. We engineer and support business-to-business
marketplaces that are highly scalable and extendable to accommodate the rapid
growth that well-designed and well-marketed business-to-business systems are
likely to experience.
Electronic Customer Relationship Management. We design and engineer
Internet-based systems and applications for a broad range of business-to-
business customer interaction processes, including sales, marketing, customer
support, distribution and fulfillment.
These service offerings are comprehensive, scalable, extendable and secure,
thereby helping our clients ensure the quality and integrity of their
relationships with their business customers and other trading partners.
Although each of our solutions is uniquely engineered and customized to meet
the expectations of each of our clients, we design them using standard Internet
technologies and commercially available software to accelerate project delivery
and ease system maintenance.
We deliver our solutions using the following service models:
LightSpeed Delivery Model. LightSpeed is our proprietary Internet-based
model for governing the way we deliver solutions to our clients. Using
LightSpeed, we usually complete entire projects for our clients in five to six
months.
31
<PAGE>
LightSpeed is composed of four distinct stages:
<TABLE>
<C> <S>
Innovate Our professionals work closely with our clients' senior
executives to conduct a strategic assessment of their
competitive positioning in the Internet marketplace and
create a business and technology roadmap for the development
of a business-to-business solution. We then arrive at a
shared vision of our clients' business-to-business
initiative and explore potential software applications,
identify architectural issues and highlight potential
obstacles to success. Finally, we deliver an agreed-upon
business-to-business e-commerce roadmap for the development
of a solution.
- -------------------------------------------------------------------------------
Blueprint We work with our clients to define and prioritize the scope,
functionality and business processes for their projects.
Using intensive workshops, storyboarding and prototyping
techniques, we deliver functional requirements, an
application prototype, architecture and technology
recommendations and a detailed plan for the LightSpeed
Create and Launch stage.
- -------------------------------------------------------------------------------
Create and Launch We develop a detailed engineering design and create a
comprehensive quality assurance plan. We then implement our
solution in a series of progressively more functional
releases. With this approach, we deliver a production-
quality release with meaningful, business-relevant
functionality usually within ten weeks. The entire Create
and Launch stage typically takes between 16 and 24 weeks and
may include two or three releases.
- -------------------------------------------------------------------------------
Enhance We help our clients evaluate an individual project's success
before embarking on the next project or major phase. We
refine our most recent implementation and enhance the
application in response to changes in user requirements. We
also offer our clients opportunities to expand their
implementations with application enhancement and database
consulting services.
</TABLE>
i2K Architectural Model. i2K is our proprietary collection of principles,
methods and frameworks for business-to-business e-commerce solutions. It
provides a schematic for developing electronic markets and electronic customer
relationship management systems that are scalable, adaptable, integrated with
our clients' Internet-based and legacy systems and extendable outside their
enterprises to their trading partners' systems. We believe each of our clients'
competitive advantage is directly related to how quickly and how well they
leverage and integrate information within their Internet-based and legacy
systems and those of their trading partners. Accessing and combining this
information in meaningful ways is essential to leveraging the potential of the
Internet.
Packaged Service Offerings. We have combined our LightSpeed delivery model,
our i2K architectural model, commercially available software and the collective
knowledge of our professionals into packaged service offerings for specific
business processes. We currently have targeted two critical business processes
with these Internet offerings, sales through our eSales offering and customer
care through our eCare offering. With eSales and eCare, we can quickly assess
and analyze our clients' businesses and recommend a portfolio of applications,
develop an implementation strategy, define system requirements, design the
technology architecture, and then prototype, engineer and enhance the
solutions. Using eSales and eCare, we can rapidly deliver what we have
determined to be the most common functionality for business-to-business
customer relationship management processes.
Upon implementation of eSales or eCare, our clients' and their trading
partners' sales or customer service representatives have access to a broad
variety of capabilities to facilitate interaction with, and satisfy the needs
of, their business customers. Some of the more common functionalities include:
. customer profiling
. sales or customer service workflow or process management
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<PAGE>
. sales or customer service case management
. custom database-driven views of customers, products, suppliers and orders
. e-mail messaging
. sales and customer care management reporting
. integration with call center operations
eSales enables our clients to generate revenue through Internet-based sales
channels; satisfy and retain customers through online order and sales
management; and streamline the purchasing process for their business
customers.
eCare enables our clients to ensure consistent, high-quality customer
interaction; retain customers through personalized and responsive service;
reduce overhead and call center volume; and capture customer data.
Clients
The following is a list of our clients that generated more than $100,000 in
services revenue during 1999:
ADP GoTo.com
Amkor Technology Pure Markets
Cadence Design Systems Shaman Botanicals.com
Citigroup Siemens
Crane Co. SMART Modular Technologies
ePolicy.com Sun Microsystems
Fujitsu tradepac.com
In 1999, our five largest clients represented 75% of our revenues,
including ADP and ePolicy.com, each of which represented more than 10% of our
revenues.
In addition, we began engagements for the following additional clients
since the beginning of the fourth quarter of 1999:
Charles Schwab & Co., Inc.
Portera Systems
Grainger.com (a subsidiary of W.W. Grainger, Inc.)
Utility.com, Inc.
Moai Technologies, Inc.
Vastera Inc.
33
<PAGE>
Case Studies
<TABLE>
<C> <S>
The Problem
ADP ADP recognized an opportunity to enhance and extend its service offerings
to small business customers after seeing an increasing number of small
businesses obtaining Internet access. In addition, their market was
changing as new competitors arrived with other offerings. In order for
ADP to compete, sustain its leadership position and protect its brand, it
needed to deliver a digital offering for its customers. ADP believed the
new offering should provide its customers a payroll choice model, improve
the level and quality of customer service, and increase customer
convenience and control. ADP required that the system provide unlimited
access to its customers for entering payroll data and reduce the number
of errors entered into payroll databases. Bringing the service to market
quickly was critical, as was seamless integration with legacy payroll
systems, application of complex payroll and taxation issues and security.
- -------------------------------------------------------------------------------
Our Solution: Electronic Customer Relationship Management System
Our solution, EasyPayNet, is an easy to use, fully functional Web-based
payroll system that accesses ADP's wide range of services, including
federal, state and local tax filing, direct deposit and 401(k) services.
Moreover, access is available 24 hours a day, seven days a week through a
secure global network. In the Innovate stage, our business analysts
identified and prioritized the functional requirements for providing
payroll services over the Internet to ADP customers. We provided ADP with
insights and options on how to leverage Internet technologies to provide
functionality to their customers that it could not with its existing
systems. We prioritized the resulting functionality for progressive
releases of the solution and described the expected customer experience
in each on of these releases. In the Blueprint stage, our architects
defined the requirements for the first release, identified and selected
the architectural and technology components and developed an application
prototype. We selected Oracle's Relational DBMS as the database on NT
servers, integrated with legacy data from an IBM AS/-400 using Oracle
replication services. We created custom application services adapters for
replication from the AS/-400 platform. We then selected Active Software's
ActiveWeb technology on a Microsoft IIS WebServer for application
services. We created a user experience base using a combination of custom
HTML and Java Servelets. In the Create and Launch stage, we completed the
technical design of the application and data models and identified legacy
system integration requirements. We developed, tested and deployed the
first release of the application and then delivered a production support
environment that includes application support and maintenance services.
Since the first release, we have implemented incremental enhancements,
installing changes based on customer feedback. In addition, we have
improved the level and quality of the infrastructure, optimized
application performance and created a framework for enabling the
integration of ADP's trading partners. The project was delivered in time
to meet ADP's expectations for sustaining its competitive position and
expanding its offerings via a digital channel.
- -------------------------------------------------------------------------------
The Benefits
The increased flexibility that EasyPayNet provides meets the unique needs
of ADP's small business customers and increases ADP's competitiveness by
streamlining operations on the Internet. In addition to satisfying its
current customers, ADP is selling the service to a new market of
customers it could not previously serve. As a by-product of the solution,
ADP re-evaluated all its existing business processes and expects to
derive infrastructure efficiencies.
</TABLE>
34
<PAGE>
<TABLE>
<C> <S>
The Problem
Cadence Design Cadence Design Systems is the leading vendor of engineering
Systems design software. Their Customer Support organization
realized they lacked value-added support services for their
clients, a result of their inability to access an
enterprise-wide profile of important customer information.
Cadence needed an effective, seamless and transparent
integration of key supply chain databases. Cadence wanted a
single system to provide all the services they required.
They wanted to leverage their nonintegrated legacy
information sources, rather than engineer a completely new
solution.
- -------------------------------------------------------------------------------
Our Solution: Electronic Customer Relationship Management
System
Our Innovate stage with Cadence enabled evaluation of the
strengths and weaknesses of its existing service model and
resulted in an initial architecture that met expectations
for integration of the heterogeneous legacy systems. In our
Blueprint Stage, our architects developed requirements for a
global customer entitlement system and the framework for
data mining, extracting and integrating from the legacy
customer service systems. Cadence was presented a discovery
document with implementation and architectural roadmaps and
a functionality prioritization matrix. In our Create and
Launch Stage, our engineers developed the global customer
entitlement system using NetDynamics Application Server as
the core, Oracle as the back-end database server, Sun
Solaris as the implementation platform and completely
customized the integration solution in HTML and Java. The
application also used Oracle's Data Replication services.
Our engineers developed several adapters to integrate
Cadence's legacy systems, with order processing
applications, the Scopus Call Tracking System and their
online technical support system. The entire project was
completed in sixteen weeks.
- -------------------------------------------------------------------------------
The Benefits
The system now presents a global and accurate view of
customer service entitlements by customer and product.
Customer Service representatives are making better decisions
and customers are experiencing less frustration. Cadence
</TABLE> expects additional revenue to reduce its case and experience
cost savings of approximately $720,000 annually.
35
<PAGE>
<TABLE>
<C> <S>
The Problem
EPolicy.com Cal-Surance, Inc., a leading insurance broker based in Southern
California, wanted to find a more effective and efficient way to
sell and service commercial insurance for small businesses and
professionals.
- -------------------------------------------------------------------------------
Our Solution: Electronic Market
In our Innovate Stage, our analysts developed an Internet
strategy, competitive analysis and solution portfolio for Cal-
Surance. Our business analysts identified that the opportunity
space for real-time online quoting and purchasing of insurance
was tightly connected to the concept of progressive disclosure of
information and the simplification of the quoting process. In our
Blueprint Stage, our architects prioritized the application
portfolio into three distinct development phases: customer,
partner and internal interaction. Our engineers also designed the
application framework: Microsoft Commerce Server on NT for the
core, Oracle for the back-end database server, Sun Solaris for
the application platform, TideStone's NT spreadsheet/matrix
quoting engine, Active Server Pages for the presentation layer,
Microsoft COM for back-end integration, CyberSource for debit and
credit card payments and custom engineered adapters for legacy
claims systems. Our architects proceeded to complete the customer
facing system blueprint phase in three weeks, producing a
functional requirements document, concept prototype, detailed
project plan and a fixed-price, fixed-time guaranteed proposal.
In our Create and Launch Stage, our engineers were required to
perform significant customization on the components in order to
meet the specifications and requirements defined in the
blueprint. Two releases covered the seven life cycle customer
states: prospecting, buying, insured, renewing, maintaining,
canceling and formerly insured. The site's functionality was
defined in three weeks. In three months, the first release was
uploaded for testing and review, and the second release followed
six weeks later.
- -------------------------------------------------------------------------------
The Benefits
Our solution enables the offering of a broader set of products
through a new digital channel. The electronic market was
eventually spun off into a new company, ePolicy.com, a business-
to-business Internet company that is creating a new way for
</TABLE> professionals and small business to purchase insurance.
36
<PAGE>
<TABLE>
<C> <S>
The Problem
Pure Markets The equipment leasing industry has multiple layers of
intermediaries and complex product offerings, creating an
inefficient market. This inefficiency results in lost
opportunities and higher costs. Pure Markets wanted to
create an electronic market to enable lessees and lessors to
conduct leasing transactions more efficiently and
effectively.
- -------------------------------------------------------------------------------
Our Solution: Electronic Market
Their electronic market, Pure Markets.com, empowers lessees
to easily and quickly structure their lease finance request,
to solicit bids from a greater number of lessors and to
identify and select the optimal bid (on features and cost)
through PureMarket's intelligent bid comparator. Lessors
benefit by expanding the breadth of their market, being able
to target transactions attractive to them, reducing
origination costs, and increasing the share of leasing as a
finance option. In the Innovate stage, we defined the
technical capability needed to transform Pure Markets'
vision into a business reality. We helped Pure Markets
define its requirements and presented it with an
implementable technology architecture. In the Blueprint
Stage, we conducted extensive interviews with Pure Markets'
employees to define and document the variety of leasing
structures our solution would have to accommodate, and to
develop processes, user interface, application functionality
and data management services that comprised the leasing
electronic market. This stage required substantial
interaction between our project team and Pure Markets'
representatives due to the complexity of the user
interfaces. At the conclusion of the Blueprint Stage, we
delivered a comprehensive functional specification, a
functionality prioritization matrix and a schedule for
release delivery. In the Create and Launch stage, we used
Oracle as the database system on a Sun Solaris platform,
ColdFusion as the application server on an NT platform and
completed the presentation layer in a combination of HTML,
Java and ColdFusion applets. Our rapid and thorough
Blueprint Stage greatly facilitated Pure Markets'
development of this highly complex application.
- -------------------------------------------------------------------------------
The Benefits
Pure Markets benefited by being able to achieve a rapid
time-to-market for an electronic market, a new channel that
brings together lessees and lessors on the Internet. Lessees
now have the opportunity to easily request bids from a
larger population of lessors and to compare bids using a
normalizing analytical tool, thereby enabling faster,
</TABLE> simpler and more effective decisions. Lessors have access to
a much larger market, with greater targeting precision and
lower origination costs.
Employees
As of February 29, 2000, we had 245 employees. Of these employees, 168 were
consulting and services delivery professionals, and 77 were personnel
performing marketing, sales, human resources, finance, accounting, legal,
internal information systems and administrative functions, including 11
executives and 20 sales and marketing personnel. None of our employees is
represented by a labor union, and we consider our employee relations to be
excellent.
Competition
The market for Internet professional services is intensely competitive. We
believe the principal competitive factors in our industry are reputation and
client satisfaction, the experience and skill levels of professionals, advanced
technical architecture and project management expertise, ability to predict
project cost and manage resource scheduling and ability to recruit and retain
professionals.
37
<PAGE>
While we primarily use the fixed-price, fixed-time pricing model, most of our
competitors use both fixed-price and time and materials pricing models for
their projects. We are not aware of a trend toward either pricing model.
Our competition falls into the following categories:
. Internet professional services firms (such as Lante, Proxicom, Sapient,
Scient, US Interactive and Viant)
. information technology consulting and systems integration firms (such as
Andersen Consulting, Cambridge Technology Partners and EDS)
. services divisions of computer hardware and software vendors (such as IBM
and Oracle)
. web design firms (such as Modem Media. Poppe Tyson and Razorfish)
. information technology strategy consulting firms (such as @McKinsey,
Diamond Technology Partners and Mainspring)
. in-house information technology departments of our current and potential
clients
Future competitors may offer services that provide significant performance,
price, creative or other advantages over those offered by us. Therefore, we
expect to face additional competition from new competitors.
Alliances
We leverage our marketing and sales efforts through alliances with a number
of vendors of Internet technology. Our partners include Active Software, Art
Technology Group, BroadVision, Exodus Communications, Extricity Software,
Hewlett-Packard, Microsoft, Moai Technologies, Selectica, Silknet Software,
webMethods and Vitria. These partners may recommend our services to their
clients, provide us sales leads, deliver training for our professionals and
enable us to obtain advance access to their technologies.
Sales and Marketing
Our sales efforts are targeted at corporate clients who are investing
significant resources in their business-to-business e-commerce strategies. Our
sales force generates leads through a combination of direct mail, targeted
events with industry thought leaders and cooperative marketing with our
alliance partners. We have sales offices in the metropolitan areas of San
Francisco, New York, Chicago and Washington, D.C.
To augment our sales effort we also have a separate marketing department
focused on two key objectives:
. building brand recognition at a national level to drive business growth
and support our recruiting efforts
. developing and cultivating leads for our sales force
To achieve these objectives, we engage in market research, public relations
and advertising, participate in trade shows and conduct seminars. In addition,
we employ a communication strategy based on standards for our logo, corporate
identity, website and marketing materials.
Our most significant recent marketing initiative occurred in January 2000,
when we committed $300,000 to become the leading sponsor of the Inventa
Everest Environmental Expedition. This expedition involves the most
comprehensive clean-up of debris from the high camps of Mount Everest planned
to date.
Intellectual Property Rights
Our proprietary knowledge base and the other intellectual property rights
that we develop for our clients are an integral part of our business. Our
clients generally retain ownership of custom work product and we
38
<PAGE>
retain a royalty-free license to use some or all of the applications, processes
and intellectual property developed in connection with customer projects. This
information is accessible on our knowledge base only to our employees via our
secure corporate intranet.
Development of Our Business
We were incorporated in California in 1988 as Inventa Corporation. From 1988
to 1994, we were a client-server technology-based, system services firm. We
formed our Malaysian subsidiary in 1994 to serve the Asian markets. During
1995, we began to focus on Internet applications for business and in 1996 began
to focus exclusively on Internet business applications. We established our New
York area office in 1997. We decided to close our Malaysian subsidiary in 1998
as a result of the Asian economic crisis, which prevented us from successfully
developing our business in that region. During 1999, we established offices in
the Chicago and Washington, D.C. areas.
Facilities
Our principal executive offices are located in approximately 45,000 square
feet of leased office space in Redwood Shores, California. The lease for this
office space is for a term of seven years and expires in May 2007. We also have
offices in the metropolitan areas of New York, New York, Washington, D.C. and
Chicago, Illinois. We lease all of our facilities and consider these facilities
to be adequate for our needs for the foreseeable future.
Legal Proceedings
We are not a party to any material legal proceedings.
39
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and other key employees are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
------------------------------------ --- -----------------------------------
<C> <C> <S>
Ashok Santhanam..................... 46 Chairman of the Board of Directors
and Founder
David A. Lavanty.................... 39 President, Chief Executive Officer
and Director
Michael B. Shahbazian............... 52 Senior Vice President and Chief
Financial Officer
Richard M. Cerwonka................. 48 Senior Vice President
Carol C. Halliday................... 53 Senior Vice President
Anthony H. Moretto.................. 51 Senior Vice President
Elizabeth Campbell.................. 39 Vice President of Human Resources
Michael Makishima................... 38 Vice President of Finance
Tobias Younis....................... 50 Vice President of Marketing
Robert J. Kudis..................... 34 Vice President and General Manager,
Central Region
Edward F. Leppert................... 39 Vice President and General Manager,
Northeast Region
Srikantan Moorthy................... 37 General Manager, Southeast Region
Michael Bealmear.................... 51 Director
Todd Dagres......................... 39 Director
Robert Ducommun..................... 48 Director
Frank Pinto......................... 46 Director
Jon Q. Reynolds, Jr................. 32 Director
</TABLE>
Ashok Santhanam is our founder and has served as the Chairman of our Board
of Directors since January 1999. From our inception to January 1999, Mr.
Santhanam was our President and Chief Executive Officer. Prior to founding
Inventa, Mr. Santhanam was the founder and President of Ventura Data Systems
Pvt. Ltd., an information technology services firm based in Bangalore, India.
Before establishing Ventura, Mr. Santhanam held various technical and
management positions at Gould Inc., a publicly held technology company,
including Director of Operations in the Recording Systems Division from 1983 to
1986. Mr. Santhanam holds a Bachelor of Technology degree from the Indian
Institute of Technology in Madras, India and an MBA from Harvard Business
School.
David A. Lavanty has served as our President and Chief Executive Officer
since January 1999. From June 1998 to December 1998, he served as Senior Vice
President, Worldwide Consulting for Siebel Systems, Inc., an enterprise
relationship management application software company. From March 1995 to April
1998, Mr. Lavanty held several positions at Sybase, Inc., a software company,
including Vice President and General Manager, Professional Services for the
Americas and Vice President, Southeast and Federal Professional Services. Prior
to Sybase, Mr. Lavanty held positions as Vice President of Consulting Services
at Oracle Corporation, a software company, and Senior Vice President at PRC
Realty Systems, a systems integration company. Mr. Lavanty received a BS from
the University of Akron and an MBA from Marymount University.
Michael B. Shahbazian has served as our Senior Vice President and Chief
Financial Officer since February 2000. From April 1999 to January 2000, he was
Senior Vice President and Chief Financial Officer of Walker Interactive
Systems, Inc., a software applications and services company. From June 1979 to
April 1999, Mr. Shahbazian held a variety of positions with Amdahl Corporation,
a computer hardware and services company, including Vice President and
Treasurer, Director of Business Information Systems, European Director of
Finance and Director of Financial Planning and Analysis. Mr. Shahbazian holds a
BS degree from California State University at Fresno and an MBA from the
University of Southern California.
Richard M. Cerwonka has served as a Senior Vice President since January
2000. From May 1999 to January 2000, he was President and Chief Executive
Officer of XTEND-Tech. From November 1998 to May
40
<PAGE>
1999, Mr. Cerwonka was Area Vice President, Southeast for the Enterprise
Solutions Division of Sybase. From April 1998 to November 1998, he served as
the Area Vice President, Southeast Professional Services for Sybase. From July
1995 to April 1998, Mr. Cerwonka was a Practice Director, Professional Services
for Sybase. From January 1980 to July 1995, he held a variety of positions at
Sea-Land Service, Inc., a global transportation company, including Director of
Equipment Engineering, Director of Information Technology and Director of
Terminal Operations.
Carol C. Halliday has served as a Senior Vice President since January 2000.
From April 1999 to January 2000, she was our Vice President and General Manager
of the Western Region. From October 1991 to April 1999, Ms. Halliday held a
variety of positions at Sybase, including Area Vice President, West
Professional Services, Vice President, Strategic Solutions Division and
Practice Director, Rocky Mountain Professional Services. Prior to Sybase, she
served as Director of Distributed Application Development for Fidelity
Investments, a financial services company.
Anthony H. Moretto has served as a Senior Vice President since April 1999.
From April 1993 to April 1999, Mr. Moretto held a variety of positions at
Sybase, including Vice President and General Manager, Professional Services,
Area Vice President, Southeast Professional Services and Practice Manager,
Professional Services. Prior to Sybase, he served as a Senior Managing
Consultant for Oracle, Branch Manager for Cap Gemini America, a systems
integration company, and Director, Commercial Systems Integration for Martin
Marietta Data Systems, a systems integration company. Mr. Moretto holds a BBA
from the Wharton School at the University of Pennsylvania.
Elizabeth Campbell has served as Vice President of Human Resources since
September 1999. She was our Director of Human Resources from August 1998 to
September 1999. From December 1996 to July 1998, Ms. Campbell was President of
Search Worldwide, a technology human resources consulting company she founded.
From May 1993 to November 1996, Ms. Campbell was Director of Corporate Human
Resources for Informix Software, a relational database software company.
Michael Makishima has served as Vice President of Finance since December
1999. He was our Controller from July 1997 to December 1999. From March 1989 to
December 1996, Mr. Makishima held several positions at Liant Software
Corporation, a software company, including General Manager of Liant Software
Services, Director of Manufacturing, Director of Corporate Finance and Vice
President of Finance and Administration of Ryan McFarland Corporation, a
subsidiary of Liant.
Tobias Younis has served as Vice President of Marketing since November 1999.
From August 1997 to November 1999, Mr. Younis served as Vice President for META
Group, an information technology research company. From June 1994 to August
1997, Mr. Younis was a Director of Enterprise Systems Consulting for Sybase.
From January 1992 to June 1994, Mr. Younis was founder and President for
Marcomm Associates, a marketing consulting company. Prior to Marcomm, Mr.
Younis served as Vice President of Special Marketing Operations at Oracle
Corporation.
Robert J. Kudis has served as Vice President and General Manager of the
Central Region since May 1999. From January 1997 to May 1999, Mr. Kudis served
as Vice President of Consulting, U.S. Central Region, for the Baan Company, an
enterprise resource software company. From May 1987 to January 1997, Mr. Kudis
was a consultant for Ernst & Young, a public accounting firm. Mr. Kudis holds a
BBA in Information Systems from the University of Wisconsin.
Edward F. Leppert has served as Vice President and General Manager of the
Northeast Region since October 1999. He served as our Vice President and
Managing Director of the Eastern Region from January 1999 to September 1999,
and as our Managing Director of the Eastern Region from November 1997 to
January 1999. From March 1996 to November 1997, Mr. Leppert served as Director
of Operations and General Manager for Cambridge Technology Partners, a systems
integration company. From September 1991 to March
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<PAGE>
1996, Mr. Leppert served as Associate Director, Information Management for
Bristol-Myers Squibb Company, a consumer products manufacturing company. Prior
to Bristol-Myers Squibb, Mr. Leppert served as a Senior Manager for Andersen
Consulting, a consulting firm. Mr. Leppert holds a BS degree in systems
planning and management from the Stevens Institute of Technology.
Srikantan Moorthy has served as General Manager of the Southeast Region
since November 1999. Mr. Moorthy served as our Director of Operations from May
1996 to November 1999, as a Practice Director from January 1996 to April 1996,
as a Consulting Practice Manager from August 1994 to January 1996, and as
Technical Staff Manager from August 1993 to August 1994. Mr. Moorthy joined us
as a Principal Software Engineer in January 1993. Mr. Moorthy has a Bachelor of
Engineering degree from Bangalore University, India.
Michael Bealmear has served as a Director since September 1998. Mr. Bealmear
is President and Chief Executive Officer of Spear Technologies, Inc., a
privately held software company. Prior to Spear, he was Executive Vice
President at Cadence and Senior Vice President of Worldwide Services at Sybase.
Mr. Bealmear also is a director of several privately owned companies. Mr.
Bealmear has a BS in Electrical Engineering from the University of Texas and an
MS in Mathematics and Computer Science from Rice University.
Todd Dagres has served as a Director since February 1997. Mr. Dagres is a
General Partner with Battery Ventures, a venture capital firm. Mr. Dagres is a
director of Akamai Technologies, an Internet content distribution firm; Qtera
Technologies, a telecommunications equipment provider; Edgix, an internet
content delivery firm; Predictive Networks, a developer of Internet profiling
and content delivery systems; Convergent Networks, a data and voice equipment
company; Equipe Communications, a network equipment firm; River Delta Networks,
a networking solutions company; and InformationView Solutions, a provider of
network cost management solutions. Mr. Dagres is also an Adjunct Professor at
the Sloan School of Management of the Massachusetts Institute of Technology. He
has an MS in Economics from Trinity College and an MBA from Boston University.
Robert Ducommun has served as a Director since June 1994. Mr. Ducommun is a
director of Ducommun Incorporated, a publicly held company that provides
products and services to the aerospace industry, and a director of several
private companies. He has been a private investor in and advisor to emerging
companies since 1992. He was Executive Vice President and Chief Financial
Officer of Aviva Sports, a sports toy marketing company, and chief financial
officer of Microsource, Inc., a manufacturer of microwave components. Mr.
Ducommun has a BA degree from Stanford University and an MBA from Harvard
Business School.
Frank Pinto has served as a Director since May 1998. Mr. Pinto is a Partner
with Boston Millennia Partners, a venture capital firm. He manages Boston
Millennia Partners' investments in Knowledge Impact, a customer relationship
management training firm, InfoLibria, an Internet infrastructure solutions
firm, and is a director of Quality Packaging Systems, a pharmaceutical services
company. Mr. Pinto holds a BA degree in Economics and Environmental Studies
from Middlebury College and an MBA from the Amos Tuck School at Dartmouth
College.
Jon Q. Reynolds, Jr. has served as a Director since October 1998. He is a
General Partner of Technology Crossover Ventures, a venture capital firm. He
also serves as a director of several private companies. Mr. Reynolds received
an AB degree in Geography from Dartmouth College and an MBA from Columbia
Business School.
Board of Directors
Our board of directors is currently comprised of seven directors. Our
amended and restated bylaws authorize not less than five directors and not more
than seven directors.
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<PAGE>
Board Committees
Our board of directors has a compensation committee and an audit committee.
The Compensation Committee is comprised of Jon Q. Reynolds, Jr., its chairman,
Todd Dagres and Frank Pinto. The Compensation Committee is responsible for the
administration of all salary and incentive compensation plans for our officers,
including bonuses and options granted under our option plans.
The Audit Committee is comprised of Robert Ducommun, its chairman, Michael
Bealmear and Frank Pinto. The Audit Committee is responsible for assuring the
integrity of our financial control, audit and reporting functions. It reviews
with our management and our independent accountants the effectiveness of our
financial controls, accounting and reporting practices and procedures. In
addition, the Audit Committee reviews the qualifications of our independent
accountants, makes recommendations to the board of directors regarding the
selection of our auditors, reviews the scope, fees and results of activities
related to audit and non-audit services.
Compensation Committee Interlocks and Insider Participation
Our board of directors did not have a compensation committee until May 1998.
From May 1998 to December 1999, the Compensation Committee was comprised of
Ashok Santhanam, Todd Dagres and Frank Pinto. In December 1999, Jon Q.
Reynolds, Jr. replaced Ashok Santhanam on this committee. During the fiscal
year 1999, the Compensation Committee met four times. Prior to May 1998,
determinations regarding the compensation of our officers were made by our
board of directors.
Director Compensation
We do not pay fees to directors who are employees for serving on our board
of directors. Directors who are not employees are paid $10,000 per year for
service on our board and $1,500 for each committee meeting they attend, and
they are reimbursed for all reasonable expenses incurred by them in attending
board and committee meetings. Non-employee directors are granted options to
acquire 30,000 shares of our common stock upon their initial appointment to our
board. Upon reelection, they receive additional grants of options to acquire
15,000 shares if elected for a three-year term, 10,000 shares if elected for a
two-year term and 5,000 shares if elected for a one-year term. Employees are
eligible to receive options under our 1993 Stock Option Plan and 2000 Stock
Plan.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our four other most highly compensated executive
officers for the year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying
Name and Principal Position(s) Salary Bonus Options
- ----------------------------------------------- -------- -------- ------------
<S> <C> <C> <C>
Ashok Santhanam, Chairman of the Board and
Founder....................................... $175,000 $ 30,000 --
David A. Lavanty, President and Chief Executive
Officer....................................... 250,000 100,000 100,000
Anthony H. Moretto, Senior Vice President...... 147,051 62,500 240,000
Carol C. Halliday, Senior Vice President....... 126,923 30,093 175,000
Michael Makishima, Vice President of Finance... 124,583 36,300 55,000
</TABLE>
43
<PAGE>
The following table sets forth information with respect to stock options
granted during the year ended December 31, 1999, to our chief executive officer
and our four other most highly compensated executives in 1999:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
--------------------------------------------- ---------------------
Number of Percent of Weighted
Shares Total Options Average
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(1) Fiscal Year per share Date 5% 10%
- ------------------------ ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ashok Santhanam......... -- -- -- -- -- --
David A. Lavanty........ 100,000 4.0%(3) $ 0.45 8/01/09 $1,505,565 $2,323,791
Anthony H. Moretto...... 240,000 10.0%(4) 0.20 8/01/09 3,695,847 5,686,684
Carol C. Halliday....... 175,000 7.0%(5) 0.20 8/01/09 2,694,544 4,146,084
Michael Makishima....... 55,000 2.0%(6) 0.73 11/23/09 803,607 1,240,644
</TABLE>
- --------
(1) All options were granted under our 1993 Plan. Options granted under the
Plan vest over a four-year period with 25% vesting at the first anniversary
date of the grant date and the remaining shares vesting in equal monthly
installments over the next 36 months. The board retains sole discretion to
modify the terms, including the price, of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date of offer to their expiration date based
upon an initial public offering price of $10.00 per share. These
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into
account federal or state income tax consequences of option exercises or
sales of appreciated stock.
(3) Excludes options to purchase 865,000 shares of common stock at an exercise
price of $0.15 per share granted to Mr. Lavanty on December 31, 1998, and
effective on the date of this offering a grant of options to purchase an
additional 290,000 shares of common stock at an exercise price equal to the
then existing share price.
(4) Of the 240,000 options to purchase our common stock granted to Mr. Moretto,
200,000 options granted on June 30, 1999, have an exercise price of $0.15
per share and the other 40,000 options granted on August 1, 1999, have an
exercise price of $0.45 per share.
(5) Of the 175,000 options to purchase our common stock granted to Ms.
Halliday, 145,000 options granted on June 30, 1999, have an exercise price
of $0.15 per share and the other 30,000 options granted on August 1, 1999,
have an exercise price of $0.45 per share.
(6) Excludes options to purchase 30,000 shares of our common stock at an
exercise price of $0.15 granted to Mr. Makishima on August 20, 1997. Of the
total grant of 55,000 options to Mr. Makishima, 15,000 options granted on
January 31, 1999, have an exercise price of $0.15 per share, 15,000 options
granted on August 1, 1999, have an exercise price of $0.45 per share, and
25,000 options granted on November 23, 1999, have an exercise price of
$1.25 per share.
44
<PAGE>
The following table sets forth certain information regarding exercised stock
options during the year ended December 31, 1999, and unexercised options held
as of December 31, 1999, by the chief executive officer and our four other most
highly compensated executives in 1999:
Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired December 31, 1999 December 31, 1999(1)
On Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ashok Santhanam......... -- -- -- -- -- --
David A. Lavanty........ -- -- 216,250 748,750 $1,373,187 $4,724,562
Anthony H. Moretto...... -- -- 50,000 190,000 317,500 1,194,500
Carol C. Halliday....... -- -- -- 175,000 -- --
Michael Makishima....... -- -- 18,749 66,251 119,056 388,693
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities of $6.50 per share as of December 31, 1999, minus the per share
exercise price, multiplied by the number of shares underlying the option.
Employment Agreements
Ashok Santhanam. We entered into an employment agreement dated May 11, 1998,
with Ashok Santhanam, our founder and Chairman of the Board of Directors. The
term of the agreement shall continue unless we or Mr. Santhanam elect to
terminate the agreement. The employment agreement provides for an annual base
salary of $160,000, to be reviewed annually, and an annual maximum bonus of
$90,000, subject to annual review, payable at the discretion of our board of
directors. Effective January 1, 1999, our Board of Directors increased
Mr. Santhanam's annual base salary to $175,000. The employment agreement also
provides that, in the event of his termination without cause, we will pay
Mr. Santhanam his accrued compensation to the date of termination and continue
his car lease payments, maintain his health, welfare and retirement benefits,
and provide severance compensation equal to his base salary and bonus for 12
months after his termination date. In addition, any options granted to Mr.
Santhanam would continue to vest during the 12 months following his termination
date. The agreement also provides that Mr. Santhanam will not engage in a
competitive business activity for one year following termination in the event
of his termination without cause, and for two years following termination if he
resigns or is terminated for cause. The agreement further provides that
Mr. Santhanam will not solicit our employees, nor our clients with respect to a
competitive business activity, for two years following his termination for any
reason.
David A. Lavanty. We entered into an employment agreement dated December 31,
1998, with Mr. Lavanty, our President and Chief Executive Officer. The initial
term of three years will automatically be renewed for successive one-year terms
unless we or Mr. Lavanty elect to terminate the agreement at least 30 days
before the end of a term. The employment agreement provides for an annual base
salary of $250,000 and an annual bonus payable at the discretion of our board
of directors. The employment agreement also provides that in the event of his
termination without cause, we will pay Mr. Lavanty severance compensation equal
to his base compensation, and maintain his health and retirement benefits, for
12 months after his termination date. In addition, any options granted to Mr.
Lavanty will continue to vest during the 12 months following his termination
date, and shall vest in full upon a change of control. The agreement also
provides that Mr. Lavanty will not engage in a competitive business activity
for one year following termination in the event of his termination for any
reason. The agreement further provides that Mr. Lavanty will not solicit our
employees nor our clients with respect to a competitive business activity for
one year following his termination for any reason. The agreement provided for
the grant of options to Mr. Lavanty to purchase up to 865,000 shares of common
stock subject to vesting over a four-year period, 25% of which vested on
signing and the balance of which will vest in 36 equal monthly installments
beginning on the first anniversary date of the
45
<PAGE>
signing of the Agreement. Finally, the agreement provides for the grant to Mr.
Lavanty of options to purchase up to 290,000 shares of common stock upon
effectiveness of this prospectus at the initial public offering price.
Michael B. Shahbazian. We entered into an employment agreement dated
February 2, 2000, with Mr. Shahbazian, our Senior Vice President and Chief
Financial Officer, which provides for an annual base salary of $190,000 and a
quarterly performance bonus. The employment agreement also provides that if we
terminate Mr. Shahbazian without cause, or within six months following a change
of control, we will (i) continue to pay Mr. Shahbazian his base compensation
and benefits for six months, and (ii) permit Mr. Shahbazian's unvested options
to continue to vest for six months. The agreement provided for the grant of
options to Mr. Shahbazian to acquire 225,000 shares of common stock, subject to
vesting over four years.
Anthony H. Moretto. We entered into an employment agreement dated March 17,
1999, with Mr. Moretto, a Senior Vice President, which provides for an annual
base salary of $200,000 and a quarterly performance bonus. The employment
agreement also provides that we will pay Mr. Moretto an amount equal to his
base compensation for six months if we terminate Mr. Moretto without cause. In
addition, the employment agreement provides that upon termination without
cause, or within six months following a change of control, we will (i) continue
to pay Mr. Moretto his base compensation for 12 months, and (ii) permit
Mr. Morretto's unvested options to continue to vest for 12 months. The
agreement provided for the grant of options to Mr. Moretto to purchase 200,000
shares of common stock, subject to vesting over a four-year period, 25% of
which vested immediately upon the execution of the agreement and the balance of
which will vest in 36 equal installments beginning on the first anniversary of
his employment. Fifty-percent of Mr. Moretto's unvested options will vest upon
the occurrence of a change of control within his first two years of employment
with us. Finally, we paid a one-time signing bonus to Mr. Moretto of $25,000.
Tobias Younis. We entered into an employment agreement dated October 29,
1999, with Mr. Younis, our Vice President of Marketing, which provides for an
annual base salary of $185,000 and a quarterly performance bonus. The
employment agreement also provides that if we terminate Mr. Younis without
cause, or within six months following a change of control, we will (i) continue
to pay Mr. Younis his base compensation for six months, and (ii) permit Mr.
Younis' unvested options to continue to vest for six months. The agreement
provided for the grant of options to Mr. Younis to acquire 200,000 shares of
common stock, subject to vesting over four years.
Carol C. Halliday. We entered into an employment agreement dated March 12,
1999, with Ms. Halliday, a Senior Vice President, which provides for an annual
base salary of $180,000 and a quarterly performance bonus. The employment
agreement also provides that if we terminate Ms. Halliday without cause, we
will continue to pay Ms. Halliday her base compensation for three months. The
agreement provided for the grant of options to Ms. Halliday to acquire 145,000
shares of common stock, subject to vesting over four years.
Robert J. Kudis. We entered into an employment agreement dated March 30,
1999, with Mr. Kudis, our Vice President and General Manager of Central Region
Operations, which provides for an annual base salary of $175,000 and a
quarterly performance bonus. The employment agreement also provides that if we
terminate Mr. Kudis without cause, we will continue to pay Mr. Kudis his base
compensation for three months. In addition, the agreement provides that if we
terminate Mr. Kudis without cause within six months following a change of
control, we will (i) continue to pay Mr. Kudis his base compensation for six
months, and (ii) permit Mr. Kudis' unvested options to continue to vest for six
months. The agreement provided for the grant of options to Mr. Kudis to acquire
90,000 shares of common stock, subject to vesting over four years. Fifty-
percent of Mr. Kudis' unvested options will vest upon the occurrence of a
change of control within his first two years of employment.
Other employment agreements. We entered into employment agreements with
Edward F. Leppert, Michael Makishima, Elizabeth Campbell and Srikantan Moorthy,
which provide for severance payments equal to six months' salary, and options
that will continue to vest for six months following termination upon (i) a
change of control and termination without cause or (ii) a change of control and
a relocation of the employee beyond a 30-mile radius from their office
locations.
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<PAGE>
Employee Benefit Plans
1993 Stock Option Plan. Our 1993 Stock Option Plan provides for the issuance
to employees, directors and consultants of incentive stock options and non-
qualified stock options to purchase up to a total of 5,355,000 shares of our
common stock. Our board of directors or a committee designated by our board of
directors may serve as administrator of the 1993 Plan. As of February 29, 2000,
options issued under the 1993 Plan to purchase a total of 3,993,653 shares of
common stock at a weighted average exercise price of $1.81 were outstanding, of
which options to purchase 203,603 shares at a weighted average exercise price
of $0.15 were fully vested. As of February 29, 2000, we had 713,184 shares of
common stock available for future grant under this plan.
The terms of options granted under the 1993 Plan are as determined by the
administrator, subject to the following:
. the option price per share for any incentive stock option or non-
qualified stock option may not be less than the fair value and 85% of the
fair value, respectively, of the common stock on the date of the grant
. if an incentive stock option or non-qualified stock option is granted to
a person who owns more than 10% of the total combined voting power of all
our classes of stock, the exercise price shall be not less than 110% of
the fair value of the common stock on the date of the grant
. the term of each stock option may not exceed ten years, and in the case
of a person who owns more than 10% of the total combined voting power of
all our classes of stock, the term of each stock option may not exceed
five years
. payment for the exercise of an option may be in cash, in shares of common
stock already owned by the option holder for more than six months and
which have a fair value equal to the exercise price of the option, by
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to us the amount required to
pay the exercise price, or by delivery of an irrevocable subscription
agreement that irrevocably obligates the option holder to pay the
aggregate exercise price not more than 12 months after the date of
delivery of the subscription agreement
The administrator has the power to determine the terms of the options
granted, including the exercise price. The board of directors may amend,
suspend or discontinue the 1993 Plan at any time, provided that such action may
not affect any rights with respect to options previously granted under the
1993 Plan.
Options granted under the 1993 Plan are not transferable other than by will
or by the laws of descent or distribution, and each option may be exercised,
during the lifetime of the optionee, only by the optionee. Options granted
under the 1993 Plan must generally be exercised within three months of the
optionee's separation of service from us, but in no event later than the
expiration of the term of the option.
Our 1993 Stock Plan, as amended, provides that in the event of our merger
with or into another corporation or a sale of substantially all of our assets,
each option or right shall be assumed or an equivalent option or right
substituted by the successor corporation. If the outstanding options or rights
are not assumed or substituted, the option or stock purchase right will
immediately fully vest and become exercisable. The 1993 Plan also provides that
in the event of our proposed dissolution or liquidation, our board of directors
will notify optionees at least 15 days prior to the proposed action and that
the options will terminate immediately prior to the completion of the proposed
action.
2000 Stock Plan. Our 2000 Stock Plan was approved by our board of directors
in February 2000. As of March 1, 2000, we had reserved a total of
shares of our common stock for issuance under the 2000 Stock Plan of which
shares were available for issuance. The 2000 Stock Plan, as amended,
provides for the granting to our employees of incentive stock options within
the meaning of Section 422 of the United States tax code, and for the granting
to employees, including officers and directors, non-employee directors and
consultants of non-statutory stock options and stock purchase rights. Unless
terminated sooner, the 2000 Stock Plan, as amended, will terminate
automatically in 2010.
47
<PAGE>
Our 2000 Stock Plan is administered by our board of directors. Our board of
directors determines the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the vesting and the form of consideration payable upon
exercise. In addition, the board of directors has the authority to amend,
suspend or terminate the 2000 Stock Plan, provided that no board action may
affect any share of common stock previously issued and sold or any option
previously granted and then outstanding under the 2000 Stock Plan. Our board of
directors has the exclusive authority to interpret and apply the provisions of
the 2000 Stock Plan.
Options and stock purchase rights granted under our 2000 Stock Plan are not
generally transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 2000 Stock Plan must generally be exercised within
three months of the end of the optionee's status as our employee or consultant,
or within twelve months after his or her termination by death or disability,
but in no event later than the expiration of the option's ten year term. In the
case of stock purchase rights, unless the board of directors determines
otherwise, the agreement evidencing the grant shall provide that we have a
repurchase option exercisable upon the voluntary or involuntary termination of
his or her employment for any reason, including death or disability. In this
event, the purchase price per share will be equal to the original price and may
be paid by cancellation of his or her outstanding indebtedness to us, if any.
Our repurchase option shall lapse at a rate determined by the board of
directors. The exercise price of any incentive stock options granted under the
2000 Stock Plan and any non-statutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
United States tax code must be at least equal to the fair value of our common
stock on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive stock option granted must
equal at least 110% of the fair value on the grant date, and the term of such
incentive stock option must not exceed five years. The term of all other
options granted under the 2000 Stock Plan may not exceed ten years.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, each option
or right shall be assumed or an equivalent option or right substituted by the
successor corporation. If the outstanding options or rights are not assumed or
substituted, the option or stock purchase right will immediately fully vest and
become exercisable.
2000 Employee Stock Purchase Plan Our 2000 Employee Stock Purchase Plan was
adopted by our board of directors in March 2000. A total of 500,000 shares of
common stock have been reserved for issuance under our 2000 Employee Stock
Purchase Plan, plus annual increases equal to the lesser of 1,500,000 shares,
or 5.0% of the outstanding shares on the determination date set by our board of
directors, or a lesser amount determined by our board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the United States tax code, contains consecutive six month
offering and purchase periods. The offering periods generally start on the
first trading day on or after May 1 and ends on November 1 of each year, except
for the first such offering period, which commences on the first trading day on
or after the effective date of this offering and ends on the last trading day
on or before April 30, 2003.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, any employee who immediately after
grant owns 5% or more of the total combined voting power or value of all
classes of our capital stock, or whose rights to purchase stock under all of
our employee stock purchase plans accrues at a rate which exceeds $25,000 worth
of stock for each calendar year may not be granted an option to purchase stock
under this plan. The 2000 Employee Stock Purchase Plan permits participants to
purchase common stock through payroll deductions of up to 10% of the
participant's compensation. Compensation is defined as the participant's base
straight time gross earnings and commissions but is exclusive of payments for
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<PAGE>
overtime, shift premium payments, incentive compensation, incentive payments,
bonuses and other compensation. The maximum number of shares a participant may
purchase during a single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 Employee Stock Purchase Plan is generally 85% of the
lower of the fair value of the common stock at the beginning of the offering
period or at the end of the purchase period. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
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 plan. The 2000 Employee Stock
Purchase Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all our assets, each outstanding option
may 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. The 2000 Employee Stock Purchase Plan will terminate
automatically in 2010, unless terminated earlier. Our board of directors has
the authority to amend or terminate the purchase plan, except that no such
action may adversely affect any outstanding rights to purchase stock under the
2000 Employee Stock Purchase Plan. Our board of directors has the exclusive
authority to interpret and apply the provisions of the 2000 Employee Stock
Purchase Plan.
401(k) Plan. We have a 401(k) plan that provides a tax-qualified employee
savings plan for our eligible employees. An employee may elect to reduce his or
her current annual compensation on a pre-tax basis and to have the amount of
the reduction contributed to the 401(k) savings plan. Subject to the
restrictions imposed by the Internal Revenue Code on highly compensated
employees, an employee may generally defer up to 25% of his or her pre-tax
earnings or the statutorily prescribed limit, which was $10,000 in calendar
year 1999. Our 401(k) plan is intended to qualify under Section 401(k) of the
Internal Revenue Code so that contributions by our employees to our 401(k) plan
and income earned on plan contributions are not taxable to employees until
withdrawn from the 401(k) plan. The 401(k) savings plan permits, but does not
require, additional matching contributions by us on behalf of all participants
in the 401(k) savings plan.
Life Insurance Program. We maintain a $2 million key man life insurance
policy on Ashok Santhanam, our Chairman of the Board of Directors, payable to
us in the event of Mr. Santhanam's death. We also maintain a $1 million key man
life insurance policy on David A. Lavanty, our President and Chief Executive
Officer, payable to us in the event of Mr. Lavanty's death.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 8, 1994, we sold an aggregate of 400,000 shares of Series A
Preferred Stock at a price of $1.00 per share. We issued 400,000 shares of our
Series A Preferred Stock pursuant to a two-for-one stock split declared in
January 1997. All share numbers reflect the stock split. On February 14, 1997,
we sold an aggregate of 2,560,000 shares of Series B Preferred Stock at a price
of $1.25 per share. On May 11, 1998, and May 28, 1999, we sold an aggregate of
8,055,511 shares of Series C Preferred Stock at a price of $1.25 per share. On
January 19, 2000, we sold an aggregate of 3,000,000 shares of Series D
Preferred Stock at a price of $7.41 per share. Listed below are the directors,
executive officers, stockholders and their affiliates that beneficially own 5%
or more of our securities.
<TABLE>
<CAPTION>
Shares of Shares of Shares of Shares of
Shares of Series A Series B Series C Series D
Common Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5% Stockholder entity
affiliated with us
Ashok Santhanam(1)......... 4,500,000 -- -- -- --
Other 5% stockholders
Boston Millennia Partners
Limited Partnership(2).... -- -- -- 3,152,000 425,371
Entities affiliated with
Technology Crossover
Ventures(3)............... -- -- -- 3,152,000 425,371
Battery Ventures III,
L.P.(4)................... -- -- 2,286,363 1,576,000 62,672
</TABLE>
- --------
(1) Ashok Santhanam, the Chairman of our Board of Directors, and his wife
Revathi Santhanam are trustees of the Santhanam Family Trust, which holds
3,500,000 shares of common stock. Two irrevocable trusts each hold 500,000
shares of common stock for the benefit of their children. Mr. Santhanam and
Mrs. Santhanam each disclaim any beneficial interest in the shares held by
these irrevocable trusts.
(2) Frank Pinto, one of our directors, is a partner of Boston Millennia
Partners Limited Partnership. Mr. Pinto disclaims beneficial ownership of
the securities held by this entity except to the extent of his pecuniary
interest therein.
(3) Includes shares purchased by TCV II, V.O.F., Technology Crossover Ventures
II, L.P., TCV II (Q), L.P., TCV II Strategic Partners, L.P., and Technology
Crossover Ventures II, C.V. Mr. Reynolds, one of our directors, is a Member
of Technology Crossover Management II, L.L.C., which is the General Partner
of each of these funds. Mr. Reynolds disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(4) Mr. Dagres, one of our directors, is a General Partner of Battery Ventures.
Mr. Dagres disclaims beneficial ownership of the securities held by this
entity except for his proportional interest in the entity.
Mr. Santhanam is a director and a 50% shareholder of Challenger Systems,
Inc., an entity to which we paid $590,000 in 1997 and $485,000 in 1998 for
software programming services.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 29, 2000, as adjusted to reflect
the sale of common stock in this offering, by:
. each person known to us to own beneficially more than 5% of our common
stock
. our chief executive officer and each of our four other most highly
compensated executive officers in 1999
. each of our directors
. all of our executive officers and directors as a group
Except as otherwise noted, the address of each person listed in the table is
c/o Inventa Technologies, Inc., 255 Shoreline Drive, Suite 200, Redwood Shores,
California 94065. The table includes all shares of common stock issuable within
60 days of February 29, 2000, upon the exercise of options and warrants
beneficially owned by the indicated stockholders on that date based on options
and warrants outstanding as of February 29, 2000. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares. To
our knowledge, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 21,113,674 shares of
common stock outstanding as of February 29, 2000, in each case together with
applicable options and warrants for that stockholder. Shares of common stock
issuable upon the exercise of options and warrants beneficially owned are
deemed outstanding for the purpose of computing the percentage of ownership of
the person holding those options and warrants, but are not deemed outstanding
for computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares Shares to be
Beneficially Owned Beneficially Owned
Prior to Offering After Offering
------------------ ---------------------
Beneficial Owner Number Percent Number Percent
- --------------------------------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C>
Boston Millennia Partners Limited
Partnership(1).................. 3,577,371 16.9%
Frank Pinto...................... 3,577,371 16.9
Entities associated with
Technology Crossover
Ventures(2)..................... 3,577,371 16.9
Jon Q. Reynolds, Jr.(2).......... 3,577,371 16.9
Battery Ventures III, L.P.(3).... 3,925,035 18.6
Todd Dagres(3)................... 3,925,035 18.6
Ashok Santhanam(4)............... 4,500,000 21.3
David A. Lavanty(5).............. 288,333 1.4
Anthony H. Moretto(6)............ 50,000 *
Carol C. Halliday................ -- *
Michael Makishima(7)............. 24,896 *
Robert Ducommun(8)............... 560,200 2.7
Michael Bealmear................. 40,000 *
All executive officers and
directors as a group (ten)...... 16,543,206 77.1
</TABLE>
- --------
* Represents less than one percent of the total.
(1) Principal address is 30 Rowes Wharf, Suite 330, Boston, Massachusetts
02110. Includes shares held by Boston Millennia Associates I Partnership
and various individuals. Mr. Pinto, one of our directors, is a partner of
Boston Millennia Partners Limited Partnership. Although he shares voting
and investment control over shares held by these entities. Mr. Pinto
disclaims beneficial ownership of the shares held by this entity except to
the extent of his pecuniary interest therein.
51
<PAGE>
(2) Consists of 55,592 shares held by TCV II, V.O.F., 1,711,320 shares held by
Technology Crossover Ventures II, L.P., 1,315,687 shares held by TCV II
(Q), L.P., 233,488 shares held by TCV II Strategic Partners, L.P. and
261,284 shares held by Technology Crossover Ventures II, C.V. Mr. Reynolds,
one of our directors, is a Member of Technology Crossover Management II,
L.L.C. which is the General Partner of each of these funds. Although Mr.
Reynolds shares voting and investment control over these shares held by
these entities, he disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein. The address for each of these
persons and entities is c/o Technology Crossover Ventures, 575 High Street,
Suite 400, Palo Alto, California 94301.
(3) Principal address is 20 William Street, Wellesley, Massachusetts 01282. Mr.
Dagres, one of our directors, is a General Partner of Battery Ventures.
Although Mr. Dagres shares voting and investment control over shares held
by this entity, he disclaims beneficial ownership of the shares held by
this entity except to the extent of his proportional interest in the
entity.
(4) Mr. Santhanam, the Chairman of our Board of Directors, and his wife Revathi
Santhanam are trustees of the Santhanam Family Trust, which holds 3,500,000
shares. Two irrevocable trusts each hold 500,000 shares for the benefit of
Mr. Santhanam's two minor children. Mr. and Mrs. Santhanam disclaim
beneficial ownership of the shares held by these irrevocable trusts.
(5) Mr. Lavanty is our President and Chief Executive Officer. Excludes 576,677
shares issuable upon exercise of options, and a grant of options to
purchase an additional 290,000 shares effective on the date of this
offering.
(6) Excludes 190,000 shares issuable upon exercise of options.
(7) Excludes 70,104 shares issuable upon exercise of options.
(8) Principal address is 1155 Park Avenue, New York, New York 10128. Mr.
Ducommun, one of our directors, is the Trustee of the Palmer G. and Charles
E. Ducommun Charitable Annuity Trust which holds 241,700 shares. Mr.
Ducommun, his sister, Electra D. de Peyster, and the Ducommun and Gross
family foundations are the principal beneficiaries of the trust. Ms. de
Peyster is also a shareholder of ours.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation authorizes the
issuance of up to 25,000,000 shares of common stock, par value $0.001 per
share, and 14,779,511 shares of preferred stock, par value $0.001 per share,
the rights and preferences of which may be established from time to time by our
board of directors. As of February 29, 2000, there were outstanding 6,498,163
shares of common stock, and 14,615,511 shares of preferred stock, which are
convertible into 14,615,511 shares of common stock upon the completion of this
offering, were issued and outstanding. As of January 27, 2000, we had seventy
holders of record of our common stock and thirty holders of record of our
preferred stock.
Common Stock
Each holder of our common stock is entitled to one vote for each share held
of record on all matters to be voted upon by the stockholders. There are no
cumulative voting rights. Subject to the preferences of preferred stock issued
after the sale of the common stock in this offering, 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, holders of common
stock would be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock, the shares of common stock to be issued
upon conversion of the outstanding preferred stock, the shares of common stock
to be issued in the contemporaneous private placement and the shares of common
stock offered by us in this offering, when issued and paid for, will be fully
paid and nonassessable. The rights, preferences and privileges of the holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock that we may designate in
the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 14,779,511 million
shares of preferred stock, par value $0.001 per share, in one or more series,
with each of such series to have such rights and preferences, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the board of directors. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of any series of preferred stock that may be
issued in the future. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, a
majority of our outstanding voting stock. We currently have no plans to issue
any shares of preferred stock.
Warrants
As of February 29, 2000, we had outstanding warrants to purchase 160,000
shares of series C preferred stock at an exercise price of $2.50 per share.
These warrants are exercisable for 160,000 shares of common stock upon the
completion of this offering. Each warrant has a net exercise provision under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the warrant and receive a net amount of shares, based on the fair
value of our stock at the time of the exercise of the warrant, after deducting
the aggregate exercise price. The warrants for 160,000 shares of series C
preferred stock will expire on November 30, 2004.
53
<PAGE>
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that 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 the corporation or its stockholders
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
. unlawful payments of dividends or unlawful stock repurchases or
redemptions
. any transaction from which the director derived an improper personal
benefit
This limitation of liability 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 will indemnify our directors, officers, employees
and other agents to the fullest 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 officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit such indemnification.
We have obtained directors and officers' insurance providing indemnification
for all of our directors and officers. Prior to closing of this offering, we
will enter into agreements to indemnify our directors and executive officers,
in addition to the indemnification provided for in our bylaws. These
agreements, among other things, will indemnify our directors and executive
officers for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding, out
of such person's services as a director, officer, employee, agent or fiduciary
of ours, any subsidiary of ours or any other company or enterprise to which the
person provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
At present, there is no litigation or proceeding involving any of our
directors or officers 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.
Registration Rights
The holders of 14,615,511 shares of preferred stock, and 1,350,000 shares of
common stock issued in connection with the acquisition of XTEND-Tech, have been
granted rights to require us to register their shares under the Securities Act
provided under the terms of an investors' registration rights agreement between
the holders of our securities and us. Beginning as soon as practicable after
January 1, 2000, holders of at least 50% of the covered securities may require
on up to two occasions that we register for public resale all or a lesser
amount of their securities. We need not register these shares if the requested
registration would occur after we have effected two (2) registrations, or if
the requested registration would occur within 180 days following the effective
date of any Form S-1 registration statement we have filed. Also, we may defer
the registration of the shares for up to 90 days if, in the good faith judgment
of the board of directors, it would be seriously detrimental to our
stockholders and us for the registration statement to be filed.
In addition, holders of our securities who are parties to the agreement may
require on up to four occasions, but only once in any 12-month period that we
register their shares for public resale on a Form S-3 registration statement;
provided that
. we are eligible to use Form S-3 and the value of the securities to be
included is at least $500,000
54
<PAGE>
. the request for Form S-3 registration does not occur within 180 days
following the effective date of any registration statement registering
shares of common stock
. the request for Form S-3 registration does not occur within 180 days
following the effective date of a registration statement registering
securities required to be registered by the holders of at least 50% of
the outstanding securities
We are not required to maintain the effectiveness of any Form S-3 for more
than 180 days from the effective date of the Form S-3. In view of market
conditions, we may reduce the number of securities to be registered on Form S-3
to not less than 50% of the shares the holders of registrable securities have
requested to be registered. Furthermore, in the event we elect to register any
of our shares of common stock for the purposes of effecting any public offering
other than our initial public offering, the holders of securities who are
parties to the agreement are entitled to include their shares of common stock
in the registration, but in view of market conditions, we may reduce the number
of shares proposed to be registered. All expenses in connection with any
registration will be borne by us.
Antitakeover Provisions
The provisions of our amended and restated certificate of incorporation 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. Such provisions could limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions allow us to
issue preferred stock without any vote or further action by the stockholders,
eliminate the right of stockholders to act by written consent without a meeting
and eliminate cumulative voting in the election of directors. These provisions
may make it more difficult for stockholders to delay or prevent a change in
control of us.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. 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:
. the board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, 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 voting stock.
Our amended and restated certificate of incorporation provides that, upon
the closing of this offering, the board of directors will be divided into three
classes of directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us and may maintain the incumbency of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors. Our amended and restated certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting and our bylaws eliminate the right of stockholders to call
special meetings of stockholders. The authorization of undesignated preferred
stock makes it possible for the board of
55
<PAGE>
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of us. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in control of our management. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market
following this offering could cause the prevailing market price of our common
stock to fall and impede our ability to raise equity capital at a time and on
terms favorable to us.
Upon completion of this offering, we will have outstanding an aggregate of
25,176,401 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after February 29, 2000. Of these outstanding shares, the
3,500,000shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act of 1933. The remaining 21,676,401 shares of common stock
outstanding upon completion of the offering and held by existing stockholders
will be "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933. Restricted shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act of 1933, which rules
are summarized below, or another exemption. Sales of the restricted shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock. All officers, directors and
certain other holders of common stock have entered into contractual lock-up
agreements, providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of shares of common stock owned by
them or that could be purchased by them through the exercise of options or
warrants for a period of 180 days after the date of this prospectus without the
prior written consent of Lehman Brothers Inc. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, additional shares will be eligible for
sale beginning 181 days after the effective date of the offering, subject in
some cases to volume limitations.
Eligibility of Restricted Shares for Sale in the Public Market
<TABLE>
<S> <C>
At the Effective Date.................................... None
90 Days After Effective Date............................. None
180 Days after Effective Date............................ 22,361,118 Shares
More Than 180 Days After Effective Date.................. 3,178,936 Shares
</TABLE>
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our affiliates, 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 251,764 shares immediately after the offering
. the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
for at least two years the restricted shares proposed to be sold, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and
57
<PAGE>
contracts commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities and Exchange Act of 1933, in reliance upon Rule
144 but without compliance with certain restrictions, including the holding
period requirements. In addition, the Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, along with the shares acquired upon exercise
of such options, including exercises after the date the issuer becomes so
subject. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 91 days
after the date of this prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements.
We, our executive officers and directors and stockholders who hold more than
100,000 shares of our stock have agreed not to sell or otherwise dispose of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, or enter into any swap or similar agreement that
transfers, in whole or in part, the economic risk of ownership of the common
stock, for a period of 180 days after the date of this prospectus, without the
prior written consent of Lehman Brothers Inc., subject to limited exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1993 Plan. This registration statement is expected to be
filed within 90 days of effectiveness of the registration statement covering
the shares of common stock in this offering and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to affiliates
and the expiration of a 180-day lock-up period, be available for sale in the
open market, except to the extent that such shares are subject to our vesting
restrictions or the contractual restrictions described above.
58
<PAGE>
UNDERWRITING
Pursuant to the terms of an underwriting agreement, which is filed as an
exhibit to the registration statement relating to this prospectus, the
underwriters of the offering named below, for whom Lehman Brothers Inc., First
Union Securities, Inc. and Friedman, Billings, Ramsey & Co., Inc. are acting as
representatives, have each agreed to purchase from us the respective number of
shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
Underwriters Number of shares
------------ ----------------
<S> <C>
Lehman Brothers Inc.......................................
First Union Securities, Inc...............................
Friedman, Billings, Ramsey & Co., Inc. ...................
------
Total...................................................
======
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver
to the underwriters customary closing documents.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares described below.
<TABLE>
<CAPTION>
Paid by Us No Exercise Full Exercise
---------- ----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the initial public
offering price set forth on the cover page of this prospectus, and to dealers,
who may include the underwriters, at the initial public offering price less a
selling concession not in excess of $525,000 share. The underwriters may allow,
and the dealers may reallow, a concession not in excess of $ per share
to brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
59
<PAGE>
We have granted to the underwriters an option to purchase up to an aggregate
of 525,000 additional shares of common stock, exercisable solely to cover over-
allotments, if any, at the initial public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
We, our executive officers and directors and stockholders who hold more than
100,000 shares of our stock have agreed not to directly or indirectly do any of
the following, whether any transaction described in clause (1) or (2) below is
to be settled by delivery of common stock or other securities, in cash or
otherwise, in each case without the prior written consent of Lehman Brothers
Inc. on behalf of the underwriters, for a period of 180 days after the date of
this prospectus:
(1) offer, sell or otherwise dispose of, or enter into any transaction or
arrangement which is designed or could be expected to, result in the
disposition or purchase by any person at any time in the future of, any
shares of common stock or securities convertible into or exchangeable
for common stock or substantially similar securities, other than any of
the following:
. the common stock sold under this prospectus
. shares of common stock we issue under employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or under currently
outstanding options, warrants or rights
(2) sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant
of options under option plans existing on the date hereof.
Prior to the offering, there has been no public market for the shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earnings prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "INVA."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,560,000.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of common stock.
60
<PAGE>
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of
shares of common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it was to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters make any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
At our request, the underwriters have reserved up to 12% shares of the
common stock offered by this prospectus for sale to our directors and to our
business associates at the initial public offering price set forth on the cover
page of this prospectus. These persons must commit to purchase no later than
the close of business on the day following the date of this prospectus. The
number of shares available for sale to the general public will be reduced to
the extent these persons purchase the reserved shares.
Fidelity Capital Markets, a division of National Financial Services
Corporation, will be facilitating a portion of the electronic distribution of
information through the Internet, their intranet and other proprietary
electronic technology. Fidelity Capital Markets will not be acting as an
underwriter of this offering.
fbr.com, a division of FBR Investments Services, Inc., which is an affiliate
of Friedman, Billings, Ramsey & Co., Inc., will be facilitating a portion of
the Internet distribution for this offering. Friedman, Billings, Ramsey & Co.,
Inc. has agreed to allocate a limited number of shares to fbr.com for sale to
its online brokerage account holders. An electronic prospectus is available on
the website maintained by fbr.com. Other than the prospectus in electronic
format, the information on the fbr.com website relating to this offering is not
a part of this prospectus and should not be relied upon by prospective
investors.
The representatives and their affiliates may in the future provide
investment banking, financial advisory and other services to us for which these
representatives may receive customary fees and commissions.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. The
underwriters in this offering are represented by Simpson Thacher & Bartlett,
New York, New York.
EXPERTS
The financial statements as of December 31, 1997, 1998 and 1999 and for the
three years in the period ended December 31, 1999 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which forms a part of the registration
statement, does not contain all of the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and our exhibits. With respect to references made in
this prospectus to any contract or other document of ours, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and
Exchange Commission's regional offices in Chicago, Illinois and New York, New
York. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our
Securities and Exchange Commission filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's Internet
site at http://www.sec.gov.
62
<PAGE>
INVENTA CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVENTA CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Operations and Comprehensive Losses............ F-4
Consolidated Statement of Stockholders' Equity (Deficit)................. F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Overview................................................................. F-21
Unaudited Pro Forma Combined Balance Sheet............................... F-22
Unaudited Pro Forma Combined Statement of Operations..................... F-23
Notes to Pro Forma Combined Financial Information........................ F-24
XTEND-TECH, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-25
Balance Sheet............................................................ F-26
Statement of Operations.................................................. F-27
Statement of Cash Flows.................................................. F-28
Notes to Financial Statements............................................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Inventa Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive losses, of
stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Inventa Corporation and its
subsidiary (the "Company") at December 31, 1997, 1998 and 1999, and the results
of its operations and its cash flows for the years ended December 31, 1997,
1998 and 1999, in conformity with accounting principles generally accepted in
the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
F-2
<PAGE>
INVENTA CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
-------------------------- December 31,
1997 1998 1999 1999
------- ------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......... $ 671 $ 4,783 $ 3,244
Accounts receivable, net........... 622 637 2,013
Prepaid expenses and other current
assets............................ 37 142 1,675
------- ------- --------
Total current assets.............. 1,330 5,562 6,932
Property and equipment, net.......... 451 661 2,002
Other assets......................... 41 72 288
------- ------- --------
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
---------------------------------
Current liabilities:
Borrowings......................... $ 300 $ -- $ 4,000
Accounts payable................... 164 523 1,409
Accrued expenses................... 326 1,125 2,690
Deferred revenue................... -- -- 483
Capital lease obligations.......... 111 112 192
------- ------- --------
Total current liabilities......... 901 1,760 8,774
Borrowings, long-term................ -- 300 --
Capital lease obligations, long-
term................................ 192 73 454
Deferred tax liabilities, long-term.. 25 17 --
------- ------- --------
1,118 2,150 9,228
------- ------- --------
Mandatorily redeemable convertible
preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000 shares
authorized, issued and
outstanding....................... 3,200 3,200 4,373 $ --
Series C mandatorily redeemable
convertible preferred stock;
$0.001 par value; 8,220,000 shares
authorized; 0, 4,056,000 and
8,056,000 shares issued and
outstanding, respectively......... -- 5,070 13,759 --
------- ------- -------- --------
3,200 8,270 18,132 --
Commitments and contingencies (Note
6)
Stockholders' deficit:
Series A convertible preferred
stock; $0.001 par value; 1,000,000
shares authorized, issued and
outstanding....................... 1 1 1 --
Common stock; $0.001 par value;
25,000,000 shares authorized;
4,642,000, 4,682,000 and 4,759,000
shares issued and outstanding,
respectively; 16,375,000
(unaudited) shares issued and
outstanding, pro forma............ 5 5 5 16
Additional paid-in capital........... 368 1,357 1,861 19,983
Deferred stock-based compensation.... -- (978) (4,662) (4,662)
Accumulated comprehensive loss....... (111) (93) -- --
Accumulated deficit.................. (2,759) (4,417) (15,343) (15,343)
------- ------- -------- --------
Total stockholders' deficit....... (2,496) (4,125) (18,138) $ (6)
------- ------- -------- ========
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVENTA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSSES
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Revenues..................................... $ 5,196 $ 8,016 $ 13,520
--------- --------- ----------
Operating expenses:
Project personnel (exclusive of deferred
stock-based compensation of $621 in
1999)..................................... 2,677 2,799 8,610
Sales and marketing (exclusive of deferred
stock-based compensation of $359 in
1999)..................................... 1,671 1,838 4,230
General and administrative (exclusive of
deferred stock-based compensation of $610
in 1999).................................. 3,456 4,519 9,434
Depreciation............................... 187 252 562
Amortization of deferred stock-based
compensation.............................. -- 50 1,590
Non-recurring expenses on closing of
foreign operations........................ -- 250 --
--------- --------- ----------
Total operating expenses................. 7,991 9,708 24,426
--------- --------- ----------
Loss from operations......................... (2,795) (1,692) (10,906)
Interest and other income.................... 4 92 101
Interest expense............................. (83) (56) (106)
--------- --------- ----------
Loss before income taxes..................... (2,874) (1,656) (10,911)
Income tax expense........................... (90) (2) (15)
--------- --------- ----------
Net loss..................................... (2,964) (1,658) (10,926)
Accretion of mandatorily redeemable
convertible preferred stock to redemption
value....................................... -- -- (4,862)
--------- --------- ----------
Net loss attributable to common
stockholders................................ $ (2,964) $ (1,658) $ (15,788)
Other comprehensive losses:
Foreign currency translation adjustment.... (112) 18 --
--------- --------- ----------
Comprehensive loss........................... $ (3,076) $ (1,640) $ (15,788)
========= ========= ==========
Net loss per share:
Basic and diluted.......................... $ (0.65) $ (0.36) $ (3.36)
========= ========= ==========
Weighted average shares.................... 4,556,893 4,658,735 4,698,483
========= ========= ==========
Pro forma net loss per share (unaudited):
Basic and diluted.......................... $ (0.76)
==========
Weighted average shares.................... 14,447,327
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVENTA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Series A
Convertible Retained Total
Preferred Stock Common Stock Additional Deferred Accumulated Earnings/ Stockholders'
----------------- ------------- Paid-in Stock-Based Comprehensive (Accumulated Equity
Shares Amount Shares Amount Capital Compensation Losses Deficit) (Deficit)
-------- ------- ------ ------ ---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 800 $ 1 4,543 $ 5 $ 388 $ -- $ 1 $ 205 $ 600
Stock issuance costs.... -- -- -- -- (25) -- -- -- (25)
Exercise of common stock
options................ -- -- 99 -- 5 -- -- -- 5
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (112) -- (112)
Net loss................ -- -- -- -- -- -- -- (2,964) (2,964)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1997................... 800 1 4,642 5 368 -- (111) (2,759) (2,496)
Stock issuance costs.... -- -- -- -- (42) -- -- -- (42)
Exercise of common stock
options................ -- -- 40 -- 3 -- -- -- 3
Deferred stock-based
compensation........... -- -- -- -- 1,028 (1,028) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 50 -- -- 50
Foreign currency
translation
adjustment............. -- -- -- -- -- -- 18 -- 18
Net loss................ -- -- -- -- -- -- -- (1,658) (1,658)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1998................... 800 1 4,682 5 1,357 (978) (93) (4,417) (4,125)
Stock issuance costs.... -- -- -- -- (16) -- -- -- (16)
Exercise of Series A
convertible preferred
stock warrants......... 200 -- -- -- 100 -- -- -- 100
Exercise of common stock
options................ -- -- 77 -- 8 -- -- -- 8
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (4,862) -- -- -- (4,862)
Deferred stock-based
compensation, net of
cancellations.......... -- -- -- -- 5,274 (5,274) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 1,590 -- -- 1,590
Write off of accumulated
foreign currency
translation
adjustment............. 93 93
Net loss................ -- -- -- -- -- -- -- (10,926) (10,926)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31, $
1999................... 1,000 $ 1 4,759 $ 5 $ 1,861 $(4,662) -- $(15,343) $(18,138)
======== ======= ===== ==== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVENTA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(2,964) $(1,658) $(10,926)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts................ 258 (49) --
Depreciation................................... 192 252 562
Deferred income taxes.......................... 99 -- --
Amortization of deferred stock-based
compensation.................................. -- 50 1,590
Changes in operating assets and liabilities:
Accounts receivable.......................... 250 78 (1,376)
Prepaid expenses and other assets............ 51 (121) (1,533)
Accounts payable............................. (151) 345 886
Accrued expenses............................. 14 797 1,658
Deferred revenue............................. -- -- 483
Income taxes payable......................... 1 (26) --
Deferred tax liabilities..................... 1 (8) (17)
------- ------- --------
Net cash used in operating activities...... (2,249) (340) (8,673)
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............... (50) (460) (1,261)
------- ------- --------
Net cash used in investing activities...... (50) (460) (1,261)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net of issuance
costs........................................... 3,175 5,027 4,984
Proceeds from exercise of warrants............... -- -- 100
Proceeds from issuance of common stock........... 5 3 8
Proceeds from borrowings......................... -- 300 4,092
Repayment of borrowings.......................... (165) (300) (392)
Repayment of capital lease obligations........... (93) (118) (397)
------- ------- --------
Net cash provided by financing activities.. 2,922 4,912 8,395
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 623 4,112 (1,539)
Cash and cash equivalents, beginning of year....... 48 671 4,783
------- ------- --------
Cash and cash equivalents, end of year............. $ 671 $ 4,783 $ 3,244
======= ======= ========
Supplemental cash flow information:
Cash paid for the period:
Interest....................................... $ 77 $ 56 $ 106
======= ======= ========
Taxes.......................................... $ 49 $ -- $ --
======= ======= ========
Supplemental non-cash investing and financing
activity:
Property and equipment acquired under capital
lease........................................... $ 285 $ -- $ 678
======= ======= ========
Write-off of accumulated foreign currency
translation adjustment against accrued liquidation
costs............................................. $ -- $ -- $ 93
======= ======= ========
</TABLE>
F-6
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Inventa Corporation (the "Company") was incorporated in California on
October 26, 1988. The Company provides Internet professional services including
business-to-business e-Commerce solutions to companies located primarily in the
United States. The Company architects, engineers, integrates and supports
complex business to business digital exchanges and digital customer
relationship management solutions. Digital exchanges are electronic
marketplaces that enable businesses to collaborate with trading partners,
conduct e-Commerce, manage distribution relationships and enhance business
partnerships. Digital customer relationship management is an Internet based
approach to coordinating a company's customer relationships across
communications channels, business functions and trading partners.
Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned foreign subsidiary, ICG Systems
SDN. BHD, located in Malaysia through December 31, 1998. All intercompany
accounts between the Company and its wholly owned subsidiary have been
eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from professional services which are
generally provided to clients on either a fixed-price or a time and materials
basis. Revenue from fixed-price engagements is recognized using the percentage
of completion method (based on the ratio of costs incurred to the total
estimated project costs). Revenue from time and materials engagements is
recognized as services are rendered. Payments received in advance of services
rendered are recorded as deferred revenue. The Company reports revenue net of
reimbursable expenses which are billed to and collected from clients.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such
losses become probable and can be reasonably estimated. To date, such losses
have not been significant.
Client billings are generated upon achievement of milestones defined in the
engagement contracts. At December 31, 1997, 1998 and 1999, the Company had
$33,000, $32,000 and $1,183,000 in unbilled accounts receivable relating to
revenue recognized but not billed due to timing of milestone achievement.
Unbilled accounts receivable is included in prepaid expenses and other current
assets on the consolidated balance sheet.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
F-7
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risks
Financial instruments that potentially subject the Company to a
concentration credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company limits its exposure to credit loss by placing
its cash and cash equivalents with high quality financial institutions. The
Company's accounts receivable are derived from revenue earned from clients
located in the United States. The Company performs ongoing credit evaluations
of its clients and maintains an allowance for potential credit losses based
upon the expected collectability of accounts receivable.
The following table summarizes the revenues from clients in excess of 10% of
total revenues:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Company A................................................... 3% 52% 35%
Company B................................................... -- -- 21%
Company C................................................... 17% 8% 6%
Company D................................................... 18% 16% 3%
Company E................................................... 18% 5% --
Company F................................................... 15% -- --
</TABLE>
At December 31, 1997, Company E and F accounted for 15% and 17% of total
accounts receivable, respectively. At December 31, 1998, Company A and D
accounted for 38% and 27% of total accounts receivable, respectively. At
December 31, 1999, Company A and B accounted for 26% and 25% of total accounts
receivable, respectively.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, short-term borrowings and accounts payable are carried at
cost, which approximates their fair value because of the short-term maturity of
these instruments. The carrying value of the Company's capital leases
approximate fair value because the implicit rates for these leases approximates
prevailing market rates. The fair value of long-term borrowings are estimated
based on current interest rates available to the Company for debt instruments
with similar terms, degrees of risk, and remaining maturities. The carrying
values of these obligations approximate their fair values. Redeemable preferred
stock are recorded at their estimated redemption amounts which is considered to
approximate fair value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets,
generally ranging from three to five years. Equipment acquired under capital
leases is amortized on a straight-line basis over the term of the lease or
estimated useful lives, whichever is shorter. Leasehold improvements are
amortized over the shorter of the term of the lease or the life of the asset.
Long-lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of" ("SFAS No. 121"). SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets. In that
event, a loss is recognized based on the amount by which the carrying value
F-8
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exceeds the fair value of the long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the
cost of disposal. No losses from impairment have been recognized in the
financial statements.
Advertising
Advertising is expensed as incurred. Advertising and public relations
expenses for the years ended December 31, 1997, 1998 and 1999, totaled $91,000,
$230,000 and $386,000, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees," ("APB No. 25") and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25, compensation
expense is recognized based on the difference, if any, on the date of grant
between the fair value of the Company's stock and the amount an employee must
pay to acquire the stock. The compensation expense is recognized over the
periods the employee performs the related services, generally the vesting
period of four years, consistent with the multiple option method described in
FASB Interpretation No. 28 ("FIN 28"). Use of this method resulted in
amortization of the deferred compensation at a rate of approximately 60%, 25%,
12%, and 3% over the respective four year period.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or
Services" which require that such equity instruments are recorded at their fair
value on the measurement date, which is typically the date of grant.
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of this offering, the outstanding shares of
Series A Convertible Preferred Stock, Series B and Series C Mandatorily
Redeemable Convertible Preferred Stock will automatically convert into
approximately 1,000,000, 2,560,000 and 8,056,000 shares, respectively, of
Common Stock. The pro forma effects of these transactions are unaudited and
have been reflected in the accompanying pro forma Stockholders' Equity at
December 31, 1999.
Net Loss Per Share
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS "No. 128") and SEC
Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the provisions of SFAS
No. 128 and SAB No. 98, basic net loss per share is computed by dividing the
net loss available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and potential common shares outstanding during the
period, if their effect is dilutive. Potential common shares are comprised of
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and upon the conversion of Convertible Preferred Stock.
F-9
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated, (in thousands, except share and per share
data):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Historical:
Numerator:
Net loss.................................... $ (2,964) $ (1,658) $ (10,926)
Accretion of series B and C mandatorily
redeemable convertible preferred stock..... -- -- (4,862)
--------- --------- ---------
Net loss attributable to common
stockholders............................... $ (2,964) $ (1,658) $ (15,788)
========= ========= =========
Denominator:
Weighted average shares..................... 4,556,893 4,658,735 4,698,483
========= ========= =========
Net loss per share:
Basic and diluted........................... $ (0.65) $ (0.36) $ (3.36)
========= ========= =========
</TABLE>
The following table sets forth potential common stock that are not included
in the diluted net loss per share calculation above because to do so would be
antidilutive for the period indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Effect of potential common stock:
Series A convertible preferred stock.......... 800,000 800,000 1,000,000
Series B mandatorily redeemable convertible
preferred stock.............................. 2,560,000 2,560,000 2,560,000
Series C mandatorily redeemable convertible
preferred stock.............................. -- 4,055,511 8,055,511
Convertible preferred stock warrants.......... 200,000 200,000 160,000
Employee stock options........................ 425,000 1,496,000 3,492,000
--------- --------- ----------
3,985,000 9,111,511 15,267,511
========= ========= ==========
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the conversion of the Company's Series A, Series B and Series C
Convertible Preferred Stock into shares of the Company's Common Stock effective
upon the closing of the Company's initial public offering, as if such
conversion occurred on January 1, 1999, or at the date of original issuance, if
later. The resulting pro forma adjustment includes (i) an increase in the
weighted average shares used to compute the basic net loss per share by
9,748,844 shares and (ii) a decrease in the net loss attributable to common
stockholders for the accretion of mandatorily redeemable convertible preferred
stock of $4,862,000. The calculation of diluted net loss per share excludes
potential shares of common stock as the effect of their inclusion would be
antidilutive. Pro forma potential common stock consists of incremental shares
of common stock issuable upon the exercise of stock options.
Foreign Currency Translation Policy
The functional currency of ICG Systems SDN. BHD. is the local currency.
Assets and liabilities are translated at exchange rates prevailing at the
balance sheet dates. Revenues, costs and expenses are translated into United
States dollars at average exchange rates for the period. Gains and losses
resulting from translation are accumulated as a component of stockholders'
equity.
F-10
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for using an asset and liability approach.
Deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. In
addition, deferred tax assets are recorded for the future benefit of utilizing
net operating loss and research and development credit carryforwards. A
valuation allowance is provided against deferred tax assets unless it is more
likely than not that they will be realized, either through the generation of
future taxable income or through carryback potential.
Comprehensive Income
The Company follows the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources.
Segment Information
The Company follows the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). The Company identifies its operating segments
based on business activities, management responsibility and geographical
location. During the periods presented the Company operated in a single
business segment.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value and will be effective as
of June 15, 2000. The adoption of SFAS No. 133 is not expected to have a
material effect on the Company's results of operations, financial condition or
cash flows.
NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable................................. $ 955 $ 945 $2,187
Less: Allowance for doubtful accounts............... (333) (308) (174)
----- ------ ------
$ 622 $ 637 $2,013
===== ====== ======
Property and equipment, net:
Furniture and fixtures.............................. $ 144 $ 218 $ 495
Equipment........................................... 702 1,051 2,166
Leasehold improvements.............................. 47 76 407
----- ------ ------
893 1,345 3,068
Less: Accumulated depreciation ....................... (442) (684) (1,066)
----- ------ ------
$ 451 $ 661 $2,002
===== ====== ======
</TABLE>
F-11
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment includes $456,000 of equipment under capital leases
at December 31, 1997 and 1998 and $999,000 at December 31, 1999. Accumulated
depreciation of assets under capital leases totaled $179,000, $234,000 and $
337,000 at December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998 1999
---- ------ ------
<S> <C> <C> <C>
Accrued expenses:
Payroll and related expenses........................... $180 $ 510 $1,896
General and administrative expenses.................... 119 614 770
Income taxes payable................................... 27 1 7
Other.................................................. -- -- 17
---- ------ ------
$326 $1,125 $2,690
==== ====== ======
</TABLE>
NOTE 3--RELATED PARTY TRANSACTIONS:
During 1997 and 1998, the Company obtained contract services from an entity
in which the Chairman, who was the Company's former President, has a
significant investment. The Company paid approximately $590,000 during 1997 and
$485,000 during 1998, which was estimated to approximate the fair market value,
for the services. This relationship was mutually terminated in October 1998.
NOTE 4--INCOME TAXES:
The provision for income taxes consists of the following, (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................. $ (3) $ -- $ 13
State and local.......................................... 1 2 2
Other.................................................... 29 -- --
---- ---- ----
27 2 15
---- ---- ----
Deferred:
Federal.................................................. 53 -- --
State and local.......................................... 10 -- --
---- ---- ----
63 -- --
---- ---- ----
$ 90 $ 2 $ 15
==== ==== ====
</TABLE>
F-12
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities consist of the following, (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $ 1,102 $ 1,274 $ 5,088
Accruals and other reserves................... 53 341 316
Fixed assets.................................. -- 107 92
------- ------- -------
Total gross deferred tax assets................. 1,155 1,722 5,496
Less: Valuation allowance....................... (1,155) (1,722) (5,496)
------- ------- -------
-- -- --
------- ------- -------
Deferred tax liabilities:
Fixed assets.................................. (25) (17) --
------- ------- -------
$ (25) $ (17) --
======= ======= =======
</TABLE>
The Company has incurred losses for the years ended December 31, 1997, 1998
and 1999. Management believes that, based on the history of such losses and
projected near-term future losses, the weight of available evidence indicates
that it is more likely than not that the Company will not be able to realize
its deferred tax assets and thus a full valuation reserve has been recorded at
December 31, 1997, 1998 and 1999.
As of December 31, 1999, the Company had approximately $13.0 million of
federal net operating loss carryforwards and approximately $11.0 million of
state net operating loss carryforwards available to offset future taxable
income. The federal net operating loss carryforwards will expire between 2011
and 2019 and the state net operating loss carryforwards will expire between
2004 and 2006, if not utilized.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership
change of more than 50% over a three-year period, as defined. Any unused annual
limitation may be carried forward to future years for the balance of the net
operating loss carryforward period.
NOTE 5--BORROWINGS:
Line of Credit
During November 1999, the Company terminated a line of credit with Silicon
Valley Bank. The line of credit provided for borrowings of up to $1,000,000
which were secured by the Company's assets. The line of credit charged interest
at a rate of 9.00% per annum. Under the line of credit, the Company was
required to maintain certain financial ratios as stipulated in the agreement.
Equipment Lease Line
During November 1999, the Company paid in full the balance outstanding under
an equipment lease financing line with Silicon Valley Bank. The equipment lease
line provides for borrowings of up to $600,000 which are secured by the
Company's assets. The Company's ability to draw on the financing line expires
on June 22, 2000. The lease line bears interest at a rate of 9.75% per annum.
Under the line of credit, the Company is required to maintain certain financial
covenants.
F-13
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan Agreement
On November 17, 1999, the Company entered into a loan agreement with a
financial institution. This agreement provides for borrowings of up to
$4,000,000 under a term loan and $2,000,000 under a revolving line of credit.
Borrowing under the term loan bears interest at prime rate plus 2.00% (10.75%
currently) with accrued interest paid monthly and is due at November 30, 2000.
Borrowing under the line of credit is limited to the lesser of 80% of the
amount of the eligible accounts receivable or $2,000,000, and bears interest at
prime rate plus 2.00% (10.75% currently). The Company borrowed the entire
$4,000,000 available under the term loan on the date of the agreement. Assets
of the Company, including cash and cash equivalents, accounts receivable and
property and equipment, are pledged as collateral for borrowings under this
agreement.
In connection with such debt financing, the Company issued warrants to
purchase 160,000 shares of Series C Mandatorily Redeemable Preferred Stock at
$2.50 per share, which expire in November 2004. The value of the warrants was
determined using the Black-Scholes valuation model. The expense amounting to
$118,000 will be recognized as additional interest expense over the term of the
borrowing arrangement. The warrants became exercisable upon the closing of the
loan agreement.
NOTE 6--COMMITMENTS AND CONTINGENCIES:
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the company.
Lease Commitments
The Company leases office space, equipment and an automobile under
noncancelable operating and capital leases. Rent expense under the operating
leases was approximately $157,000, $214,000 and $828,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Future minimum lease payments under the capital and noncancelable operating
leases at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, Leases Leases
------------------------ ------- ---------
(in thousands)
<S> <C> <C>
2000...................................................... $ 262 $ 976
2001...................................................... 224 508
2002...................................................... 169 196
2003...................................................... 96 116
2004...................................................... 27 --
------- -------
778 $ 1,796
=======
Less: Amounts representing interest....................... (132)
-------
Present value of minimum capital lease payments........... 646
Less: Current portion..................................... (192)
-------
Capital lease obligations, long-term...................... $ 454
=======
</TABLE>
F-14
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employment Agreements
The Company has entered into employment agreements with certain officers of
the Company. Some employment agreements also provide for severance in the event
the individual is terminated without cause.
NOTE 7--CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1999, consists of the following
(in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Redemption
Series Authorized Outstanding Amount Amount
------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
A.............................. 1,000 1,000 $ 500 $ --
B.............................. 2,560 2,560 3,200 28,160
C.............................. 8,220 8,056 10,070 88,616
------ ------ ------- --------
11,780 11,616 $13,770 $116,776
====== ====== ======= ========
</TABLE>
The holders of Convertible Preferred Stock have the following rights and
preferences:
Voting
Each share of Series A, Series B and Series C has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock.
Dividends
Holders of Series A, Series B and Series C are entitled to receive
noncumulative dividends as declared by the Board of Directors at a rate of
$0.03, $0.075 and $0.10 per share, respectively, per annum prior to any
dividends being paid to holders of Common Stock. After payment of such
dividends, declared dividends shall be paid to the holders of Common Stock and
Convertible Preferred Stock in such amounts as they would be entitled to
receive if their shares had been converted into shares of Common Stock. No
dividends were declared by the Board from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including merger or sale of substantially all assets, the Series A, Series B
and Series C shareholders are entitled to receive with each series of
Convertible Preferred Stock, on a pro rata basis, a distribution of $0.50,
$1.25 and $1.25 per share, respectively, plus any unpaid but declared dividends
prior to and in preference to any distribution to the holders of Common Stock.
After the payment has been made to the holders of Series A, Series B and Series
C, the holders of Common Stock are entitled to receive $0.40 per share. The
remaining assets, if any, shall be distributed ratably among the holders of the
Common Stock, Series A, Series B and Series C shareholders.
Redemption
The holders of Series C have the right to require the Company to redeem the
then outstanding shares beginning on or after March 31, 2004 in three equal
annual installments which is the fair value of the Series C at the time of
redemption plus unpaid dividends. The holders of Series B have the right to
require the Company to redeem the then outstanding shares any time after March
2004 in three annual installments for a redemption price, which is the fair
value of the Series B at the time of redemption plus unpaid dividends. Fair
values shall
F-15
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be determined by the Board of Directors but if it is unacceptable to the
holders of the Series C or Series B, then it shall be determined by an
independent investment banking firm. The Series A has no redemption privileges.
As the future redemption prices of the Series B and Series C shares are
variable in amount, the difference between the Series B and Series C carrying
values and their estimated future redemption value are being accreted ratably
as a charge to additional paid-in capital. The estimated future redemption
value of $11.00 as of December 31, 1999 is based on the mid-point of the range
of share prices anticipated for the proposed initial public offering of the
Company's stock.
During the years ended December 31, 1997 and 1998, the carrying value of
both the Series B and Series C approximated their estimated future redemption
price and as such no accretion charges were recorded. During the year ended
December 31, 1999, the Company recorded accretion charges of $4.1 million.
Conversion
Each share of Series A, Series B and Series C is convertible at the option
of the holder into one share of Common Stock. The conversion ratio of Series B
into Common Stock is subject to certain adjustments to prevent dilution. Series
A, Series B and Series C automatically convert into Common Stock upon the
completion of an underwritten public offering with gross proceeds of at least
$5,000,000, $10,000,000 and $10,000,000 and a public offering price of not less
than $1.75, $4.00 and $4.00 per share, respectively.
Warrants
In connection with the issuance of Series A, each holder was granted a
warrant to purchase one share of preferred stock for every four shares of
Series A owned at an exercise price per share of $0.50. The warrants expire at
the earlier of December 31, 1999, the date of the Company's initial public
offering of securities, or the date of acquisition of the Company. The value of
the warrants at the time of their issuance was not material to the consolidated
financial statements.
During December 1999, warrants for an aggregate of 200,000 shares of Series
A Convertible Preferred Stock were exercised. Gross proceeds from the exercise
were $100,000.
NOTE 8--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 25,000,000 shares of Common Stock.
At December 31, 1999, the Company had reserved the following number of
shares of Common Stock for future issuance (in thousands):
<TABLE>
<S> <C>
Series A Convertible Preferred Stock.................................. 1,000
Series B Mandatorily Redeemable Convertible Preferred Stock........... 2,560
Series C Mandatorily Redeemable Convertible Preferred Stock........... 8,220
Options under Stock Option Plan....................................... 1,474
------
13,254
======
</TABLE>
NOTE 9--STOCK OPTION PLAN:
In 1993, the Board of Directors and shareholders adopted the 1993 Stock
Option Plan (the "1993 Plan") which provides for granting of incentive stock
options ("ISO's") and nonqualified stock options ("NSO's") for shares of Common
Stock to employees, directors and consultants of the Company. In accordance
with the 1993
F-16
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plan, the stated exercise price shall not be less than 100% and 85% of the
estimated fair market value of the Common Stock as determined by the Board of
Directors on the date of grant for ISO's and NSO's, respectively. Stock options
granted to a person owning more than 10% of the combined voting power of all
classes of stock of the Company must be issued at 110% of the fair market value
of the stock on the date of grant. The 1993 Plan provides that the options
shall be exercisable over a period not to exceed ten years and shall generally
vest 25% one year after the date of grant and thereafter vest in equal monthly
installments over the remaining 36 months.
The following tables summarize stock option plan activity under the 1993
Plan (in thousands except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 483 $0.05 425 $0.10 1,496 $0.14
Granted................. 330 0.15 1,259 0.15 2,398 0.58
Exercised............... (99) 0.05 (41) 0.07 (76) 0.11
Canceled................ (289) 0.09 (147) 0.09 (326) 0.35
---- ----- -----
Outstanding at end of
period................. 425 $0.10 1,496 $0.14 3,492 $0.42
==== ===== =====
Options exercisable at
end of period.......... -- 348 487
==== ===== =====
Weighted average fair
value of options
granted during the
period................. $1.13 $1.13 $2.91
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1999 at December 31, 1999
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices Outstanding Life Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.050................ 47 5.0 years $0.05 43 $0.05
$0.150................ 2,005 9.0 years 0.15 444 0.15
$0.450................ 599 9.5 years 0.45 -- --
$0.625................ 148 9.6 years 0.63 -- --
$1.000................ 192 9.8 years 1.00 -- --
$1.250................ 501 9.9 years 1.25 -- --
----- ---
3,492 9.2 years $0.42 487 $0.14
===== ===
</TABLE>
F-17
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based Compensation
In connection with certain stock option grants during the year ended
December 31, 1999 the Company recorded unearned stock-based compensation
totaling $5,274,000 for the difference between the exercise price of the stock
options and the deemed fair value of the Company's stock at the date of the
grant. Stock-based compensation amortization recognized during the year ended
December 31, 1999 totaled $1,590,000. If the stock-based compensation for the
year ended December 31, 1999 had been allocated across the relevant functional
expense categories within operating expenses, it would be allocated as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Project personnel............................................... $ 621
Sales and marketing............................................. 359
General and administrative...................................... 610
------
$1,590
======
</TABLE>
Fair Value Disclosures
The Company has adopted the disclosure only provision of SFAS No. 123. Had
compensation cost been determined for options issued based on the fair value of
the options at the grant date for awards in 1997 and 1998 consistent with
provisions of SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported.................................... $(2,964) $(1,658) $(15,788)
======= ======= =========
Pro forma...................................... $(3,045) $(1,865) $ (15,890)
======= ======= =========
Net loss per share--basic and diluted as
reported........................................ $ (0.65) $ (0.36) $ (3.36)
======= ======= =========
Net loss per share--basic and diluted pro forma.. $ (0.67) $ (0.40) $ (3.38)
======= ======= =========
</TABLE>
The Company calculated the fair value of each option on the date of grant
using the Black-Scholes pricing model with the following assumptions used for
grants during the applicable period: annual dividend yield of 0%, risk-free
annual interest rates of 4.47% to 6.31% for options granted during the period
from January 1, 1997 through December 31, 1999 and a weighted average expected
option term of five years.
NOTE 10--EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, and as amended on January 1, 1998, the Company
adopted the Inventa Corporation Retirement Savings Plan (the "Plan") which
qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code.
All full-time employees who are at least 21 years old are eligible to
participate in the Plan. Participants may contribute up to maximum allowed
under the law of their earnings to the Plan. A discretionary matching amount
may be made by the Company. The Company made matching contributions for the
years ended December 31, 1997, 1998 and 1999 of $21,000, $30,000 and $96,000,
respectively.
F-18
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--MALAYSIAN OPERATIONS:
In November 1998, the Company announced a formal plan to close its
operations in Malaysia and focus its effort in the United States. Accordingly,
in February 1999, the Company engaged the services of a third party to assist
in the orderly liquidation of the Malaysian subsidiary. In conjunction with
this announcement, the Company made a provision of $250,000 in the consolidated
financial statements for costs to be incurred in connection with the
liquidation of the Malaysian subsidiary. This amount consisted of $157,000 for
the write-down from the liquidation of the assets, $47,000 for remaining trade
obligations, and $46,000 for legal and other professional services to be
provided during the liquidation process. Operations ceased during 1998 and all
employee severance related costs were incurred prior to December 31, 1998.
During 1999, the liquidation of the assets and settlement of the obligations
was completed. As of December 31, 1999, $41,000 remains accrued to cover a
pending claim from a former customer of the Malaysian subsidiary. The Company
anticipates that this claim will be settled during 2000.
NOTE 12--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment (as defined by SFAS No.
131) providing consulting and systems integration services.
The following is a summary of service revenue by geographic area (in
thousands):
<TABLE>
<CAPTION>
Years Ended December
31,
---------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Malaysia............................................... $ 748 $ 521 $ --
United States.......................................... 4,448 7,495 13,520
------ ------ -------
$5,196 $8,016 $13,520
====== ====== =======
</TABLE>
NOTE 13--SUBSEQUENT EVENTS:
Series D Mandatorily Redeemable Preferred Stock
On January 19, 2000, 3,000,000 shares of Series D Mandatorily Redeemable
Preferred Stock were issued at a price of $7.41 per share for gross proceeds of
approximately $22.2 million. The difference between the deemed fair value of
the series D preferred stock of $11.00 and the price per share of $7.41 was
considered to be a beneficial conversion feature analogous to a dividend to the
preferred stockholders as prescribed under the provisions of EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios. Due to the conversion rights, the
deemed fair value of the Series D preferred stock was based on the mid-point of
the range of share prices anticipated for the proposed initial public offering
of the Company's common stock. The value of the beneficial conversion feature
of $10.8 million was recognized immediately as a charge to net loss
attributable to common stockholders at the date of issuance as the preferred
stockholders have the right to immediately convert their preferred shares at
their option.
Acquisition
Effective January 26, 2000, the Company acquired all the outstanding shares
of common stock of XTEND-Tech, Inc., a provider of information technology
consulting services. Total consideration paid in connection with this
acquisition was 1,350,000 shares of the Company's common stock with a value of
$14,850,000. The deemed fair value of the Company's common stock on the date
the merger agreement was
F-19
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
signed was $11.00 per share. The deemed fair value of the common stock was
based on the mid-point of the range of share prices anticipated for the
proposed initial public offering. The consideration consisted of a combination
of the purchase price paid for the outstanding common stock of XTEND-Tech and
consideration to certain employee stockholders of XTEND-Tech for continued
employment with the Company.
The acquisition will be accounted for using the purchase method of
accounting. The amount of the consideration treated as purchase price for this
acquisition was approximately $8,779,000. The purchase price was allocated to
the tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values at the acquisition date. The purchase price
consisted of 798,052 shares of the Company's common stock. The estimated
allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Tangible assets.................................................. $ 775,000
Intangible assets
Workforce...................................................... 5,100,000
Covenants not to compete....................................... 1,000,000
Goodwill....................................................... 2,631,000
Liabilities...................................................... (727,000)
----------
$8,779,000
==========
</TABLE>
The amortization of the intangible assets will occur over the estimated
periods to be benefited. The estimated weighted average period to be benefitted
from the intangible assets for the workforce, covenants not to compete and the
residual goodwill, created as a result of the acquisition of XTEND-Tech, Inc.
is approximately three years.
Additionally, the Company signed restricted stock agreements with certain
employee stockholders of XTEND-Tech, Inc. as consideration for continued
employment. Under these agreements, the stockholders receive 849,150 shares of
the Company's common stock with a fair value of approximately $9,341,000 at the
effective date of the stock purchase agreement. Under the restricted stock
agreement, 297,202 shares vest immediately and therefore constitute part of the
purchase price of the tangible and intangible assets of XTEND-Tech, Inc. The
remaining 551,948 shares are subject to the Company's right to repurchase upon
termination of employment for $0.01 per share. Twenty three percent of these
restricted shares vest and are released from the Company's repurchase right on
the first anniversary of the effective date of the agreement. The remaining
shares vest and are released from the Company's repurchase right evenly over
the two years following the first anniversary. The fair value of the unvested
shares, amounting to $6,071,000 has been recorded as deferred stock-based
compensation which will be amortized over the three year vesting period of the
restricted stock as described above in accordance with FASB Interpretation No.
28.
Letter of Credit
In February 2000, the Company entered into two letters of credit for
approximately $2.8 million and $198,000 to secure lease deposits to expand into
two new office facilities. The letters of credit expire February 2001 and are
collateralized by certificates of deposit in the same amounts.
F-20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
In January 2000, Inventa Corporation ("Inventa") entered into a stock
acquisition agreement to acquire all outstanding shares of XTEND-Tech, Inc.
("XTEND-Tech"). Total consideration for the shares of XTEND-Tech was
$14,850,000 consisting of 1,350,000 shares of common stock. The unaudited pro
forma combined balance sheet is based on the individual balance sheets of
Inventa and XTEND-Tech appearing elsewhere in this prospectus and has been
prepared to reflect the acquisition of the common stock of XTEND-Tech by
Inventa as of December 31, 1999. The unaudited pro forma combined statements of
operations are based on individual historical results of operations of Inventa
and XTEND-Tech for the year ended December 31, 1999, after giving effect to the
acquisition of XTEND-Tech as if it had occurred on January 1, 1999.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto of
Inventa and XTEND-Tech. The unaudited pro forma combined financial statements
are presented for illustrative purposes only and are not necessarily indicative
of results of operations that would have actually occurred had the acquisition
of XTEND-Tech by Inventa been effected on the dates assumed.
F-21
<PAGE>
INVENTA CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Inventa XTEND-Tech Adjustments Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents....... $ 3,244 $173 $ -- $ 3,417
Accounts receivable, net........ 2,013 504 -- 2,517
Prepaid expenses and other
current assets................. 1,675 22 -- 1,697
-------- ---- ------- --------
Total current assets.......... 6,932 699 -- 7,631
Property and equipment, net...... 2,002 76 -- 2,078
Other assets..................... 288 -- -- 288
Intangible assets................ -- -- 6,100 (1) 6,100
Goodwill......................... -- -- 2,631 (1) 2,631
-------- ---- ------- --------
$ 9,222 $775 $ 8,731 $ 18,728
======== ==== ======= ========
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Borrowings...................... $ 4,000 $ 30 $ -- $ 4,030
Accounts payable................ 1,409 65 -- 1,474
Advances from related party..... -- 326 -- 326
Accrued expenses................ 2,687 159 -- 2,846
Deferred revenue................ 483 -- -- 483
Income taxes payable............ 3 20 -- 23
Capital lease obligations ...... 192 19 -- 211
-------- ---- ------- --------
Total current liabilities..... 8,774 619 -- 9,393
Capital lease obligations, long-
term............................ 454 48 -- 502
Borrowings, long-term............ -- 60 -- 60
-------- ---- ------- --------
9,228 727 -- 9,955
-------- ---- ------- --------
Mandatorily redeemable
convertible preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000
shares authorized, issued and
outstanding ................... 4,929 -- -- 4,929
Series C mandatorily redeemable
convertible preferred stock;
$0.001 par value; 8,220,000
shares authorized; 8,056,000
shares issued and
outstanding.................... 13,203 -- -- 13,203
-------- ---- ------- --------
18,132 -- -- 18,132
Stockholders' equity (deficit):
Series A convertible preferred
stock; $0.001 par value;
1,000,000 shares authorized,
issued and outstanding......... 1 -- -- 1
Common stock; $0.001 par value;
25,000,000 shares authorized;
4,759,000 shares issued and
outstanding .................. 5 -- 1 (2) 6
Additional paid-in capital....... 1,861 -- 14,849 (2) 16,710
Deferred stock-based
compensation.................... (4,662) -- (6,071)(3) (10,733)
Accumulated comprehensive loss... -- -- -- --
Retained earnings (accumulated
deficit)........................ (15,343) 48 (48)(8) (15,343)
-------- ---- ------- --------
Total stockholders' equity
(deficit).................... (18,138) 48 8,731 (9,359)
-------- ---- ------- --------
$ 9,222 $775 $ 8,731 $ 18,728
======== ==== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-22
<PAGE>
INVENTA CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Inventa XTEND-Tech Adjustments Pro Forma
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $ 13,520 $1,951 $ (317)(6) $ 15,154
--------- ------ ------- ---------
Operating expenses:
Project personnel
(exclusive of deferred
stock-based compensation
of $2,056, pro forma)..... 8,610 1,167 (317)(6) 9,460
Sales and marketing
(exclusive of deferred
stock-based compensation
of $1,793, pro forma)..... 4,230 410 -- 4,640
General and administrative
(exclusive of deferred
stock based compensation
of $1,088, pro forma)..... 9,434 293 -- 9,727
Depreciation............... 562 9 -- 571
Amortization of
intangibles............... -- -- 2,910 (5) 2,910
Amortization of deferred
stock-based compensation.. 1,590 -- 3,347 (4) 4,937
--------- ------ ------- ---------
Total operating
expenses................ 24,426 1,879 5,940 32,245
--------- ------ ------- ---------
Income (loss) from
operations.................. (10,906) 72 (6,257) (17,091)
Interest and other income.... 101 -- -- 101
Interest expense............. (106) (4) -- (110)
--------- ------ ------- ---------
Income (loss) before income
taxes....................... (10,911) 68 (6,257) (17,100)
Income tax expense........... (15) (20) -- (35)
--------- ------ ------- ---------
Net income (loss)............ (10,926) 48 (6,257) (17,135)
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value............ (4,862) -- -- (4,862)
--------- ------ ------- ---------
Net income (loss)
attributable to common
stockholders................ $ (15,788) $ 48 $(6,257) $ (21,997)
========= ====== ======= =========
Net loss per share:
Basic and diluted.......... $ (3.36) $ (4.00)(7)
========= =========
Weighted average shares.... 4,698,483 798,052 5,496,535 (7)
========= ======= =========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-23
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(Continued)
(1) Reflects the preliminary allocation of the purchase price to the intangible
assets and goodwill acquired in the XTEND-Tech acquisition. The preliminary
allocation has resulted in intangible assets, including assembled workforce
estimated at approximately $5,100,000, covenants not to compete, estimated
at approximately $1,000,000 and estimated goodwill of approximately
$2,631,000, which are being amortized over their weighted average life of
three years.
The total estimated purchase price for the XTEND-Tech acquisition has been
allocated on a preliminary basis to assets and liabilities based on
management's best estimates of their fair value with the excess costs over
the net assets acquired allocated to intangible assets and goodwill. This
allocation is subject to change pending a final analysis of the value of the
assets acquired and, liabilities assumed, upon closure of the acquisition.
The impact of such changes could be material.
(2) Reflects the issuance of 1,350,000 shares of Inventa Common Stock with a
fair value of $14,850,000 in connection with the XTEND-Tech acquisition.
(3) Reflects the unearned compensation recorded for restricted stock issued in
connection with the purchase of XTEND-Tech. Of the 1,350,000 shares issued,
798,052 shares with a fair value of $8,779,000 were immediately vested and
as such represent the purchase price. The remaining 551,948 shares which
were issued to XTEND-Tech employee stockholders are subject to the
Company's right to repurchase the shares upon the termination of employment
with Inventa. The fair value of these restricted shares in the amount of
$6,071,000 has been recorded as unearned deferred compensation and will be
amortized over the vesting period of the restricted shares.
(4) Reflects the amortization of the unearned deferred stock-based compensation
referred to in Note 3 above.
(5) Reflects the amortization of the intangible assets and goodwill referred to
in Note 1 above.
(6) Represents elimination of intercompany transactions with XTEND-Tech.
(7) Pro forma net loss reflects the impact of the adjustments above. Basic and
diluted net loss per share (pro forma) is computed using the weighted-
average number of shares of common stock outstanding after the issuance of
Inventa common stock in connection with the XTEND-Tech acquisition,
assuming such stock was issued on January 1, 1999 and excluding the 551,948
shares subject to repurchase.
(8) Reflects elimination of XTEND-Tech stockholders' equity.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
XTEND-Tech, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of XTEND-Tech, Inc. (the "Company") at December 31, 1999,
and the results of its operations for the period from inception (January 29,
1999) to December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 11, 2000
F-25
<PAGE>
XTEND-TECH, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................................... $173,098
Accounts receivable, net............................................ 503,674
Prepaid expenses.................................................... 22,418
--------
Total current assets............................................... 699,190
Property and equipment, net.......................................... 75,641
--------
$774,831
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................... $ 64,747
Advances from related party......................................... 326,435
Accrued taxes....................................................... 19,700
Accrued bonuses..................................................... 108,000
Other accrued liabilities........................................... 51,266
Capital lease obligations .......................................... 18,552
Borrowings, current portion of long-term............................ 30,000
--------
Total current liabilities.......................................... 618,700
Capital lease obligations, long-term................................. 47,954
Borrowings, long-term................................................ 60,000
--------
726,654
--------
Stockholders' equity:
Common stock; no par value; 100,000 shares authorized, issued and
outstanding........................................................ --
Retained earnings................................................... 48,177
--------
Total stockholders' equity......................................... 48,177
--------
$774,831
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
XTEND-TECH, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 29, 1999) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Revenues:
Revenues from third parties....................................... $1,165,192
Revenues from related parties..................................... 785,805
----------
1,950,997
----------
Operating expenses:
Project personnel................................................. 1,166,800
Sales and marketing............................................... 409,700
General and administrative ....................................... 293,148
Depreciation ..................................................... 9,331
----------
Total operating expenses........................................ 1,878,979
----------
Income from operations.............................................. 72,018
Interest expense.................................................... (3,941)
----------
Income before income taxes.......................................... 68,077
Income tax expense ................................................. (19,900)
----------
Net income.......................................................... $ 48,177
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
XTEND-TECH, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 29, 1999) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 48,177
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ................................................... 9,331
Changes in operating assets and liabilities:
Accounts receivable........................................... (503,674)
Prepaid expenses.............................................. (22,418)
Accounts payable.............................................. 64,747
Advances from related party................................... 326,435
Accrued taxes................................................. 19,700
Accrued bonuses............................................... 108,000
Other accrued liabilities..................................... 51,266
---------
Net cash provided by operating activities................... 101,564
---------
Cash flows from investing activities:
Purchase of property and equipment................................ (10,732)
---------
Net cash used in investing activities....................... (10,732)
---------
Cash flows from financing activities:
Repayment of capital lease obligations............................ (7,734)
Long term borrowings.............................................. 90,000
---------
Net cash provided by financing activities................... 82,266
---------
Net increase in cash and cash equivalents........................... 173,098
Cash and cash equivalents, beginning of period...................... --
---------
Cash and cash equivalents, end of period............................ $ 173,098
=========
Supplemental non-cash investing and financing activity:
Property and equipment acquired under capital lease .............. $ 74,240
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
XTEND-Tech, Inc. (the "Company") was incorporated in the state of New Jersey
on January 29, 1999. The Company is an information technology consulting
organization providing clients with technology expertise in all phases of
systems engineering and most software development methodologies for the major
industries in the United States.
The Company operations have initially been focused on the New Jersey, New
York, Pennsylvania and Delaware areas, with two offices in New Jersey.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Changes in
such estimates could affect reported amounts in future periods.
Financial Instruments
The Company's financial instruments including cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost, which
approximates their fair value because of the short-term maturity of these
instruments. The carrying value of the Company's capital leases and the long
term borrowings approximate fair value because the implicit rates approximate
prevailing market rates.
Accounts Receivable
Bad debts are provided on the allowance method based on management's
evaluation of outstanding accounts receivable. No provision for bad debts was
considered necessary by management at December 31, 1999.
Property and Equipment
Property and equipment, primarily computer hardware, are stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over the useful lives of the assets. Computer hardware is depreciated
over four years. Maintenance and repairs are charged to expense when incurred,
and the cost of additions and improvements is capitalized.
Revenue Recognition
Revenues are derived from sales of the Company's consulting services to end-
users. Revenue is recognized on a time and material basis when services are
provided.
Income Taxes
The accrual basis of accounting is used for income tax reporting purposes. A
provision of $19,900 was recorded for federal and state income taxes as of
December 31, 1999. The Company, with the consent of its shareholders, has
elected to be taxed as a "C" Corporation for federal and state income tax
purposes.
The Company utilizes the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying enacted
F-29
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period when the change in tax rates is
enacted.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Concentrations
of credit risk with respect to trade receivables are limited based on
management's evaluation of the relationship with the Company's clients. The
Company's four largest customers accounted for approximately 77% of revenues
for the period from inception (January 29, 1999) to December 31, 1999. IDCS,
Inc. (Note 2) accounted for 40% of revenues during the same period. At December
31, 1999, these four customers accounted for approximately 43% of accounts
receivable. These balances were subsequently collected.
NOTE 2--RELATED PARTY TRANSACTIONS:
Since its incorporation in January 1999, the Company's activities have been
financed on a needs basis through a prepayment note, payable to Intermodal
Database Communication Systems, Inc. ("IDCS"), a related party that owns 14.25%
of the Company. Through this prepayment note, the Company agrees to pay IDCS
the remaining prepayment principal sum that may be due to IDCS at any time upon
IDCS's request. In the event the Company refuses to repay any amount due within
3 days notice of demand, these amounts would accrue interest at a prime rate
plus 5.00%. The total advances from IDCS during the period ended December 31,
1999 amounted to $1,105,000. As of December 31, 1999, the outstanding balance
on these advances amounted to $326,435.
The Company has also entered into a capital lease agreement (Note 7) with
Selecto Flash, Inc., a related party which is represented on the Company's
Board of Directors.
NOTE 3--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of December 31, 1999:
<TABLE>
<S> <C>
Computer equipment.................................................. $10,092
Computer equipment under capital lease.............................. 74,240
Furniture and fixtures.............................................. 640
-------
84,972
Less: Accumulated depreciation...................................... (9,331)
-------
$75,641
=======
</TABLE>
NOTE 4--EMPLOYEE BENEFIT PLAN:
The Company participates in a self directed 401(k) Plan (the Plan), covering
all employees, which qualifies under Section 401(k) of the Internal Revenue
Code. The Plan allows eligible employees to make tax deferred contributions of
up to 15% of their compensation, subject to the legal maximum amount. The
Company does not match employees' contributions. Loans to participants are
permitted in an amount not to exceed the lesser of one-half of the
participant's non-forfeitable interest under the Plan or $50,000.
The Company also provides its employees with health, long-term disability
and life insurance programs, for which the Company fully pays the premiums,
except for the life insurance covered only up to $50,000 by the Company.
Expenses incurred for health and life insurance amounted to $81,071 and $3,704,
respectively, for the period from inception (January 29, 1999) to December 31,
1999.
F-30
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5-- BORROWINGS
On December 30, 1999, the Company signed a collateralized promissory note of
$90,000 with Valley National Bank. The promissory note is to be paid in 36
equal monthly installments of $2,500 and interest is calculated on the basis of
actual days elapsed over a 360-day year at prime plus 1.50%. The promissory
note is collateralized by all property, including all accounts receivable,
goods, inventory, merchandise, machinery, equipment, fixtures, instruments and
general intangibles, and all cash and non-cash proceeds therefrom. The proceeds
from the promissory note are to be used to finance the purchase of office
equipment for a new office location.
NOTE 6--STOCKHOLDERS' EQUITY:
At December 31, 1999, the capital stock of the Company consists of 100,000
shares of common stock, with no par value, that are authorized, issued and
outstanding.
NOTE 7--COMMITMENTS:
The Company entered into two operating leases for computer equipment with
Selecto Flash, Inc. and Dell Financial Services and also for a phone system
with Unistar leasing. The Company has leased, under a six-month operating
lease, office space in New Jersey since November 1999. The aggregate future
minimum lease payments, under the Company's leases are approximately as
follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, leases leases
- ------------------------ ------- ---------
<S> <C> <C>
2000......................................................... $26,389 $20,087
2001......................................................... 23,883 12,389
2002......................................................... 21,380 11,311
2003......................................................... 11,494 --
2004......................................................... -- --
------- -------
Total payments............................................. $83,146 $43,787
=======
Less: Amounts representing interest.......................... (16,640)
-------
Present value of minimum capital lease payments.............. 66,506
Less: Current portion........................................ 18,552
-------
Capital lease obligations, long-term......................... $47,954
=======
</TABLE>
NOTE 7--SUBSEQUENT EVENTS:
Stock Purchase Agreement
Effective January 26, 1999, the shareholders of the Company sold all
outstanding shares of the Company's common stock to Inventa Corporation in
exchange for shares of Inventa Corporation common stock.
F-31
<PAGE>
ARTWORK AND DIAGRAMS
[TO BE FILED BY AMENDMENT]
<PAGE>
[ ] Shares
[Inventa Logo]
Common Stock
-----------------
PROSPECTUS
, 2000
-----------------
Lehman Brothers
First Union Securities, Inc.
Friedman Billings Ramsey
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
Registration fee............................................... $ 15,840
NASD filing fee................................................ 6,500
Nasdaq National Market......................................... 95,000
Blue sky qualification fees and expenses....................... 10,000
Printing and engraving expenses................................ 250,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 400,000
Director and officer liability insurance....................... 300,000
Transfer agent and registrar fees.............................. 25,000
Miscellaneous expenses......................................... 57,660
----------
Total ......................................................... $1,560,000
==========
</TABLE>
- --------
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees that would require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Except as otherwise noted, we have issued and sold the following securities
within the last three years and through January 27, 2000:
On February 14, 1997, we sold an aggregate of 2,560,000 shares of our Series
B Preferred Stock at a price of $1.25 per share to five investors and their
affiliates.
On May 11, 1998, and May 28, 1999, we sold an aggregate of 8,055,511 shares
of our Series C Preferred Stock at a price of $1.25 per share to seven
investors and their affiliates.
On January 19, 2000, we sold an aggregate of 3,000,000 shares of our Series
D Preferred Stock at a price of $7.41 per share to seven investors and their
affiliates.
On January 26, 2000, we issued 1,350,000 shares of common stock to 11
individuals and one institutional investor in connection with our acquisition
of XTEND-Tech. These issuances were deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act, as
transactions by an issuer not involving any public offering.
We issued 200,000 shares of our Series A Preferred Stock, at an exercise
price per share of $0.50, pursuant to the exercise of warrants issued in
connection with our original issuance of our Series A Preferred Stock.
We issued a warrant to acquire 160,000 of Series C Preferred Stock, at an
exercise price of $2.50 per share, in connection with our borrowing of
$4,000,000 under a term loan.
We issued 2,271,000 shares of common stock and 400,000 shares of our Series
A Preferred Stock pursuant to a two-for-one stock split declared on January 29,
1997.
Since our inception, we have granted options to purchase 5,211,220 shares of
our common stock to employees, directors and consultants under our 1993 Plan at
exercise prices ranging from $0.05 to $6.50 per share. Of the 5,211,220 options
granted, 4,136,790 remain outstanding, 259,402 shares of common stock have been
purchased pursuant to exercises of stock options and options to acquire
815,028 shares have been cancelled and are available for grant under our 1993
Plan.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients either received adequate information about us or had access, through
their employment or other relationships with us, to adequate information about
us.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization among the Registrant, XTEND-Tech,
Inc. and the shareholders of XTEND-Tech, Inc. dated January 26, 2000.
3.1** Form of Amended and Restated Articles of Incorporation of Registrant
prior to completion of this offering.
3.2* Form of Certificate of Incorporation of Registrant to be effective
upon completion of this offering.
3.3** Amended and Restated Bylaws of Registrant prior to completion of this
offering.
3.4* Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Amended and Restated Registration Rights Agreement, between the
Registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1** Series A Preferred Stock Purchase Agreement.
10.2** Series B Preferred Stock Purchase Agreement.
10.3** Series C Preferred Stock Purchase Agreement.
10.4** Series D Preferred Stock Purchase Agreement.
10.5** Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000.
10.6** Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation.
10.7** 1993 Stock Option Plan.
10.8** Form of Stock Option Agreement.
10.9* 2000 Stock Plan and Related form of Stock Option Agreement.
10.10** Employees Stock Purchase Plan.
10.11** 401(K) Plan.
10.12** Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto.
10.13** Loan and Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Finance Corporation, dated
November 17, 1999, and related Security Agreement in copyrighted
works.
10.14** Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees.
10.15** Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998.
10.16** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1999.
10.17** Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000.
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999.
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999.
10.20** Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell dated August 5, 1998.
10.21** Employment Letter Agreement between the Registrant and Michael
Makishima dated July 14, 1997.
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999.
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999.
10.24** Employment Letter Agreement between the Registrant and Edward F.
Leppert dated October 27, 1997.
10.25** Severance Agreement between the Registrant and Ashok Santhanam dated
January 10, 1998.
10.26** Severance Agreement between the Registrant and Elizabeth J. Campbell
dated July 14, 1999.
10.27** Severance Agreement between the Registrant and Michael Makishima dated
January 13, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.28** Severance Agreement between the Registrant and Edward F. Leppert dated
January 13, 1998.
10.29** Severance Agreement between the Registrant and Srikantan Moorthy dated
January 10, 1998.
10.30 Lease Agreement dated February 1, 2000 between National Rural
Utilities Cooperative Finance Corporation and the Registrant and
related Letter of Credit.
10.31 Lease Agreement dated February 2, 2000, between Shorebreeze
Associates, LLC and the Registrant and the related Letter of Credit.
10.32** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and the Registrant and Sega Corporation, and amendments
thereto.
10.33** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and the Registrant.
10.34** Sublease Agreement, dated March 29, 1999, between Sega of America and
the Registrant.
10.35** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and the Registrant.
11.1* Statement of computation of earnings per share.
21** Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney (see signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(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 registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered 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 Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
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 Amendment No. 2 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Redwood Shores, California, on the 10th day of March 2000.
INVENTA TECHNOLOGIES, INC.
By:
*
----------------------------------
David A. Lavanty President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
* President and Chief Executive March 10, 2000
_____________________________________ Officer, and Director
David A. Lavanty (Principal Executive Officer)
* Senior Vice President and Chief March 10, 2000
_____________________________________ Financial Officer (Principal
Michael B. Shahbazian Financial Officer)
* (Principal Accounting Officer) March 10, 2000
_____________________________________
Michael Makishima
/s/ Ashok Santhanam Director March 10, 2000
_____________________________________
Ashok Santhanam
* Director March 10, 2000
_____________________________________
Michael Bealmear
* Director March 10, 2000
_____________________________________
Todd Dagres
* Director March 10, 2000
_____________________________________
Robert Ducommun
* Director March 10, 2000
_____________________________________
Frank Pinto
* Director March 10, 2000
*____________________________________
Jon Q. Reynolds, Jr.
</TABLE>
/s/ Ashok Santhanam
*By: ___________________________
Ashok Santhanam
Attorney-in-fact
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Inventa Corporation.
Our audits of the financial statements referred to in our report dated
February 11, 2000 appearing in this Amendment No. 2 to Registration Statement
(No. 333-95813) on Form S-1 also included an audit of the Financial Statement
Schedule listed in the index of this Form S-1. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
1
<PAGE>
INVENTA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance
at the Charged to Deductions Balance at
Allowance for doubtful beginning of costs and the end of
accounts the period and expenses write-offs the period
- ---------------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31,
1997................... 75 258 -- 333
Year ended December 31,
1998................... 333 49 74 308
Year ended December 31,
1999................... 308 -- 134* 174
</TABLE>
- --------
* primarily relates to the liquidation of the assets of the former Malaysian
subsidiary
2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization among the Registrant, XTEND-Tech,
Inc. and the shareholders of XTEND-Tech, Inc. dated January 26, 2000.
3.1** Form of Amended and Restated Articles of Incorporation of Registrant
prior to completion of this offering.
3.2* Form of Certificate of Incorporation of Registrant to be effective
upon completion of this offering.
3.3** Amended and Restated Bylaws of Registrant prior to completion of this
offering.
3.4* Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering.
4.1** Form of Registrant's Common Stock Certificate.
4.2 Amended and Restated Registration Rights Agreement, between the
Registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1** Series A Preferred Stock Purchase Agreement.
10.2** Series B Preferred Stock Purchase Agreement.
10.3** Series C Preferred Stock Purchase Agreement.
10.4** Series D Preferred Stock Purchase Agreement.
10.5** Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000.
10.6** Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation.
10.7** 1993 Stock Option Plan.
10.8** Form of Stock Option Agreement.
10.9* Employees Stock Purchase Plan.
10.10** 401(K) Plan.
10.11** Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto.
10.12** Loan and Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Finance Corporation, dated
November 17, 1999, and related Security Agreement in copyrighted
works.
10.13** Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees.
10.14** Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998.
10.15** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1999.
10.16** Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000.
10.17** Employment Agreement between the Registrant and Richard M. Cerwonka.
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999.
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999.
10.20** Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell dated August 5, 1998.
10.21** Employment Letter Agreement between the Registrant and Michael
Makishima dated July 14, 1997.
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999.
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999.
10.24** Employment Letter Agreement between the Registrant and Edward F.
Leppert dated October 27, 1997.
10.25** Severance Agreement between the Registrant and Ashok Santhanam dated
January 10, 1998.
10.26** Severance Agreement between the Registrant and Elizabeth J. Campbell
dated July 14, 1999.
10.27** Severance Agreement between the Registrant and Michael Makishima dated
January 13, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.28** Severance Agreement between the Registrant and Edward F. Leppert dated
January 13, 1998.
10.29** Severance Agreement between the Registrant and Srikantan Moorthy dated
January 10, 1998.
10.30 Lease Agreement dated February 1, 2000 between National Rural
Utilities Cooperative Finance Corporation and the Registrant on the
related Letter of Credit.
10.31 Lease Agreement dated February 2, 2000, between Shorebreeze
Associates, LLC and the Registrant and the related Letter of Credit.
10.32** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and the Registrant and Sega Corporation, and amendments
thereto.
10.33** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and the Registrant.
10.34** Sublease Agreement, dated March 29, 1999, between Sega of America and
the Registrant.
10.35** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and the Registrant.
21** Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney (see signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 4.2
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Agreement"),
dated as of January 26, 2000 is entered into by and among Inventa Corporation, a
California corporation (the "Company") and the holders of the Company's Series A
Preferred Stock listed on Exhibit A attached hereto (collectively, the "Series A
---------
Holders"), the holders of the Company's Series B Preferred Stock listed on
Exhibit B attached hereto (collectively, the "Series B Holders"), the holders of
- ---------
the Company's Series C Preferred Stock listed on Exhibit C attached hereto
---------
(collectively, the "Series C Holders") the holders of the Company's Series D
Preferred Stock listed on Exhibit D attached hereto (collectively, the "Series D
---------
Holders")and the Xtend-Tech Shareholders listed on Exhibit E attached hereto
---------
(collectively, the "Xtend-Tech Holders") (the Series A Holders, the Series B
Holders, the Series C Holders, the Series D Holders and the Xtend-Tech Holders
shall collectively be referred to as "Shareholders").
R E C I T A L S
---------------
A. The Series A Holders, the Series B Holders, the Series C Holders, the
Series D Holders and the Company are parties to the Restated Registration Rights
Agreement dated January 19, 2000.
B. The Xtend-Tech Holders and the Company are parties to the Agreement
and Plan of Reorganization as of the date hereof (the "Reorganization
Agreement").
C. The execution of this Agreement is in connection with the closing of
the transactions contemplated by the Reorganization Agreement.
D. The Shareholders and the Company desire that the transactions
contemplated by the Reorganization Agreement be consummated.
E. The Series A Holders, the Series B Holders, the Series C Holders, the
Series D Holders and the Company desire that this Agreement supersede the
Restated Registration Rights Agreement dated January 19, 2000 in its entirety.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Holder" shall mean any holder, or an assignee under Section 15
hereof, of outstanding Registrable Securities.
"Initiating Holders" shall mean any Holders who in the aggregate are
Holders of more than fifty percent (50%) of the outstanding Registrable
Securities.
The terms "register", "registered" and "registration" shall 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.
"Registrable Securities", subject to Sections 5(b) and 6(b) hereof,
shall mean shares of Common Stock (i) issued or issuable pursuant to the
conversion of the Shares, and (ii) issued in respect of securities issued
pursuant to the conversion of the Shares upon any stock split, stock dividend,
recapitalization, substitution, or similar event, and (iii) issued in respect to
securities issued to Xtend-Tech Holders pursuant to the stock exchange
transaction consummated in the Reorganization Agreement; provided, however, that
Registrable Securities shall not include any (a) shares of Common Stock which
have previously been registered, (b) shares of Common Stock which have
previously been sold to the public, or (c) securities which would otherwise be
Registrable Securities held by a Holder who is then permitted to sell all of
such securities within any three (3) month period following the Company's
initial public offering pursuant to Rule 144 if such securities then held by
such Holder constitute less than one percent of the Company's outstanding equity
securities.
"Registration Expenses" shall mean all expenses (excluding
underwriting discounts and selling commissions) incurred in connection with a
registration under Sections 5, 6 and 8 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration, and the
reasonable fees and expenses of one counsel for the selling Shareholders (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
"Shares" shall mean shares of the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
shares of the Company's Common Stock held by Xtend-Tech Holders.
2
<PAGE>
2. Restrictions on Transferability. The Restricted Securities held by
-------------------------------
the Shareholders shall not be transferred except upon the conditions specified
in this Agreement, which conditions are intended to insure compliance with the
provisions of the Securities Act or, in the case of Section 16 hereof, to assist
in an orderly distribution. Each Shareholder will cause any proposed transferee
of Restricted Securities held by that Shareholder to agree to take and hold
those securities subject to the provisions and upon the conditions specified in
this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Shares,
------------------
and (ii) shares of the Company's Common Stock issued upon conversion of the
Shares, and (iii) any other securities issued in respect of the Shares, or the
Common Stock issued upon conversion of the Shares, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH
SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE
CORPORATION.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 4(i) or
the "no-action" letter referred to in Section 4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k), in which case no such
opinion or "no-action" letter shall be required, and provided that the Company
shall not be obligated to remove any such legends prior to the date of the
initial public offering of the Company's Common Stock under the Securities Act.
4. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 5, 6 and 8 hereof), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144 promulgated under the Securities Act or for a transfer
to a holder's spouse, ancestors, descendants or a trust for any of their
benefit, or in
3
<PAGE>
transactions involving the distribution without consideration of Restricted
Securities by a holder that is a partnership to any of its partners or retired
partners or to the estate of any of its partners or retired partners, or by a
holder that is a trust to any successor trust or successor trustee) by either
(i) a written opinion of legal counsel to the holder who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act or (ii) a "no-action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by such holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the restrictive legend set forth in Section 3 above,
except that such certificate shall not bear such restrictive legend after the
date of the Company's initial public offering under the Securities Act if the
opinion of counsel or "no-action" letter referred to above expressly indicates
that such legend is not required in order to establish compliance with the
Securities Act or if such legend is no longer required pursuant to Rule 144(k).
5. Demand Registration.
-------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration
with respect to the Registrable Securities, the Company will:
(i) promptly given written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration after January 1, 2000 (including, without limitation,
the execution of an undertaking to file post effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request delivered to the Company within fifteen (15) days after
receipt of such written notice from the Company; provided that the Company shall
not be obligated to effect, or to take any action to effect, any such
registration pursuant to this Section 5:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) After the Company has effected two (2) such
registrations pursuant to this Section 5(a) and such registrations have been
declared or ordered effective, or withdrawn at the request of the majority of
the Initiating Holders, and the sales of such Registrable Securities have
closed; or
4
<PAGE>
(C) Within one hundred eighty (180) days of the effective
date of any other registration statement on Form S-1.
Subject to the foregoing clauses (A), (B) and (C), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders; provided, however, that if the Company shall
furnish to such 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 registration statement to be filed on or before the time filing would
be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
(but not more than once during any twelve month period) for a period of not more
than ninety (90) days after receipt of the request of the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders, may, subject to the provisions of Section 5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no right to include any of its securities in any such
registration except as provided in Section 5(b) below.
(b) Underwriting. If the 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
Section 5, and the Company shall include such information in the written notice
referred to in Section 5(a)(i) above. The right of any Holder to registration
pursuant to Section 5 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 with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If officers or directors of the Company shall request inclusion of
securities of the Company other than Registrable Securities in any registration
pursuant to Section 5, or if holders of securities of the Company who are
entitled by contract with the Company to have securities included in such a
registration (such officers, directors, and other shareholders being
collectively referred to as the "Other Shareholders") request such inclusion,
the Initiating Holders shall, on behalf of all Holders, offer to include the
securities of such Other Shareholders in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this
Agreement. The Company shall (together with all Holders and Other Shareholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters (the "Underwriter") selected for such underwriting
by more than fifty percent (50%) of the Initiating Holders and reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
5, if the Underwriter determines that marketing factors require a limitation on
the number of shares to be underwritten, the Underwriter may (subject to the
allocation priority set forth below) limit the number of Registrable Securities
to be included in the registration and underwriting to not less than fifty
percent (50%) of
5
<PAGE>
the securities which Holders have requested be included therein. The Company
shall so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following priority:
first, among all Holders of Registrable Securities requesting inclusion (and pro
rata among such holders on the basis of all Registrable Securities then held by
such holders); and second, among all Other Shareholders in proportion, as nearly
as practicable, to the respective amounts of securities which they had requested
to be included in such registration at the time of filing the registration
statement. If any Holder or Other Shareholder disapproves of the terms of any
such underwriting, such holder may elect to withdraw therefrom by written notice
to the Company and the Underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
the Underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the underwriter so agrees and if the number
of Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
6. Company Registration.
--------------------
(a) If the Company shall determine to register any of its securities
either for its own account or for the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule 145 transaction or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof (which,
to the extent then known, shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all of the Registrable Securities specified in a written request or
requests made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 6(b) below. Such written request may specify all or a part of a
Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6(a)(i). In such event the right of any Holder to
registration pursuant to Section 6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the Underwriter selected for underwriting by the Company.
Notwithstanding any other provision of
6
<PAGE>
this Section 6, if the Underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, and (a) if such
registration is the first registered offering of the Company's securities to the
public, the Underwriter may (subject to the allocation priority set forth below)
exclude from such registration and underwriting some or all of the Registrable
Securities which would otherwise be underwritten pursuant hereto, and (b) if
such registration is other than the first registered offering of the sale of the
Company's securities to the public, the Underwriter may (subject to the
allocation priority set forth below) limit the number of Registrable Securities
to be included in the secondary portion of the registration and underwriting to
not less than fifty percent (50%) of the securities which Holders have requested
be included therein. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting by persons other
than the Company shall be allocated in the following priority: first, to Holders
of Registrable Securities (and pro rata among such holders on the basis of all
Registrable Securities then held by such holders); and second, among all Other
Shareholders in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration at
the time of filing the registration statement. If any Holder or Other
Shareholder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the Underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
7. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become effective, unless such withdrawal is caused by a
material adverse change in the business or operations of the Company after such
request for registration, or unless the Initiating Holders agree to have such
registration considered a registration pursuant to Section 5(a)(ii)(B). If the
Company is not required to pay any Registration Expenses, then the Holders and
Other Shareholders requesting registration shall bear such Registration Expenses
pro rata on the basis of the number of their shares so included in the
registration request, and such registration shall not be considered a
registration for purposes of Section 5(a)(ii)(B).
8. Registration on Form S-3. The Company shall use its best efforts to
------------------------
qualify for registration on Form S-3, and to that end, the Company shall comply
with the reporting requirements of the Exchange Act following the effective date
of the first registration of any securities of the Company for a registered
public offering. After the Company has qualified for the use of Form S-3,
Initiating Holders shall have the right to request four (4) registrations on
Form S-3 (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by each such holder), subject only to the following
limitations:
(a) The Company shall not be obligated to cause a registration on
Form S-3 to become effective prior to one hundred eighty (180) days following
the effective date of a Company-
7
<PAGE>
initiated registration (other than a registration effected solely to qualify an
employee benefit plan or to effect a business combination pursuant to Rule 145),
provided that notice of such Company-initiated registration is given to Holders
prior to receipt of a request from a holder of Registrable Securities for
registration on Form S-3, and provided that the Company shall use its best
efforts to achieve such effectiveness promptly following such one hundred eighty
(180) day period;
(b) The Company shall not be obligated to cause a registration on
Form S-3 to become effective prior to expiration of one hundred eighty (180)
days following the effective date of the most recent registration pursuant to a
request by a holder of Registrable Securities under this Agreement or pursuant
to a request by a holder of registration rights under any other agreement of the
Company granting Form S-3 demand registration rights; provided, however, that
the Company shall use its best efforts to achieve such effectiveness promptly
following such one hundred eighty (180) day period;
(c) The Company shall not be required to effect a registration
pursuant to this Section 8 more than once in any twelve (12) month period;
(d) The Company shall not be required to maintain and keep any such
registration on Form S-3 effective for a period exceeding one hundred eighty
(180) days from the effective date thereof. The Company shall give notice to all
Holders and all holders of registration rights under any other agreement of the
Company granting Form S-3 or similar demand registration rights of the receipt
of a request for registration pursuant to this Section 8 and shall provide a
reasonable opportunity for all such other holders to participate in the
registration. Subject to the foregoing, the Company will use its best efforts to
effect promptly the registration of all shares of Registrable Securities on Form
S-3 to the extent requested by the Holder or Holders thereof for purposes of
disposition. In the event the Underwriter, in the case of an underwritten
offering, determines that market factors require a limitation on the number of
shares to be underwritten, then shares shall be excluded from such registration
and underwriting pursuant to the method described in Section 6(b); and
(e) The value of the aggregate shares of Registrable Securities to be
registered on Form S-3 for each such right of registration shall be at least
$500,000.
9. Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of such registration and as to the
completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of ninety (90) days
(except as set forth in Section 8(d)) or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 5 or 8 hereof, the Company will
enter into any underwriting
8
<PAGE>
agreement reasonably necessary to effect the offer and sale of Common Stock,
provided such underwriting agreement contains customary underwriting provisions,
and provided further that if the underwriter so requests the underwriting
agreement will contain customary indemnification and contribution provisions,
and provided further that the Underwriter is reasonably acceptable to the
Company.
10. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, if Registrable
Securities held by such Holder are included in the securities with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act including any rule or
regulation thereunder applicable to the Company relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission) based
upon written information furnished to the Company by such Holder or underwriter
and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities or other securities
held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers and agents and each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other such Holder
and each of their officers, directors and partners, and each person controlling
such Holder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and will reimburse the Company and such
Holders, directors, officers, agents, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
9
<PAGE>
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders hereunder shall be
limited to an amount equal to the net proceeds to each such Holder of securities
sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 10 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement. An indemnified party
shall have the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. No Indemnifying
Party in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 10 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with any untrue or alleged untrue statement of a material fact or
the omission to state a material fact that resulted in such loss, claim, damage
or liability, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by a court of law 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;
provided, that in no event shall any contribution by a Holder thereunder exceed
the proceeds from the offering received by such Holder.
10
<PAGE>
(e) The obligations of the Company and Holders under this Section 10
shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement.
11. Information by Holder. Each Holder holding securities included in any
---------------------
registration shall furnish to the Company such information regarding such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
12. Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section 12
shall not limit the right of the Company to enter any agreements with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder. Any right given by the
Company to any holder or prospective holder of the Company's securities in
connection with the registration of securities shall be conditioned such that it
shall be consistent with the provisions of this Agreement and with the rights of
the Holders provided in this Agreement.
13. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Shareholder owns any Restricted Securities, furnish
to the Shareholder forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Shareholder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Shareholder to sell any such
securities without registration.
14. No-Action Letter or Opinion of Counsel in Lieu of Registration.
--------------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, if at any time after
the date of the Company's initial
11
<PAGE>
public offering of its securities under the Securities Act the Company shall
have obtained from the Commission a "no-action" letter in which the Commission
has indicated that it will take no action if, without registration under the
Securities Act, any Holder disposes of Registrable Securities covered by any
request for registration made under this Agreement in the manner in which such
Holder proposes to dispose of the Registrable Securities included in such
request, or if in the opinion of counsel for the Company concurred in by counsel
for such Holder no registration under the Securities Act is required in
connection with such disposition, the Registrable Securities included in such
request shall not be eligible for registration under this Agreement; provided,
however, with respect to any Holder who may deemed to be an "affiliate," as that
term is defined under Rule 144, if, notwithstanding the opinion of such counsel,
the Holder is unable to dispose of all of the Registrable Securities included in
his request in the manner in which such Holder so proposes without registration,
the Registrable Securities included in such request shall be eligible for
registration under this Agreement.
15. Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register a Shareholder's securities granted to such Shareholder
by the Company under Sections 5, 6 and 8 hereof may be transferred or assigned
by the Shareholder to a transferee or assignee of at least 100,000 shares of the
Restricted Securities; provided, however, that a Shareholder may transfer or
assign such rights to a partner or shareholder of Shareholder or to a successor
trust or successor trustee without restriction as to minimum shareholding. The
Company shall be given written notice by Shareholder at the time of said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and provided further that the
transferee or assignee of such rights is not deemed by the Board of Directors of
the Company, in its reasonable judgment, to be a competitor of the Company; and
provided further that the transferee or assignee of such rights assumes the
obligations of a Shareholder under this Agreement.
16. "Market Stand-off" Agreement. Each Shareholder agrees, if requested
----------------------------
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by Shareholder during a period of time
determined by the Company and its underwriters (not to exceed 180 days)
following the effective date of the Company's initial public offering of its
capital stock, provided that all officers, directors and employees of the
Company holding stock or stock options of at least one (1%) percent of the
Company's outstanding stock prior to the initial public offering of the Company
enter into similar agreements; provided, further, that with respect to the
Series C Holders and Series D Holders, the prohibition against the sale,
transfer or other dispostions of any Common Stock (or other securities) of the
Company held by them pursuant to this Section 16 shall not prohibit (i) the sale
of any shares of Common Stock purchased by such Series C Holder or Series D
Holder pursuant to a directed share program or otherwise in the Company's
initial public offering, or (ii) the sale, in the open market, of any shares of
Common Stock by such Series C Holder or Series D Holder provided that such
shares are purchased in the open market after the completion of the Company's
initial public offering.
12
<PAGE>
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the Shares (or securities) subject to the foregoing restriction
until the end of said period.
17. Governing Law. This Agreement and the legal relations between the
-------------
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
18. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
19. Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Shareholder, at the address or addresses set forth on Exhibit A, Exhibit
--------- -------
B, Exhibit C, Exhibit D or Exhibit E attached hereto, or at such other address
- - --------- --------- ---------
or addresses as the Shareholder shall have furnished to the other parties hereto
in writing, or (b) if to any other holder of any securities, at such address as
such holder shall have furnished the other parties hereto in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, at the address of its principal offices set
forth on the signature page of this Agreement, or at such other address as the
Company shall have furnished to the other parties hereto in writing.
20. Other Registration Rights. This Agreement supersedes any previous
-------------------------
agreement between the Company and any party with respect to the grant by the
Company of registration rights, including but not limited to Registration Rights
Agreement dated February 14, 1997.
21. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
22. Amendments. Any provision of this Agreement may be amended, waived or
----------
modified upon the written consent of the Company, and the Shareholders (or their
assignees to whom Shareholders have expressly assigned their rights in
compliance with Section 15 hereof) who then hold more than fifty percent (50%)
of the Registrable Securities then held by persons entitled to registration
rights hereunder, provided further, any such amendment, waiver or modification
applies by its terms to each applicable Shareholder and each such assignee and,
provided further, that a Shareholder or such assignee hereunder may waive any of
such Holder's rights or the Company's obligations hereunder without obtaining
the consent of any other Shareholder or assignee.
(Remainder of this page left intentionally blank)
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Registration Rights Agreement as of the date first above written.
"INVENTA CORPORATION"
By:_____________________________________
David A. Lavanty, President
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
"SHAREHOLDERS"
________________________________________
Stephen T. Barry
BANCBOSTON VENTURES INC.
By:_____________________________________
Name: Maia D. Heymann
Title: Director
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By:_____________________________________
Name:
Title:
BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership,
its General Partner
By:_____________________________________
General Partner
________________________________________
Dana Callow, Jr.
________________________________________
Harry A. Caunter
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
THE CHASE MANHATTAN BANK AS TRUSTEE FOR
FIRST PLAZA GROUP TRUST
By:_____________________________________
Title:__________________________________
________________________________________
Electra D. DePeyster
________________________________________
Robert Ducommun
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
________________________________________
Robert Ducommun, Trustee
________________________________________
Christian Dubiel
ESSEX PRIVATE PLACEMENT FUND II, LIMITED PARTNERSHIP
By: Essex Investment Mgt. Company LLC
Its General Partner
By:_____________________________________
Its:____________________________________
________________________________________
Maya S. Hattangady
[Signature Page to Amended and Restated Registration Rights Agreement]
2
<PAGE>
________________________________________
Martin J. Hernon
________________________________________
Robert W. Jevon
________________________________________
Frank P. Pinto
________________________________________
Andrew Potter
PRIVATE EQUITY PORTFOLIO II, LLC
By:_____________________________________
Name: Glen Holland
Title: Vice President
________________________________________
Suresh Shanmugham
________________________________________
Santhanam C. Shekar
________________________________________
Bruce R. Tiedemann
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[Signature Page to Amended and Restated Registration Rights Agreement]
3
<PAGE>
TCV II STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[Signature Page to Amended and Restated Registration Rights Agreement]
4
<PAGE>
________________________________________
Ramesh Vasudevan
________________________________________
Gomati Venkateswaran
________________________________________
Usha Vijayarajan
[Signature Page to Amended and Restated Registration Rights Agreement]
5
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Amended and
Restated Registration Rights Agreement as of the date first above written.
INVENTA: SHAREHOLDERS:
INVENTA CORPORATION
____________________________
Richard M. Cerwonka
By:______________________________
Title:___________________________ ____________________________
Mark Breznak
____________________________
John Pike
____________________________
Scott Gray
____________________________
John McVicker
____________________________
Michael Swafford
____________________________
Derek Nash
(Shareholder Signatures Continued
Next Page)
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
___________________________________
James Z. Peepas
___________________________________
Frank Russin
___________________________________
Joseph A.DeCapuq
___________________________________
Gordon Kuhn
International Database Communication
Systems, Inc./IDCS
By:________________________________
James Z. Peepas
Chairman/CEO
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
INVENTA CORPORATION
______________________________
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
______________________________
January 26, 2000
<PAGE>
EXHIBIT A
---------
SCHEDULE OF HOLDERS
OF SERIES A PREFERRED STOCK
Name and Address
- --------------------------------------------------------------------------------
Harry A. Caunter Ramesh Vasudevan
675 North Court 1369 Camwell Drive
Suites 225 & 230 West Vancouver, BC, V7S2M6
Palatine, IL 60067 Canada
Electra D. De Peyster Gomati Venkateswaran
2000 Redwood Hill Court 26 South Baog Road
Santa Rosa, CA 95404 A2 Anand Bhavan
Madras, 600017
INDIA
Robert Ducommun Usha Vijayarajan
1155 Park Ave. 2/7 12th Cross
Apt. 1 SW Rajmahal Extension
New York, NY 10128 Bangalore, 560080
INDIA
Maya S. Hattangady
414 E. Lansing Way
Fresno, CA 93704
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
Robert Ducommun, trustee
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Andrew Potter
401 Vine Street
Menlo Park, CA 94025
Santhanam C. Shekar
349 G Street
San Rafael, CA 94901
<PAGE>
EXHIBIT B
---------
SCHEDULE OF HOLDERS
OF SERIES B PREFERRED STOCK
Name and Address
- --------------------------------------------------------------------------------
Battery Ventures L.P.
20 William Street
Wellesley, MA 01282
Harry A. Caunter
675 North Court
Suites 225 & 230
Palatine, IL 60067
Robert Ducommun
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
Robert Ducommun, trustee
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Andrew Potter
401 Vine Street
Menlo Park, CA 94025
Ramesh Vasudevan
1369 Camwell Drive
West Vancouver, BC, V7S2M6
Canada
<PAGE>
EXHIBIT C
---------
SCHEDULE OF HOLDERS
OF SERIES C PREFERRED STOCK
Name and Address
- --------------------------------------------------------------------------------
Battery Ventures III, L.P. Suresh Shanmugham
20 William Street c/o Boston Millennia Partners
Wellesley, MA 0128230 Rose Wharf, Ste. 330
Boston, MA 02110
Boston Millennia Partners Bruce R. Tiedemann
30 Rose Wharf, Ste. 330 c/o Boston Millennia Partners
Boston, MA 02110 30 Rose Wharf, Ste. 330
Boston, MA 02110
Stephen T. Barry Harry A. Caunter
c/o Boston Millennia Partners 675 North Court
30 Rose Wharf, Ste. 330 Suites 225 & 230
Boston, MA 02110 Palatine, IL 60067
A. Dana Callow, Jr. Maya S. Hattangady
c/o Boston Millennia Partners 414 E. Lansing Way
30 Rose Wharf, Ste. 330 Fresno, CA 93704
Boston, MA 02110
Christian Dubiel Santhanam C. Shekar
c/o Boston Millennia Partners 349 G Street
30 Rose Wharf, Ste. 330 San Rafael, CA 94901
Boston, MA 02110
Martin J. Hernon TCV II (Q), L.P.
c/o Boston Millennia Partners c/o Technology Crossover Ventures
30 Rose Wharf, Ste. 330 56 Main Street, Suite 210
Boston, MA 02110 Millburn, NJ 07041
Attention: Robert C. Bensky
Robert W. Jevon
c/o Boston Millennia Partners with a copy to:
30 Rose Wharf, Ste. 330 c/o Technology Crossover Ventures
Boston, MA 02110 575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
<PAGE>
Frank P. Pinto
c/o Boston Millennia Partners
30 Rose Wharf, Ste. 330
Boston, MA 02110
TCV II Strategic Partners, L.P. TCV II, V.O.F.
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
56 Main Street, Suite 210 56 Main Street, Suite 210
Millburn, NJ 07041 Millburn, NJ 07041
Attention: Robert C. Bensky Attention: Robert C. Bensky
with a copy to: with a copy to:
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
575 High Street, Suite 400 575 High Street, Suite 400
Palo Alto, CA 94301 Palo Alto, CA 94301
Attention: Jay C. Hoag Attention: Jay C. Hoag.
Technology Crossover Ventures II, C.V. Technology Crossover Ventures II, C.V.
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
56 Main Street, Suite 210 56 Main Street, Suite 210
Millburn, NJ 07041 Millburn, NJ 07041
Attention: Robert C. Bensky Attention: Robert C. Bensky
with a copy to: with a copy to:
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
575 High Street, Suite 400 575 High Street, Suite 400
Palo Alto, CA 94301 Palo Alto, CA 94301
Attention: Jay C. Hoag Attention: Jay C. Hoag.
<PAGE>
EXHIBIT D
---------
SCHEDULE OF HOLDERS
OF SERIES D PREFERRED STOCK
<TABLE>
<CAPTION>
Name and Address
- -----------------------------------------------------------------------------------------
<S> <C>
BancBoston Ventures Inc. The Chase Manhattan Bank,
435 Tasso Street, Suite 250 As Trustee for First Plaza Group Trust
Palo Alto, CA 94301 Global Investor Services
Attn: Maia Heymann 4 Chase Metro Tech Center, 18/th/ Floor
Brooklyn, NY 11245
Attn: John F. Weeda
Private Equity Portfolio II, LLC Technology Crossover Ventures II, L.P.
175 Federal Street, 10/th/ Floor 56 Main Street, Suite 210
Boston, MA 02110 Millburn, NJ 07041
Attn: Glen Holland Attn: Robert C. Bensky
Battery Ventures III, L.P. TCV II (Q), L.P.
20 William Street 56 Main Street, Suite 210
Wellesley, MA 01282 Millburn, NJ 07041
Attn: Rick Frisbie Attn: Robert C. Bensky
Boston Millennia Partners Limited Partnership Technology Crossover Ventures II, C.V.
30 Rowes Wharf 56 Main Street, Suite 210
Boston, MA 02110 Millburn, NJ 07041
Attn: Martin J. Hernon Attn: Robert C. Bensky
Robert Ducommun TCV II Strategic Partners L.P.
1155 Park Avenue, Apt. 1 SW 56 Main Street, Suite 210
New York, NY 10128 Millburn, NJ 07041
Attn: Robert C. Bensky
Palmer G. & Charles E. Ducommun TCV II, V.O.F.
Charitable Annuity Trust 56 Main Street, Suite 210
1155 Park Avenue, Apt. 1 SW Millburn, NJ 07041
New York, NY 10128 Attn: Robert C. Bensky
Essex Private Placement Fund II,
Limited Partnership Boston Millennia Associates I, Limited
c/o Essex Investment Mgt. Company Partnership
125 High Street 30 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
Attn: Susan Stickells Attn: Martin J. Hernon
</TABLE>
<PAGE>
EXHIBIT E
SCHEDULE OF XTEND-TECH HOLDERS
<PAGE>
EXHIBIT E
to
EXHIBIT 4.2
SCHEDULE 1 - LIST OF SHAREHOLDERS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SHAREHOLDER NUMBER TOTAL NO. SHARES OF NO. OF
OF OF SHARES INVENTA SHARES
SHARES OF INVENTA TO BE IN
OF TO BE RECEIVED ESCROW
XTEND- RECEIVED AT AT
TECH CLOSING CLOSING
HELD
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RICHARD M. CERWONKA* 20,100 271,350 94,972 176,378
- -----------------------------------------------------------------------------------------------
MARK BREZNAK* 13,800 186,300 65,205 121,095
- -----------------------------------------------------------------------------------------------
JOHN E. PIKE* 12,000 162,000 56,700 105,300
- -----------------------------------------------------------------------------------------------
SCOTT GRAY* 10,000 135,000 47,250 87,750
- -----------------------------------------------------------------------------------------------
JOHN MCVICKER* 2,000 27,000 9450 17,550
- -----------------------------------------------------------------------------------------------
MICHAEL SWAFFORD* 2,000 27,000 9450 17,550
- -----------------------------------------------------------------------------------------------
DEREK NASH* 3,000 40,500 14,175 26,325
- -----------------------------------------------------------------------------------------------
JAMES Z. PEEPAS(1) 7,800 105,300 105,300
- -----------------------------------------------------------------------------------------------
FRANK RUSSIN 800 10,800 10,800
- -----------------------------------------------------------------------------------------------
INTERMODAL DATABASE 14,250 192,375 192,375
COMMUNICATION
SYSTEMS, INC. (IDCS)
- -----------------------------------------------------------------------------------------------
JAMES Z. PEEPAS(1) 5,700 76,950 76,950
- -----------------------------------------------------------------------------------------------
JOSEPH A. DE CAPUA 2,850 38,475 38,475
- -----------------------------------------------------------------------------------------------
GORDON KUHN 5,700 76,950 76,950
- -----------------------------------------------------------------------------------------------
TOTALS 100,000 1,350,000 500,850 for 551,948
Investors;
297,202 for
Employee
Shareholders
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Same Individual
*Indicates Employee Shareholders
<PAGE>
EXHIBIT 10.30
Table of Contents
-----------------
<TABLE>
<S> <C>
Defined Terms................................................ 1
The Premises................................................. 3
Term......................................................... 4
Basic Annual Rent............................................ 4
Additional Annual Rent....................................... 4
Tenant's Proportionate Share of Building Operating Expenses.. 5
Rent Increase................................................ 8
Construction of Tenant Improvements.......................... 8
Use of Demised Premises...................................... 8
Upkeep of Demised Premises................................... 8
Subletting and Assignment.................................... 8
Fire Insurance............................................... 10
Alterations.................................................. 10
Signs; Furnishings........................................... 11
Tenant's Equipment........................................... 12
Access....................................................... 12
Rules and Regulations........................................ 13
Damage to Demised Premises................................... 13
Tenant's Property............................................ 14
Liability.................................................... 14
Insurance.................................................... 15
Services..................................................... 15
Defaults and Remedies........................................ 16
Insolvency................................................... 16
Condemnation................................................. 17
Security Deposit............................................. 17
Holding Over................................................. 17
Possession................................................... 18
Ground or Underlying Lease................................... 18
Subordination................................................ 18
Approval..................................................... 19
Right to Cure Defaults....................................... 19
Construction Plans........................................... 19
Parking...................................................... 19
Indemnity of Landlord........................................ 20
Successors................................................... 20
No Partnership............................................... 20
No Representation by Landlord................................ 20
Waiver of Jury Trial......................................... 20
Pronouns..................................................... 20
Invalidity of Provisions..................................... 20
Governing Law................................................ 21
Headings..................................................... 21
Entire Agreement............................................. 21
No Offer or Option........................................... 21
Notices...................................................... 21
Special Terms and Conditions................................. 21
Time of Essence and Consents................................. 21
</TABLE>
<PAGE>
NRTC BUILDING
OFFICE LEASE
THIS LEASE is made as of this 1st day of February, 2000 by and between
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (hereinafter called the
"Landlord") and INVENTA CORPORATION, a corporation formed under the laws of the
State of California (hereinafter called the "Tenant").
In consideration of the mutual agreements hereinafter set forth, the
parties hereto agree as follows:
1. Defined Terms.
--------------
A. "Additional Annual Rent" shall mean the addition to the Basic
Annual Rent for each year of the term of this Lease on the first day of
each Fiscal Year in the amount of the increase of Tenant's Proportionate
Share of Building Operating Expenses for a particular Fiscal Year, or
portion thereof.
B. "Base Fiscal Year" shall mean the period from June 1, 2000 through
May 31, 2001.
C. "Basic Annual Rent" shall mean the rent for the Demised Premises
in the sum of Two Hundred Sixty Three Thousand Six Hundred Ten and 00/100
Dollars ($263,610.00) annually, being Twenty One Thousand Nine Hundred
Sixty Seven and 50/100 Dollars ($21,967.50) monthly.
D. "Building" shall mean the structure known as the NRTC Building
located at and known by the street address of Woodland Park, 2121
Cooperative Way, Herndon, Virginia 20171-3025, and, to the extent of the
Landlord's interest, the driveways, walkways and parking areas.
E. "Building Expense Percentage" shall mean the percentage determined
by dividing the Demised Premises area, as specified in Paragraph 1.G. of
the Lease provisions, by the total rentable area in the Building, said
percentage being 5.4%.
F. "Common Areas" shall mean the Building common, corridors,
stairways, and elevators, the common walkways, loading dock and driveways
necessary for access to the Building, the common toilets, corridors and
elevator lobbies of any multi-tenant floor, and the parking areas for the
Building, but excluding the meeting rooms and other meeting facilities
located on the first level of the Building.
G. "Demised Premises" shall mean the 9,090 square feet of space (as
determined by the modified Washington Board of Realtors method) on the
first floor of the Building and as shown on Exhibit A attached hereto.
H. "Fiscal Year" shall mean the twelve month period from June 1
through May 31.
1
<PAGE>
I. "Landlord" shall mean National Rural Utilities Cooperative Finance
Corporation, its successor and assigns.
J. "Lease Commencement Date" shall mean the business day after the
date that Landlord or the Contractor (as defined in Paragraph 6 below)
notifies Tenant in writing that all Tenant Improvements (as defined in
Paragraph 6 below) have been substantially completed in accordance with the
approved Construction Plans (as defined in Paragraph 6 below) (exclusive of
Punch List Items (as defined below) and Tenant approved "long lead" items)
and the Demised Premises are in in broom clean condition. As used herein,
the term "Substantial Completion" (or its grammatical variations) with
respect to the Demised Premises shall mean when the Tenant Improvements (or
so much of the Tenant Improvements which are not dependent upon prior
installation or completion of long-lead items) to be performed by Landlord
in the Demised Premises in accordance with the approved Construction Plans,
and any approved revisions to such approved Construction Plans shall have
been completed, and reasonable means of access and facilities necessary to
Tenant's beneficial use and occupancy of the Demised Premises, including
corridors, toilets, elevators, stairways and HVAC, sanitary water, parking
and electrical facilities have been installed and are available to Tenant,
notwithstanding (i) the fact that minor or insubstantial details of
construction, mechanical adjustment or decoration remain to be performed,
the non-completion of which does not materially adversely interfere with
Tenant's beneficial use of the Demised Premises, and (ii) any incomplete
items of construction, mechanical adjustment or decoration which are
incomplete as a result of Tenant's failure in providing, supplying, or
constructing any portion of the Tenant Improvements where Tenant is
responsible for such completion. Said facilities shall not be deemed to be
unavailable and shall not affect substantial completion if only minor or
insubstantial details or construction, decoration or mechanical adjustment
("Punch List Items") remain to be done.
K. "Lease Expiration Date" shall mean the date that is the day before
five (5) years from the Lease Commencement Date.
L. "Security Deposit" shall mean the sum of One Hundred Ninety Seven
Thousand Seven Hundred Seven and 50/100 Dollars ($197,707.50) that the
Tenant agrees to deposit with the Landlord upon execution and delivery of
this Lease and to be held by the Landlord as set forth in Paragraph 24
hereof. In lieu of the cash Security Deposit referred to above, Tenant may
deliver to Landlord, and shall maintain in effect at all times during the
Term of this Lease following delivery hereof, a clean, unconditional and
irrevocable letter of credit, substantially in the form of Exhibit B
attached hereto (the "Letter of Credit") in the stated amount of One
Hundred Ninety Seven Thousand Seven Hundred Seven and 50/100 Dollars
($197,707.50) (the "L/C Amount").
Any such Letter of Credit shall: (i) be issued by a commercial bank
reasonably satisfactory to Landlord ("Issuer"); (ii) be a standby, at-
sight, irrevocable letter of credit; (iii) be payable to Landlord; (iv)
require that any draw on the Letter of Credit be made only upon receipt by
the Issuer of the original Letter of Credit and a sight draft or multiple
partial sight drafts, without presentation of any other documents,
statements or authorizations; (v) not expire prior to one year or longer
after the date of its issuance and shall provide that it shall be
automatically renewed from year to year unless
2
<PAGE>
terminated by the Issuer by notice to the Landlord given not less than
sixty (60) days prior to the then expiration date thereof by certified or
registered mail; (vi) provide that it is governed by the International
Standby Practices 1998 published by the International Chamber of Commerce,
Publication No. 590; and (vii) provide for a final expiration date
(including any renewals) no earlier than ninety (90) days after the Lease
Expiration Date.
Landlord may draw upon such Letter of Credit, in whole or in part (at
Landlord's option), if: (i) Tenant defaults with respect to any of the
terms, conditions and covenants of this Lease on the Tenant's part to be
observed or performed, including, but not limited to, the payment of rent
or additional rent, and such default continues beyond the applicable grace
period, if any, or (ii) Tenant, or anyone holding possession of the Demised
Premises through Tenant, holds over in the Demised Premises after the
expiration or sooner termination of the Term of this Lease; or (iii)
Landlord is given notice that Issuer is terminating such Letter of Credit,
or (iv) such Letter of Credit expires as of a stated date by its terms and
is not replaced with a letter of credit meeting the criteria set forth in
this Paragraph 1.L. at least thirty (30) days prior to such Letter of
Credit's stated expiration date.
Landlord may use, apply or retain the proceeds of the Letter of Credit
to the same extent Landlord may use, apply or retain the Security Deposit,
as set forth in Paragraph 24 hereof. Landlord shall only draw upon the
Letter of Credit to the extent required to cure Tenant's default hereunder.
!f Landlord partially draws down the Letter of Credit, Tenant shall, within
fifteen (15) days after Landlord gives Tenant notice thereof, cause the
amount of the Letter of Credit to be increased to the L/C Amount, or
substitute cash security instead. If Tenant fully and faithfully complies
with all of the terms, conditions and covenants of this Lease, any Letter
of Credit, or any remaining portion of any sum collected by Landlord
hereunder through a draw on such Letter of Credit, shall be returned to
Tenant within sixty (60) days after the Lease Expiration Date and delivery
of possession of the Demised Premises to Landlord in accordance with the
provisions of this Lease.
In the event Landlord transfers its interest in this Lease, Landlord
may transfer the Security Deposit, including the Letter of Credit, to the
transferee of the Landlord (the "Transferee"). If the Security Deposit is
so transferred, Landlord shall thereupon be released from liability for the
return of the Security Deposit, including the Letter of Credit, and Tenant
shall look solely to the Transferee for the return of the Security Deposit
in accordance with the terms of this Lease. The provisions of this
paragraph shall apply to every such transfer of this Lease. If Landlord
desires to transfer the Letter of Credit to such Transferee, Tenant shall
cooperate in effecting such transfer; and Tenant shall pay the Issuer's
usual and customary fee for transferring such Letter of Credit.
If, on the dates hereinafter mentioned and referred to (i) no event
which would constitute an event of default under Paragraph 21 hereof shall
have occurred, regardless of whether such default has been cured, (ii) no
event described in Paragraph 22 hereof shall have occurred, regardless of
whether such event has been cured or whether any applicable cure period has
lapsed, and (iii) Tenant shall have satisfied all of its other obligations
under this Lease, Landlord agrees that the amount of the Security Deposit
required hereunder (whether by Letter of Credit or cash) shall be reduced
to
3
<PAGE>
One Hundred Thirty One Thousand Eight Hundred Two and 00/100 Dollars
($131,802.00) at the beginning of the 13th month of the term hereof, to
Sixty Five Thousand Nine Hundred Two and 50/100 ($65,902.50) at the
beginning of the 25th month of the term hereof, and to Twenty One Thousand
Nine Hundred Sixty Seven and 50/100 Dollars ($21,967.50) at the beginning
of the 37th month of the term hereof.
Tenant shall have the right to substitute one letter of credit for
another if the substitute letter of credit meets the requirements of this
Paragraph 1.L. In addition, Tenant shall substitute another letter of
credit meeting the requirements of this Paragraph 1.L. if the Issuer which
has issued the Letter of Credit becomes insolvent or if the Letter of
Credit is void, unenforceable or uncollectible. If the Issuer which has
issued the Letter of Credit becomes unacceptable to Landlord for good
reason, Tenant shall, within fifteen (15) days after notice is given Tenant
by Landlord, deliver to Landlord either a substitute letter of credit
meeting the requirements of this Paragraph 1.L. or cash security in the L/C
Amount.
If Landlord at any time, or from time to time, requests any reasonable
change in the terms, conditions or provisions of such Letter of Credit,
Tenant shall promptly cause such Letter of Credit to be so modified. If the
Letter of Credit is lost, mutilated, stolen or destroyed, Tenant shall
cooperate with Landlord's efforts to cause the Issuer to cancel the lost,
mutilated, stolen or destroyed Letter of Credit and to replace such Letter
of Credit.
2. The Premises. The Landlord hereby leases to the Tenant and the Tenant
------------
hereby leases from the Landlord, for the Term and upon the conditions
hereinafter provided, the Demised Premises.
3. Term. The term of this Lease ("Term") shall be for a period of five (5)
----
years (or until such term shall sooner cease and expire as hereinafter provided)
commencing on the Lease Commencement Date and expiring on the Lease Expiration
Date, both dates inclusive.
4. Basic Annual Rent. The Tenant shall pay as rent for the Demised
-----------------
Premises the sum of Two Hundred Sixty Three Thousand Six Hundred Ten and 00/100
Dollars ($263,610.00) annually, which results in a term rent of One Million
Three Hundred Eighteen Thousand Fifty and 00/100 ($1,318,050.00), payable in
equal monthly installments, in advance, of Twenty One Thousand Nine Hundred
Sixty Seven and 50/100 Dollars ($21,967.50), the first monthly installment to be
paid upon the execution and delivery of this Lease, the second and subsequent
monthly installments to be made on the first day of each and every calendar
month during the term hereof. The Tenant will pay all rent due under this Lease
to the Landlord, at its office or to such other party or to such other address
as the Landlord may designate from time to time by written notice to the Tenant,
without demand and without deduction, set-off or counterclaim. If the Landlord
shall at any time or times accept said rent after it shall become due and
payable, such acceptance shall not excuse delay upon subsequent occasions, or
constitute, or be construed as, a waiver of any of the Landlord's rights
hereunder or any other rights available to the Landlord as provided for by law.
5. Additional Annual Rent. In addition to the Basic Annual Rent specified
----------------------
above, Tenant shall pay to Landlord as Additional Annual Rent for the Premises,
in each Fiscal Year or partial Fiscal Year during the Term of this Lease,
commencing with the next Fiscal Year, an amount equal to any increase in the
Tenant's Proportionate Share of Building Operating
4
<PAGE>
Expenses for such Fiscal Year which exceeds the Tenant's Proportionate Share of
Building Operating Expenses for the Base Fiscal Year.
A. The Tenant's "Proportionate Share of Building Operating Expenses" shall
mean the dollar amount equal to the product of Tenant's Building Expense
Percentage as stated in Paragraph 1.E. of the Lease times the Building Operating
Expenses.
The term "Building Operating Expenses" shall mean all of Landlord's direct
costs and expenses paid or incurred in operating and maintaining the Building
for a particular Fiscal Year or portion thereof as determined by Landlord in
accordance with generally accepted accounting principles, including all
additional direct costs and expenses of operation and maintenance of the
Building which Landlord determines that it would have paid or incurred during
such year if the Building had been ninety five percent (95%) occupied. Building
Operating Expenses shall include by way of illustration but not limitation: all
general Real Estate Taxes (as defined below) and all special assessments;
insurance premiums; water, sewer, electrical and other utility charges;
assessments, including special assessments imposed by Woodland Park Association
or successors; service and other charges incurred in the operation and
maintenance of the elevators and the heating, ventilation and air-conditioning
system; cleaning and other janitorial services; tools and supplies; repair
costs; exterior and interior landscape maintenance costs; security services;
license, permit and inspection fees; costs and expenses (including reasonable
fees of counsel) to the extent such expenses are reasonable and customary, in
connection with contesting the validity or amount of any tax, governmental or
utility charge or assessment; wages and related benefits payable to employees
principally engaged in the management, maintenance and operation of the
Building; and, in general, all other costs and expenses, including those which
would normally be amortized over a period not to exceed five (5) years. The term
"Real Estate Taxes" shall mean any taxes, assessments, levies, impositions or
charges now levied, assessed or imposed on real estate and the improvements
thereon. "Real Estate Taxes" shall not include any inheritance, estate,
succession, transfer, gift tax nor capital levy and further, no franchise,
corporation, income or profit tax calculated upon the Landlord's net income
shall be passed through to the Tenant, except to the extent that if at any time
during the Term of this Lease the methods of taxation prevailing at the
commencement of the Term of this Lease shall be altered so that in lieu of, as a
substitution for or in addition to the whole or any part of the Real Estate
Taxes there shall be levied, assessed or imposed a tax, assessment, levy, fee or
other charge: (1) on or measured by the rents received therefrom; (2) measured
by or based in whole or in part upon the Building and imposed upon Landlord; or
(3) measured by the rent payable by Tenant under this Lease, then all such
taxes, assessments, levies, impositions, charges or fees to the part thereof so
measured or based, shall be deemed to be included within the term "Real Estate
Taxes". Landlord hereby agrees to provide Tenant, to the extent possible,
courtesy notice of special assessments, except real estate property tax
assessments; provided, however, that failure by Landlord to give such courtesy
notice shall not be a breach of Landlord's obligations hereunder and shall not
alter or amend any of Tenant's obligations hereunder. There shall also be
included in Building Operating Expenses the cost of any capital improvement made
to the Building by Landlord after the date of this Lease which is required under
any governmental law or regulation that was not applicable to the Building at
the time it was constructed, amortized over such period as Landlord shall
reasonably determine, together with interest at the Prevailing Bank Prime Rate
plus two percent (2%) per annum on the unamortized balance. The "Prevailing Bank
Prime Rate" shall mean the bank prime rate published in the "Money Rates" column
of The Wall Street Journal in its last publication of that column in the
preceding month; provided, however, if The Wall Street Journal shall cease to be
published, then the Bank Prime
5
<PAGE>
Rate shall be determined by Landlord by reference to another recognized
publication reporting bank prime rates.
Notwithstanding anything to the contrary set forth above, the term
"Building Operating Expenses" shall not include:
(i) Costs of work, including painting and decorating, which Landlord
performs for any tenant (including Tenant) other than work of a kind and scope
which Landlord is obligated to furnish to all tenants whose leases contain a
rental adjustment provision similar to this one;
(ii) Costs of repairs or other work occasioned by fire, earthquake,
windstorm or other casualty, except for a reasonable deductible under any
insurance policy; and costs of remediating hazardous materials (except to the
extent that any such costs arise in the course of ordinary maintenance or result
from Tenant's acts or omissions);
(iii) Leasing commissions, advertising expenses, and other costs incurred
in leasing space in the Building;
(iv) Costs of repairs or rebuilding necessitated by condemnation;
(v) Interest on borrowed money or debt amortization, except as
specifically set forth above;
(vi) Costs for which Landlord has a right to reimbursement (other than
under the Building Operating Expense pass-through provisions of all leases in
the Building) or has been reimbursed or receives a credit, refund or discount
that is covered under a warranties, including a warranty applicable to the
initial construction of the Building;
(vii) Costs of a capital nature as determined all in accordance with
generally accepted accounting principles consistently applied, except as
expressly permitted to be included in Building Operating Expenses;
(viii) Costs incurred by Landlord due to any violation of the terms and
conditions of any lease of space or occupancy agreement in the Building, or in
resolving any dispute with a tenant or occupant of the Building;
(ix) Costs of, and the overhead and profit increment paid to Landlord,
or to affiliates or partners of Landlord, or to partners or affiliates of such
partners, for goods and/or services supplied to or used in the Building to the
extent the same exceed the costs or the overhead and profit increment, as the
case may be, of such goods and/or services rendered by unaffiliated third
parties on a competitive basis; or
(x) Depreciation on the Building.
If Landlord shall install a labor-saving device or other equipment which
improves the operating efficiency of any system within the Building (such as
energy efficient lighting controls) and thereby reduces Building Operating
Expenses, then Landlord may add to Building Operating Expenses in each year
during the useful life of such installed device or equipment an amount equal to
the annual amortization allowance of the cost of such installed device or
equipment as determined in accordance with applicable regulations of the
Internal Revenue
6
<PAGE>
Service or generally accepted accounting principles, together with interest at
the Prevailing Bank Prime Rate plus two percent (2%) per annum on the
unamortized balance thereof, provided, however, that the amount of such
allowance and interest shall not exceed the annual cost or expense reduction
attributed by Landlord to such installed device or equipment; and further
provided, that in no event shall such allowance and interest increase Tenant's
Additional Annual Rent over what it would have been if such labor-saving device
or other equipment had not been installed.
(1) Payment of Tenant's Proportionate Share of Building Operating Expenses.
----------------------------------------------------------------------
Tenant's Proportionate Share of Building Operating Expenses for each Fiscal Year
shall be estimated annually by Landlord, and written notice thereof shall be
given to Tenant at least thirty (30) days prior to the beginning of each Fiscal
Year. Tenant shall pay to Landlord each month as rent commencing with the first
month of the Fiscal Year, at the same time the Basic Rent is due, an amount
equal to one-twelfth (1/12) of any increase in the estimated Tenant's
Proportionate Share of Building Operating Expenses.
(2) Revisions in Estimated Tenant's Proportionate Share of Building
---------------------------------------------------------------
Operating Expenses. If real estate taxes or the cost of utility, janitorial
- -------------------
services, or other building operations increase during a Fiscal Year, Landlord
may revise the estimated Tenant's Proportionate Share of Building Operating
Expenses one time during such year by giving Tenant written notice to that
effect, and thereafter Tenant shall pay to Landlord, in each of the remaining
months of such year, an amount equal to the amount of such increase in the
estimated Additional Annual Rent divided by the number of months remaining in
such year.
(3) Adjustments to Actual Tenant's Proportionate Share of Building
--------------------------------------------------------------
Operating Expenses. Within ninety (90) days after the end of each Fiscal Year,
- ------------------
Landlord shall prepare and deliver to Tenant a reasonably itemized statement
showing the actual Tenant's Proportionate Share of Building Operating Expenses.
Within thirty (30) days after receipt of the aforementioned statement, Tenant
shall pay to Landlord, or Landlord shall credit against the next Rent payment or
payments due from Tenant, as the case may be, the difference between the actual
Tenant's Proportionate Share of Building Operating Expenses for the preceding
Fiscal Year and the estimated Tenant's Proportionate Share of Building Operating
Expenses paid by Tenant during such year. The amount of any such difference
shall be determined by the Landlord's audit of its books.
If Tenant disputes an statement submitted by Landlord or a proposed
increase or decrease in the actual Tenant's Proportionate Share of Building
Operating Expenses, Tenant shall give Landlord written notice of such dispute
within ninety (90) days after Tenant's receipt of the statement. If Tenant does
not give Landlord timely notice, Tenant waives its right to dispute the
particular statement. If Tenant timely objects, Tenant may engage its own
certified public accountants ("Tenant's Accountants") to verify the accuracy of
the statement complained of or the reasonableness of the estimated increase or
decrease. If Tenant's Accountants determine that an error has been made,
Landlord's accountants and Tenant's Accountants shall endeavor to agree upon the
matter, failing which such matter shall be submitted to an independent certified
public accountant selected by Landlord, with Tenant's approval, which shall not
be unreasonably withheld, delayed or conditioned, at Tenant's sole cost and
expense, for a determination which will be conclusive and binding upon Landlord
and Tenant. Notwithstanding the pendency of any dispute, Tenant shall continue
to pay Landlord the amount of the aforementioned statement determined by
Landlord's accountants until the statement has been determined to be incorrect.
If
7
<PAGE>
it is determined that any portion of the Building Operating Expenses were not
properly chargeable to Tenant, then Landlord shall promptly credit or refund the
appropriate sum to Tenant.
B. Rent Increase. In addition to all rents hereinabove set forth in this
-------------
Lease it is further understood and agreed that each monthly payment of the Basic
Annual Rent shall be increased for each year of the term of this Lease on the
anniversary day of the Lease Commencement Date by an amount equal to one-twelfth
(1/12) of three percent (3%) of the previous year's Basic Annual Rent.
6. Construction of Tenant Improvements. Landlord agrees, prior to the
-----------------------------------
Lease Commencement Date, to construct improvements to the Demised Premises
substantially in accordance with the Construction Plans (as defined below) using
standard building materials and based upon a mutually agreeable space plan, at
Landlord's sole cost and expense (the "Tenant Improvements"). Subject to the
provisions herein, Landlord shall submit to Tenant design drawings and working
drawings prepared by Landlord's architect and engineers (including mechanical,
electrical and plumbing drawings) for all of the Tenant Improvements including,
but not limited to, the partition, electric and telephone outlets and all other
requirements of Tenant (collectively, the "Construction Plans"), which shall be
subject to the approval of Tenant, which approval shall not be unreasonably
withheld. Upon approval by Tenant of the Construction Plans, Landlord shall
select a general contractor (the "Contractor") for the purpose of constructing
the Tenant Improvements from bids submitted by general contractors whose
qualifications have been approved by Landlord.
7. Use of Demised Premises. The Tenant will use and occupy the Demised
-----------------------
Premises solely for general office purposes (and for uses ancillary thereto) and
in accordance with the use permitted under applicable zoning regulations and the
Declaration of Protective Covenants for Woodland Park, recorded in the Clerk's
Office for the Circuit Court for Fairfax County, Virginia, in Deed Book 6324, at
Page 514, and any amendments thereto (as amended, the "Covenants"). Without the
prior written consent of the Landlord, the Demised Premises will not be used for
any other purpose. The Tenant will not use or occupy the Demised Premises for
any unlawful purpose, and will comply with all present and future laws,
ordinances, regulations, and orders of the United States of America, the
Commonwealth of Virginia and any other public or non-public authority having
jurisdiction over the Demised Premises; provided, however, that Tenant shall not
be obligated to make any changes, additions or improvements to the structural
elements of the Building.
8. Upkeep of Demised Premises. The Tenant agrees to keep the Demised
--------------------------
Premises and the fixtures therein in good order and condition and will, on the
Lease Expiration Date or other termination of the term of this Lease, surrender
the same, broom clean, in the same order and condition in which they were on the
Lease Commencement Date, ordinary wear and tear, Landlord's obligations and
damage by the elements excepted. The Tenant will not do or permit to be done any
act that will conflict with the regulations of the fire department or the fire
laws, or with any rules or ordinances established by the Board of Health or
other federal or local governmental authority.
9. Subletting and Assignment. The Tenant will not sublet or rent the
-------------------------
Demised Premises or any part thereof or permit the use or occupancy thereof to
any person, firm or corporation, or transfer, assign, mortgage or encumber this
Lease, without the prior written consent of the Landlord; nor shall any
subletting or assignment or transfer of this Lease be effective without the
prior written consent of the Landlord. In the event that Tenant requests
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Landlord's consent to sublet any part of the Demised Premises (which request
must be made in writing) such consent shall not be unreasonably withheld,
delayed or conditioned. Any such sublease shall contain provisions generally
consistent with the terms of this Lease and said sublease shall be provided to
Landlord for Landlord's approval, which shall not be unreasonably withheld,
delayed or conditioned. Tenant shall provide to Landlord a fully executed copy
of the sublease as soon as reasonably possible.
Tenant agrees to pay Landlord, as additional rent, one-half (1/2) of any
profits which Tenant may secure in any such subleasing or assignment of any
space within the Demised Premises. Profits are any consideration received by the
Tenant for the subleased or assigned space in excess of what the Tenant is
paying as rent pursuant to this Lease for said space minus the recovery of any
prorated capital expenditures which were expended on the space and any expenses
which the Tenant may incur in securing the sublease or assignment. The
additional rent discussed in this section will be paid monthly to Landlord
during the period of the sublease or assignment. The Landlord shall have the
right to inspect the Tenant's books and records as well as any sublease or
assignment to determine the amount of profit obtained by reason of the
subletting or assignment.
Any assignment, transfer or subletting without Landlord's written consent
shall be void, and shall, at the option of Landlord, constitute a default under
the terms of this Lease. Consent by the Landlord to any assignment or subletting
shall not be construed as a waiver or release of the Tenant from the terms of
any covenant or obligation under this Lease, nor shall the collection or
acceptance of rent from any such assignee, subtenant or occupant constitute a
waiver or release of the Tenant from the terms of any covenant or obligation
under this Lease, nor shall such assignment or subletting be construed to
relieve the Tenant from obtaining the consent in writing of the Landlord to any
further assignment or subletting. In the event that the Tenant defaults
hereunder, the Tenant hereby assigns to the Landlord the rent due from any
subtenant of the Tenant and hereby authorizes each such subtenant to pay said
rent directly to the Landlord.
Notwithstanding the foregoing, Tenant may, without obtaining Landlord's
prior written consent, assign or sublease all or any portion of the Demised
Premises to the following parties on the following conditions: (i) any
subsidiary or affiliate in which Tenant has an ownership interest of more than
50%; (ii) any parent of Tenant; (iii) any subsidiary or affiliate in which
Tenant's parent owns by means of an ownership interest of more than 50%; or (iv)
any corporation into which Tenant may be merged or consolidated or which
purchases all or substantially all of the assets or stock of Tenant; so long as
such subtenant or assignee shall use and occupy the Demised Premises solely for
general office purposes (and for uses ancillary thereto) and in accordance with
the use permitted under applicable zoning regulations, the Covenants and the
other requirements set forth in Paragraph 7 hereof. Not less than thirty (30)
days prior to the effective date of such transaction, Tenant will provide
Landlord with documentation evidencing such transaction and such other evidence
as Landlord may reasonably require to establish that such transaction falls
within the terms and provisions of this paragraph. Furthermore, Tenant may allow
employees of companies to whom Tenant is providing products or services under
express short term contractual agreements, or with which Tenant is collaborating
in the development or provision of products or services under express short term
contractual agreements, to work in the Demised Premises without Landlord's
consent and without being deemed to have sublet any portion of the Demised
Premises, so long as such employees do not occupy space which is separated from
that occupied by Tenant by demising walls and the number of such employees does
not exceed twenty percent (20%) of the total number of persons regularly
occupying the
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Demised Premises, the employees of such companies shall use and occupy the
Demised Premises solely for general office purposes (and for uses ancillary
thereto) and in accordance with the use permitted under applicable zoning
regulations, the Covenants and the other requirements set forth in Paragraph 7
hereof.
10. Fire Insurance. The Tenant will not conduct or permit to be conducted,
--------------
any activity or place any equipment or substance in or about the Demised
Premises or the Building of which they form a part, which will in any way
increase the rate of fire or other insurance on said Building or on the property
kept therein. If any increase in the rate of fire or other insurance is stated
by any insurance company or by the applicable insurance rating bureau to be due
to such activity or equipment or substance in or about the Demised Premises,
such statement will be conclusive evidence that the increase in such rate is due
to such activity or equipment or substance in and about the Demised Premises
and, as a result thereof, the Tenant shall, at the option of the Landlord,
either reimburse the Landlord for such increase within thirty (30) days of the
mailing of notice to the Tenant of such increase in the insurance rate, or
promptly end such activity and/or remove such equipment or substance. The Tenant
shall continue to reimburse the Landlord for the entire period that its actions
or past actions caused an increase in the rate of insurance.
11. Alterations. The Tenant will not make or permit anyone to make any
-----------
alterations, decorations, additions or improvements, structural or otherwise, in
or to the Demised Premises or the Building without the prior written consent of
the Landlord, which shall not be unreasonably withheld, delayed or conditioned.
All such alterations, decorations, additions or improvements, permitted by the
Landlord must conform to all statutes, rules and regulations, including fire
regulations, of the federal and local governments and any other public authority
having jurisdiction over the Demised Premises and the Building and will be at
the sole expense of the Tenant. As a condition subsequent to such written
consent of the Landlord, the Tenant agrees to obtain and deliver to the Landlord
written and unconditional waivers of mechanics' liens upon the Demised Premises
or the Building for all work, labor and or services to be performed, and
materials to be furnished, by them in connection with such work, signed by all
contractors, subcontractors, material men and laborers to become involved in
such work. If, notwithstanding the foregoing, any mechanic's lien is filed
against the Demised Premises or the Building for work claimed to have been done
for, or materials claimed to have been furnished to, the Tenant, such mechanic's
lien shall be discharged by the Tenant within ten (10) business days thereafter
at the Tenant's sole cost and expense by the payment thereof or by filing any
bond required by law. If the Tenant shall fail to discharge any such mechanic's
lien, the Landlord may, at its option, discharge the same and treat the cost
thereof as additional rent payable with the monthly installment of rent next
becoming due. It is hereby expressly covenanted and agreed that such discharge
by the Landlord shall not be deemed to waive or release the default of the
Tenant. It is understood and agreed by the Landlord and the Tenant that any such
alterations, decorations, additions or improvements shall be conducted on behalf
of the Tenant and not on behalf of the Landlord. It is further understood and
agreed that in the event the Landlord shall give its written consent to the
Tenant's making any such alterations, decorations, additions or improvements,
such written consent shall not be deemed to be an agreement or consent by the
Landlord to subject the Landlord's interest in the Demised Premises or the
Building to any mechanic's liens which may be filed in respect of any such
alterations, decorations, additions or improvements made by or on behalf of the
Tenant. The Tenant will indemnify and hold the Landlord harmless from and
against any and all expenses (including reasonable attorneys' fees), liens,
claims or damages to person or property which may or might arise by reason of
the making of any such alterations, decorations, additions or
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improvements. If any such alterations, decorations, additions or improvements
are made without the prior written consent of the Landlord, the Landlord may
correct or remove the same, and the Tenant shall be liable for any and all
expenses incurred by the Landlord in the performance of this work. All
alterations, decorations, additions or improvements in or to the Demised
Premises or the Building made by either party (but not including moveable office
furniture and equipment not permanently affixed to the Demised Premises), shall,
at the election of the Landlord become the property of the Landlord and shall
remain upon the Demised Premises or the Building and be surrendered with the
Demised Premises at the end of the term hereof without disturbance, molestation
or injury. Should the Landlord elect that any alterations, decorations,
additions, improvements, installations, changes, or replacements made by the
Tenant upon the Demised Premises or the Building be removed upon termination of
this Lease, the Tenant hereby agrees to cause the same to be removed at the
Tenant's sole cost and should the Tenant fail to remove the same, then and in
such event, the Landlord may cause the same to be removed at the Tenant's
expense and the Tenant hereby agrees to reimburse the Landlord for the cost of
such removal together with any and all damages which the Landlord may suffer and
sustain by reason of the failure of the Tenant to remove the same. If expressly
requested by Tenant in connection with the Tenant's request for Landlord's
consent to any alterations proposed by the Tenant, Landlord shall inform the
Tenant whether Landlord will require the removal of such alterations pursuant to
this paragraph.
12. Signs; Furnishings. The Tenant agrees that no sign, advertisement or
------------------
notice shall be inscribed, painted, affixed or displayed on any part of the
outside or the inside (as long as not visible to the outside) of the Demised
Premises or the Building, except on the directories, locations specified by
Landlord and the doors of offices, and then only in such place, number, size,
color and style as the Landlord shall approve; and if any such sign,
advertisement or notice is nevertheless exhibited by the Tenant, the Landlord
shall have the right to remove the same and the Tenant shall be liable for any
and all expenses incurred by the Landlord for said removal. The Landlord shall
have the right to prohibit any advertisement of any Tenant which in the
Landlord's opinion tends to impair the reputation of the Building or its
desirability as a high-quality building for offices for financial, insurance,
legal or other institutions of like nature, and upon written notice from the
Landlord, the Tenant shall immediately refrain from and discontinue any such
advertisement. The Landlord shall have the right to prescribe the weight and
position of safes and other heavy equipment or fixtures, including but not
limited to the rooms and libraries, which shall, if considered necessary by the
Landlord, stand on plank strips to distribute the weight. Any and all damage or
injury to the Demised Premises caused by moving the property of the Tenant into,
in or out of the Demised Premises, or due to the same being on the Demised
Premises, shall be repaired by, and at the sole cost of the Tenant. The Tenant
shall notify the Landlord at least forty-eight (48) hours in advance of any
delivery of furniture, equipment or other bulky matter that requires either
special handling or the use of the service elevator. The Tenant shall provide
its own labor and handling equipment and install masonite or other comparable
material on the carpeting and/or floor of the Common Areas to which such
deliveries are made to prevent damage to the carpets and/or floor. No furniture,
equipment or other bulky matter of any description will be received into the
Demised Premises or carried in the elevators except as approved by the Landlord,
and all such furniture, equipment, and other bulky matter shall be delivered
only through the prescribed delivery entrance and service corridors of the
Building and of the Demised Premises and at times specified by Landlord. All
moving of furniture, equipment and other material shall be during normal
business hours or on such date and time as approved by Landlord and shall be
under the direct control and supervision of the Landlord, but the Landlord shall
not be responsible for any damage to or charges for moving the same. In the
event Tenant requests and Landlord
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agrees to moving during other than normal business hours, Tenant shall be
responsible for any additional costs incurred by Landlord, including but not
limited to overtime pay for building staff. The Tenant agrees promptly to remove
any of the Tenant's furniture, equipment or other material delivered or
deposited from the loading dock, walks or areas adjacent to the Demised Premises
or the Building.
13. Tenant's Equipment. The Tenant will not install or operate in the
------------------
Demised Premises any electrically operated equipment or other machinery other
than printers, servers, typewriters, copiers, personal computers and such other
electrically operated office machinery and equipment normally used in modern
commercial offices without first obtaining the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The Landlord may
condition such consent upon the payment by the Tenant of additional rent as
compensation for such excess consumption of electricity, utilities or services
as may be occasioned by the operation of said equipment or machinery. The Tenant
shall not install any equipment of any kind or nature whatsoever which will or
may necessitate any changes, replacements or additions to or in the use of the
water system, plumbing system, heating system, air-conditioning system or the
electrical system of the Demised Premises without first obtaining the prior
written consent of the Landlord, which consent shall not be unreasonably
withheld. Business machines or equipment belonging to the Tenant which may cause
noise or vibration that may be transmitted to the Building, or to any space
therein, to such a degree as to be objectionable to the Landlord shall be
installed and maintained on vibration eliminators or other devices sufficient to
eliminate such noise and vibration at the Tenant's expense. In addition, Tenant
agrees to reimburse Landlord for any and all costs relating to updating and/or
modifying architectural drawings deemed reasonably necessary by Landlord to be
made for any such changes, replacements or additions.
14. Access. The Tenant will permit the Landlord or its representatives to
------
enter the Demised Premises at all reasonable times, without charge therefor to
the Landlord and without diminution of rent payable by the Tenant, to examine,
inspect or to protect the same or prevent damage or injury to the Building, or
to make such alterations and/or repairs or perform such preventative maintenance
as the Landlord may deem necessary, or to exhibit the same to prospective
tenants during the last six (6) months of the term of this Lease.
The Tenant shall have access to the Demised Premises, lobby and Common
Areas on the floor or floors occupied by it in the building twenty-four (24)
hours a day and seven (7) days a week throughout the year.
During the course of construction of the Building in which the Demised
Premises shall be located and during the course of construction of improvements
in or to such Demised Premises or Building, the Tenant, its employees, vendors,
consultants, agents and contractors may enter the Demised Premises between the
hours of 7:00 a.m. and 6:00 p.m. on Monday through Friday and 9:00 a.m. and
12:00 noon on Saturday (exclusive of Commonwealth and national holidays which
may be recognized by the Landlord) for the purposes of (a) installing furniture,
fixtures and equipment in the Demised Premises; provided that all such entry is
coordinated with Landlord and Landlord's Contractor upon reasonable advance
notice to Landlord and Landlord's Contractor and (b) inspection of the Demised
Premises only with a representative of Landlord; provided that twenty four (24)
hours written notice in advance be delivered to Landlord or its management
agent. The Tenant agrees that any such entry and inspection shall be at the
Tenant's sole risk and liability.
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15. Rules and Requlations. The Tenant covenants that the following rules
---------------------
and regulations, and such other and further rules and regulations as the
Landlord may make (provided, that such rules and regulations shall not conflict
with the terms, purpose and intent of this Lease or otherwise unreasonably
interfere with the Tenant's intended use of the Demised Premises as office
space) and which in the Landlord's judgment are needful for the general well
being, safety, care and cleanliness of the Demised Premises or the Building of
which they are a part together with their appurtenances, shall be faithfully
kept, observed and performed by the Tenant, and by its agents, servants,
employees and guests, unless waived in writing by the Landlord:
A. The Tenant shall not obstruct or use for any purpose other than
ingress and egress the sidewalks, entries, passages, elevators, public
corridors and staircases and other parts of the building which are not
occupied by the Tenant;
B. The Tenant shall not install or permit the installation of
awnings, shades, curtains, draperies and the like other than those approved
by the Landlord in writing;
C. The Tenant shall not place upon any doors of the Demised Premises
any additional locks or any security system except as may be approved by
the Landlord in writing, which approval shall not be unreasonably withheld.
The doors leading to the corridors or main halls shall be kept closed
during business hours except as they may be used for ingress and egress;
D. The Tenant shall not construct, maintain, use or operate within
the Demised Premises or elsewhere in the Building any equipment or
machinery which produces music, sound or noise which is audible beyond the
Demised Premises;
E. The Tenant shall not obstruct any electric and telephone floor
distribution boxes in the Demised Premises;
F. The Tenant shall not obstruct or interfere with the rights of
other tenants, or in any way injure or annoy them or those having business
with them; and
G. The Tenant shall not obstruct building equipment, windows, doors,
and life safety equipment located in the Building or Demised Premises.
Notwithstanding the foregoing, Tenant shall not be required to comply with
any rule or regulation of Landlord unless the same applies non-discriminatorily
to all tenants of the Building, does not unreasonably interfere with Tenant's
use of, access to or parking at the Demised Premises, and does not materially
increase the obligations or decrease the rights of Tenant under this Lease.
Nothing contained in this Lease shall be construed as imposing upon
Landlord any duty or obligation to enforce any such rules and regulations or the
terms, conditions or covenants contained in any other lease, as against any
other tenant, and Landlord shall not be liable to Tenant for the violation of
any such rules or regulations by any other tenant or its employees, agents,
business invitees, licensees, customers, clients, or guests.
16. Damage to Demised Premises. If the Demised Premises or Building shall
--------------------------
be partially damaged by fire or other cause without the fault or neglect of the
Tenant, its agents,
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employees or invitees, and if the Demised Premises or Building are so damaged by
fire or other cause to such extent that the damage cannot be fully repaired
within ninety (90) days from the date of such damage, but such damage does not
render the Demised Premises wholly unfit for occupancy the Landlord upon written
notice to the Tenant, may terminate this Lease, in which event the rent shall be
apportioned and paid to the date of such damage. During the period that the
Tenant is deprived of the use of the damaged portion of the Demised Premises,
the Tenant shall be required to pay rent covering only that part of the Demised
Premises that the Tenant is able to occupy and the rent for such space shall be
that portion of the Basic Annual Rent which the amount of square foot area
remaining which can be occupied by the Tenant bears to the total square foot
area of the Demised Premises. In the event of a total or partial destruction of
the Building or Demised Premises by fire or other cause without the fault or
neglect of the Tenant, its agents, employees, or invitees, rendering the Demised
Premises wholly unfit for occupancy, then and in that event, this Lease shall
thereupon cease and terminate and the Tenant shall pay to the Landlord only such
proportionate part of its rent for said premises as has accrued to the date of
such termination.
All injury or damage to the Demised Premises caused by the Tenant or its
agents, employees and invitees, shall be repaired by the Tenant at the Tenant's
sole expense. If the Tenant shall fail to so do, the Landlord shall have the
right to make such repairs or replacements, and any cost incurred by the
Landlord for such repairs or replacements shall be paid by the Tenant, in which
event such cost shall become additional rent payable within thirty (30) days
after invoice thereof from Landlord. This provision shall be construed as an
additional remedy granted to the Landlord and not in limitation of any other
rights and remedies which the Landlord has or may have in said circumstances.
17. Tenant's Property. The Landlord shall not be liable for theft or
-----------------
misappropriation of property of the Tenant for any reason whatsoever occurring
within the Demised Premises, Building, or parking areas unless caused by or
resulting from the gross negligence of the Landlord, its servants, agents or
employees in the operation or maintenance of the Demised Premises, Building or
parking areas.
18. Liability. The Landlord assumes no liability or responsibility
---------
whatsoever with respect to the conduct and operation of the business to be
conducted in the Demised Premises. The Landlord shall not be liable for any
accident to or injury to any person or persons or property in or about the
Demised Premises which are caused by the conduct and operation of said business
or by virtue of equipment or property of the Tenant in or about said Demised
Premises. The Tenant hereby agrees to hold the Landlord harmless against all
such claims, expenses (including reasonable attorneys' fees) or judgments
arising by reason of the use of the Demised Premises.
The Landlord shall not be liable to the Tenant, its employees, agents,
business invitees, licensees, customers, clients, family members, guests or
trespassers for any damage, compensation, costs, expenses (including reasonable
attorneys' fees) or claims arising from the necessity of repairing any portion
of the Demised Premises, the interruption in the use of the Demised Premises,
accident or damage resulting from the use or operation (by the Landlord, the
Tenant, or any other person or persons whatsoever) of elevators, or heating,
cooling, electrical or plumbing equipment or apparatus or any portion of the
Building or Demised Premises or parking areas, or the termination of this Lease
by reason of the total or partial destruction of the Demised Premises, or from
any fire, robbery, theft, and/or any other casualty, or from any leakage into
any part or portion of the Demised Premises, or from water, rain or
14
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snow that may leak into, or flow from, any part of the Demised Premises, or from
drains, pipes or plumbing work in the Demised Premises, or from any other cause
whatsoever. Subject to Paragraph 17 hereof, any goods, property or personal
effects, stored or placed by the Tenant in or about the Demised Premises, the
Building or parking areas shall be at the sole risk of the Tenant and the
Landlord shall not in any manner be held responsible therefor. The employees
and/or contractors of the Landlord are prohibited from receiving any package or
other articles delivered to the Demised Premises for the Tenant, and if any such
employee and/or contractor receives any such package or articles, such employee
and/or contractor shall be the agent of the Tenant for that purpose and not of
the Landlord. The Tenant shall give prompt notice to the Landlord in case of
fire or accident in the Demised Premises, Building or parking area or of any
defects, damage or injury therefrom in any fixtures or equipment of which Tenant
is aware.
19. Insurance. Tenant shall maintain with respect to the Demised Premises,
---------
commercial general liability insurance, with minimum limits of
$1,000,000/$3,000,000 for personal injury, and $500,000 for property damage.
Tenant shall maintain the insurance coverage required herein with a company or
companies reasonably acceptable to the Landlord. The commercial general
liability insurance policy shall include the Landlord and its agents as
additional named insureds, and will insure Landlord as well as Tenant, against
bodily injury to or death of persons, and against property damage. Tenant shall
deliver certificates of insurance indicating the above-specified coverage to the
Landlord upon the commencement of the term of this Lease, and shall provide
evidence of such coverage annually and as by be reasonably requested by
Landlord. Such insurance policy or policies shall be in a form reasonably
satisfactory to the Landlord, and shall be placed with a company qualified to do
business in Virginia, and shall provide that it (they) cannot be canceled
without at least ten (10) days prior written notice to the Landlord.
20. Services. Consistent with the standards observed by operators of first
--------
class office buildings in the Herndon, Virginia area, the Landlord shall furnish
reasonably adequate electric current, water, lavatory supplies, and
automatically operated elevator service during normal business hours (except
that electrical current shall be supplied to the Demised Premises at all times),
and will provide normal and usual cleaning and char service after business
hours, without additional cost to the Tenant. The Landlord further agrees to
furnish heat and air conditioning during the appropriate seasons of the year
between the hours of 7:00 a.m. and 6:00 p.m. on Monday through Friday and 9:00
a.m. and 12:00 noon on Saturday (exclusive of Commonwealth and national holidays
which may be recognized by the Landlord). However, the Landlord shall not be
liable for any failure to furnish, or for suspension or delays in furnishing,
any of the services described above if caused by breakdown, maintenance or
repair work, or strike, scarcity of labor or materials, riot, civil commotion,
or if due to any cause or reason whatever beyond the control of the Landlord.
Landlord will (i) make repairs and replacements to HVAC, mechanical, life
safety (including sprinklers), plumbing and electrical systems in or serving the
Demised Premises (to the extent such systems are Building standard) as is
reasonably deemed necessary by Landlord for normal operations of the Building;
(ii) all common areas of the Building, including without limitation the parking
areas; (iii) all structural elements of the Building, including without
limitation the roof, exterior walls, interior bearing walls, foundations,
footings, and all exterior surfaces of the Building (including glass). Landlord
shall perform its obligations under this paragraph in a manner consistent with
other first class office buildings in the Herndon, Virginia submarket.
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21. Defaults and Remedies. If the Tenant shall fail to pay the rent, or
---------------------
any installments thereof as aforesaid, at the time the same shall become due and
payable and/or any additional rent as herein provided and such failure is not
cured within five (5) business days although no demand shall have been made for
the same, or if the Tenant shall violate or fail or neglect to keep and perform
any of the covenants, conditions and agreements herein contained on the part of
the Tenant to be kept and performed and such non-performance continues for
thirty (30) days after notice by Landlord or, if such performance cannot be
reasonably had within such thirty (30) day period, Tenant does not in good faith
commence performance within such thirty (30) day period and diligently proceed
to completion, or if the Demised Premises shall become vacant or deserted for
more than fourteen (14) days, then, and in each and every such event from
thenceforth, and at all times thereafter, at the option of the Landlord, the
Tenant's right of possession shall thereupon cease and terminate, and the
Landlord shall be entitled to the possession of the Demised Premises and to re-
enter the same without demand of possession of the same premises and may
forthwith proceed to recover possession of the demised premises by process of
law, any notice to quit, or of intention to re-enter the same being hereby
expressly waived by the Tenant. In the event of such re-entry by process of law
or otherwise, the Tenant nevertheless agrees to remain answerable for all
damages sustained by the Landlord, including, without limitation, deficiency in
rent, reasonable attorneys' fees, brokerage fees and expense of placing the
Demised Premises in first class rentable condition. And in such case, the
Landlord reserves full power which is hereby acceded to by the Tenant, whether
the keys be returned to the Landlord or its agent and accepted or not, to relet
the said premises for the profit of the Tenant, in liquidation and discharge, in
whole or in part, as the case may be, of the liability of the Tenant under the
terms and provisions of this Lease. And it is further provided that if, under
the provisions hereof, a summons or other applicable summary process shall be
served, and a compromise or settlement thereof shall be made, it shall not be
deemed to be a waiver of any breach of any covenant, condition or agreement
herein contained, or of any subsequent breach thereof. No provision of this
Lease shall be deemed to have been waived by the Landlord unless such waiver
shall be in writing signed by the Landlord. No payment by the Tenant or receipt
by the Landlord of a lesser amount than the monthly installments of rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent nor shall any endorsement of statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and the Landlord may accept such check or payment without
prejudice to the Landlord's right to recover the balance of such rent or pursue
any other remedy provided for in this Lease or by law. The provisions contained
in this paragraph shall be in addition to and shall not prevent the enforcement
of any claim the Landlord may have against the Tenant for anticipatory breach of
the unexpired term of this Lease. All rights and remedies of the Landlord under
this Lease shall be cumulative and shall not be exclusive of any other rights
and remedies provided to the Landlord under applicable law.
22. Insolvency. If the Tenant or a guarantor of this Lease, if any, shall
----------
make an assignment of its assets for the benefit of creditors, of if a receiver
of the assets of the Tenant or any guarantor, if any, is appointed, or if the
Tenant or any guarantor shall commence any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of its debts under any law, statute or regulation or if an
involuntary petition in any bankruptcy or insolvency proceeding for receivership
be instituted against the Tenant or any guarantor, if any, and the same be not
dismissed within sixty (60) days of the filing thereof, or if the Tenant or any
guarantor, if any, be adjudged bankrupt, then, and in each and every such event,
this Lease shall immediately cease and terminate at the option of the Landlord
with the same force and effect as though the date of said event was the day
herein
16
<PAGE>
fixed for the expiration of the term of this Lease and the Landlord shall be
entitled to immediate possession of the Demised Premises and to recover damages
from the Tenant in accordance with the provisions of Paragraph 21 (Defaults and
Remedies) herein.
23. Condemnation. The Tenant agrees that if the whole or a substantial
------------
part of the Demised Premises shall be taken or condemned by any competent
authority for public or quasi-public use or purpose, including any sale under
the threat of such a taking, the Tenant shall have no claim against the Landlord
and shall not have any claim or right to any portion of the amount that may be
awarded as damages or paid as a result of any such condemnation or sale; and all
right of the Tenant to damages therefore, if any, are hereby assigned by the
Tenant to the Landlord, except that Tenant may claim and prove in any such
proceeding and receive any award made to Tenant specifically for damages for
loss of movable trade fixtures, equipment and moving expenses so long as such
award does not reduce Landlord's award. And upon such condemnation or taking, or
sale, the term of this Lease shall cease and terminate from the date of such
governmental taking or condemnation or such sale, and the Tenant shall have no
claim against the Landlord for the value of any unexpired term of this Lease.
The rent, however, shall be abated on the date when such title vests in such
governmental authority. If less than a substantial part of the Demised Premises
is taken or condemned by any governmental authority for public or quasi-public
use or purpose (or sale under threat of such taking or condemnation), the rent
shall be equitably adjusted on the date when title vests in such governmental
authority and the Lease shall otherwise continue in full force and effect. For
purposes of this paragraph, a substantial part of the Demised Premises shall be
considered to have been taken if more than thirty percent (30%) of the Demised
Premises are unusable by the Tenant.
24. Security Deposit. The Tenant agrees to deposit the Security Deposit
----------------
with the Landlord upon execution and delivery of this Lease, to be held by
Landlord without interest, as a security deposit for the full and faithful
performance by the Tenant of each and every term, provision, covenant and
condition of this Lease. In the event that the Tenant defaults in respect of any
of the terms, provisions, covenants and conditions of this Lease, including but
not limited to the payment of rent, the Landlord may use, apply or retain the
whole or any part of the Security Deposit for the payment of any rent in default
or for any other sum which the Landlord may expend or be required to expend by
reason of the Tenant's default, including any damage or deficiency in the re-
letting of any portion of the Demised Premises, whether such damages or
deficiency accrue before or after summary proceedings or other re-entry by the
Landlord. Determination of a default shall be within the sole, complete and
exclusive discretion of the Landlord. The use, application or retention of said
Security Deposit by the Landlord shall not preclude or in any way prohibit the
Landlord from the use of any other remedy or remedies which Landlord may have.
25. Holding Over. If the Tenant shall, with the knowledge and written
------------
consent of the Landlord, continue to remain in the Demised Premises after the
expiration of the Term of this Lease, then and in that event, the Tenant shall,
by virtue of this Lease, become a tenant by the month at 150% of the rent per
month of the monthly installment of rent agreed by the Tenant to be paid as
aforesaid, commencing said monthly tenancy with the first day next after the end
of the term above demised; and the Tenant shall give to the Landlord at least
thirty (30) days written notice to quit said premises, and the Tenant shall be
entitled to thirty (30) days written notice to quit said premises, except in the
event of nonpayment of rent in advance or the breach of any other covenant by
the Tenant, in which event the Tenant shall not be entitled to any notice to
quit, the usual thirty (30) days written notice to quit being hereby expressly
17
<PAGE>
waived; provided, however, that in the event that the Tenant shall hold over
after the expiration of the term hereby created and if the Landlord shall desire
to regain possession of said premises promptly at the expiration of the term
aforesaid, then at any time prior to the Landlord's acceptance of rent from the
Tenant as a monthly tenant hereunder, the Landlord, at its option, may forthwith
reenter and take possession of said premises without process, or by any legal
process in force.
26. Possession. If the Landlord shall be unable to give possession of the
----------
Demised Premises on the Lease Commencement Date by reason of the holding over or
retention of possession of any tenant or occupancy, or if repairs, improvements
or decoration of the Demised Premises, or of the Building of which the Demised
Premises form a part, are not completed or for any other reason, the Landlord
shall not be subject to any liability for the failure to give possession on said
date. Under such circumstances, the rent reserved and covenanted to be paid
herein shall not commence until the possession of the Demised Premises is given
or the premises are available for occupancy by the Tenant, and no such failure
to give possession on the Lease Commencement Date shall in any other respect
affect the validity of this Lease or the obligations of the Tenant hereunder,
nor shall the same be construed to extend the Term of this Lease. If permission
is given to the Tenant to enter into the possession of the Demised Premises or
to occupy premises other than the Demised Premises prior to the date specified
as the Lease Commencement Date, the Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this Lease.
27. Ground or Underlying Lease. At the option of any landlord under any
--------------------------
ground or underlying lease to which this Lease is now or may hereafter become
subject or subordinate, the Tenant agrees that neither the cancellation nor
termination of such ground or underlying lease shall, by operation of law or
otherwise, result in cancellation or termination of this Lease or the
obligations of the Tenant hereunder, and the Tenant covenants and agrees to
attorn to such landlord or to any successor of such Landlord's interest in such
ground or underlying lease, and in that event, this Lease shall continue as a
direct lease between the Tenant herein and such Landlord or its successor; and
in any such case, such Landlord or successor under such ground or underlying
lease shall not be bound by any prepayment on the part of the Tenant or any rent
for more than one month in advance, so that rent shall be payable under this
Lease in accordance with its terms, from the date of the termination of the
ground or underlying lease, as if such prepayment had not been made; and,
provided further, such Landlord or successor under such ground or underlying
lease shall not be bound by this Lease or any amendment or modification of this
Lease unless prior to the termination of such ground or underlying lease, a copy
of this Lease, or amendment of modification thereof, as the case may be, shall
have been delivered to, and accepted by such Landlord or successor.
28. Subordination. This Lease is subject and subordinate to all ground or
-------------
underlying leases and to all mortgages and/or deeds of trust which may now or
hereafter affect such leases or the real property of which the Demised Premises
form a part, and to all renewals, modifications, consolidations, replacements
and extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required by any mortgagee or trustee. The
Tenant shall execute promptly any certificate that the Landlord may request to
confirm such subordination. Notwithstanding the foregoing, the party secured by
any such deed of trust or mortgage shall have the right to recognize this Lease,
and in the event of any foreclosure sale under such deed of trust or mortgage,
this Lease shall continue in full force and effect at the option of the party
secured by such deed of trust or mortgage, or the
18
<PAGE>
purchaser under any such foreclosure sale, and the Tenant covenants and agrees
that it will, at the written request of the party secured by any such deed of
trust or mortgage, execute, acknowledge and deliver any instrument that has for
its purpose and effect the subordination of said deed of trust or mortgage to
the lien of this Lease.
29. Approval. This Lease shall be subject to and conditioned upon the
--------
approval of the Landlord's mortgagee, if any, and shall not be deemed final and
effective until written acceptance manifesting said approval is received by the
Landlord, a copy of which will be remitted to the Tenant. The Landlord shall
have thirty (30) days from the date of its execution of this Lease within which
to obtain said approval; otherwise, this condition shall be deemed null and
void.
30. Right to Cure Defaults. If the Tenant defaults in the making of any
----------------------
payment or in the doing of any act herein required to be made or done by the
Tenant, then the Landlord may, but shall not be required to, make such payment
or do such act, and the amount of the expense thereof, if made or done by the
Landlord, with interest accrued on a daily basis until paid at the Prevailing
Bank Prime Rate from the date payment was due, shall be paid by the Tenant to
the Landlord and shall constitute additional rent hereunder due and payable with
the next monthly installment of rent; but the making of such payment or the
doing of such act by the Landlord shall not operate to cure such default or to
estop the Landlord from the pursuit of any remedy to which the Landlord would
otherwise be entitled. If the Tenant fails to pay any installment of rent on or
before the fifth (5th) business day of the calendar month when such installment
becomes due and payable, the Tenant shall pay to the Landlord a late charge of
five percent (5%) of the amount of such installment, and, in addition, such
unpaid installment shall bear interest at the Prevailing Bank Prime Rate from
five (5) business days after the date such installment became due and payable to
the date of payment thereof by the Tenant. Tenant acknowledges that said late
charge and interest are fair and reasonable. Such late charge and interest shall
constitute additional rent hereunder due and payable immediately.
31. Construction Plans. It is agreed that the Tenant will notify Landlord
------------------
in writing of its approval of the Construction Plans by not later than March 30,
2000. Construction of any Tenant Improvements will not commence until Tenant
approves the Construction Plans, and all other conditions set forth in Paragraph
6 hereof have been satisfied. In the event the Tenant fails to comply with the
aforesaid by the date specified above, then Landlord may, at its option, at any
time while Tenant is in default of this provision, in addition to any and all
other remedies provided in this Lease, upon not less than ten (10) days written
notice to Tenant, declare this Lease to be terminated and the term ended, in
which event, this Lease shall cease and terminate on the date specified in such
notice with the same force and effect as though the date set forth in such
notice were the date originally set forth herein and fixed for expiration of the
term, and Tenant shall vacate and surrender the Demised Premises.
32. Parking. Landlord shall make available to Tenant and its designated
-------
employees and to Tenant's permitted subtenants parking spaces for the parking of
standard-sized and/or sub-standard sized passenger automobiles in the parking
areas designated for tenants and invitees in a number not to exceed three and
six-tenths (3.6) parking spaces for each 1,000 square feet of space of the
Demised Premises at no additional charge to Tenant during the Term hereof. The
parking areas will be operated on a self-parking basis. In addition, a limited
number of parking spaces will be made available for the parking of invitees of
all the tenants. The Landlord will also make reasonable efforts to have the
parking areas clear and available for use during business hours. A failure to
have the parking areas or access areas clear of snow
19
<PAGE>
or otherwise available for use will not be a breach of the Lease and will not
subject the Landlord to any liability. Subject to Paragraph 17 hereof, the
parking of any car in the parking areas will be at the sole risk of the Tenant,
its employees, agents, invitees and owners of said automobiles.
Tenant, sub-tenants and employees thereof shall observe reasonable safety
precautions in the use of the parking areas and shall at all times abide by all
rules and regulations promulgated by Landlord governing the use of the parking
areas, which may include, but not be limited to, the requirement that an
identification or parking sticker be displayed at all times on all automobiles
parked in the parking areas. Any automobile not displaying such a sticker, if so
required, or any failure to abide by all rules and regulations promulgated by
Landlord regarding the use of parking areas may necessitate the automobile in
question to be towed away at the car owner's expense.
33. Indemnity of Landlord. The Tenant will indemnify and hold harmless the
---------------------
Landlord from and against any claim, loss, damage, liability or expense
(including attorneys' fees) occasioned by or resulting from any default
hereunder or any willful or negligent act on the part of the Tenant, its agents,
employees, or invitees, or persons permitted on the Demised Premises by the
Tenant.
34. Successors. It is agreed that all rights, remedies and liabilities
----------
herein given to or imposed upon either of the parties hereto shall extend to
their respective heirs, executors, administrators, successors and assigns,
except as may be otherwise provided for herein.
35. No Partnership. Nothing contained in this Lease shall be deemed or
--------------
construed to create a partnership or joint venture of or between the Landlord
and the Tenant or to create any other relationship between the parties hereto
other than that of landlord and tenant.
36. No Representation by Landlord. Neither the Landlord nor any agent or
-----------------------------
employee of the Landlord has made any representations or promises with respect
to the Demised Premises except as herein expressly set forth, and no rights,
privileges, easements or licenses are acquired by the Tenant except as herein
expressly set forth. The Tenant, by taking possession of the Demised Premises,
shall accept the same "AS IS", subject to the Punch List and to latent defects,
and other than for Punch List and latent defect items such taking of possession
shall be conclusive evidence that the Demised Premises are in good and
satisfactory condition at the time of such taking of possession.
37. Waiver of Jury Trial. The Landlord and the Tenant hereby waive trial
--------------------
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on or in respect of any matter whatsoever
arising out of or in any way connected with this Lease, the relationship of
landlord and tenant hereunder, the Tenant's use or occupancy of the Demised
Premises, and/or claim of injury or damage.
38. Pronouns. Feminine or neuter pronouns shall be substituted for those
--------
of the masculine form, and the plural shall be substituted for the singular
number, in any place or places herein in which the context may require such
substitution or substitutions. The Landlord and the Tenant herein for
convenience have been referred to in neuter form.
39. Invalidity of Provisions. If any provision of this Lease or the
------------------------
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable, the remainder
20
<PAGE>
of this Lease, or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
40. Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia.
41. Headinqs. Article and section headings are used herein for the
--------
convenience of reference and shall not be considered when construing or
interpreting this Lease.
42. Entire Agreement. This Lease contains and embodies the entire
----------------
agreement of the parties hereto and supersedes all prior agreements,
negotiations and discussions between the parties hereto. Any representation,
inducement or agreement that is not contained in this Lease shall not be of any
force or effect. This Lease may not be modified or changed in whole or in part
in any manner other than by an instrument in writing duly signed by all parties
hereto.
43. No Offer or Option. The submission of an unsigned copy of this
------------------
document to Tenant for Tenant's consideration does not constitute an offer to
lease the premises or an option to or for the premises. This document shall
become effective and binding only upon the execution and delivery of this Lease
by both Tenant and Landlord and, if necessary, any lender.
44. Notices. All notices required or desired to be given hereunder by
-------
either party to the other shall be in writing and given by hand, with evidence
of receipt, or by certified or registered mail. Notices to the respective
parties shall be addressed as follows:
If to the Landlord: National Rural Utilities
Cooperative Finance Corporation
Woodland Park
2201 Cooperative Way
Herndon, Virginia 20171-3025
if to the Tenant: Inventa Corporation
Woodland Park
2121 Cooperative Way
Suite 100
Herndon, Virginia 20171-3025
Either party may by written notice designate a new address to which such notices
shall be directed.
45. Special Terms and Conditions. Landlord and Tenant agree to comply with
----------------------------
any special terms and conditions identified in Addendum A hereto.
46. Time of Essence and Consents. Time is of the essence herein. Except as
----------------------------
may be expressly set forth to the contrary: (a) whenever consent or approval of
either party is required, such party shall not unreasonably withhold, condition
or delay such consent or approval; (b) whenever a party is permitted to make a
judgment, form an opinion or exercise discretion in taking any action or making
any determination, the party shall employ commercially reasonable standards in
so doing; and (c) where performance is to be made to a party's satisfaction, an
objective and reasonable standard shall be employed in regard to such
performance.
21
<PAGE>
IN WITNESS WHEREOF, the said parties have hereunto signed their names and
affixed their seals, on the day and year hereinbefore written.
LANDLORD:
NATIONAL RURAL UTILITIES
WITNESS: COOPERATIVE FINANCE CORPORATION
/s/ XXX By: /s/ XXX
- ----------------------------- -------------------------------
Assistant Secretary-Treasurer Governor Chief Executive Officer
(Seal)
TENANT:
WITNESS: INVENTA CORPORATION
/s/ XXX By: /s/ XXX
- ----------------------------- -------------------------------
Title: XXX Its: VP Finance
----------------------- -------------------------------
(Seal)
22
<PAGE>
ADDENDUM A TO NRTC OFFICE BUILDING LEASE
----------------------------------------
Special Terms and Conditions
----------------------------
1. Use of Smith-Gill Building Cafeteria. During the Term of this Lease,
------------------------------------
Tenant and Tenant's employees and business invitees shall have access to and the
use of the cafeteria located on the first floor of the adjacent Smith-Gill
Building located at 2201 Cooperative Way, Herndon, Virginia, as long as such
cafeteria remains in existence. Under no circumstances shall Landlord be
obligated to continue to maintain or operate the cafeteria located in the Smith-
Gill Building.
2. Use of Meeting Rooms in the Building. During the Term of this Lease,
------------------------------------
Tenant and Tenant's employees and business invitees shall have access to and the
use of the common area meeting rooms located on the first floor of the Building,
when and if Landlord makes such common area meeting rooms available to tenants
other than National Rural Telecommunications Cooperative and upon such costs,
terms and conditions that Landlord shall determine for tenants at such time.
Under no circumstances shall Landlord be obligated to continue to maintain or
operate the common area meeting rooms located in the Building.
3. Repairs. Landlord shall perform and construct, and Tenant shall have no
-------
responsibility to perform or construct, any repair, maintenance or improvements
(a) necessitated by the acts or omissions of Landlord or any other occupant of
the Building, or their respective agents, employees or contractors, (b)
occasioned by casualty or by the exercise of the power of eminent domain, (c)
for which Landlord has a right of reimbursement from others, (d) which could be
treated as a "capital expenditure" under generally accepted accounting
principles, (e) to the heating, ventilating, air conditioning, electrical,
water, sewer, and plumbing systems serving the Demised Premises and the
Building, and (f) to any portion of the Building outside of the walls of the
Demised Premises; provided, however, that to the extent that any of the
-------- -------
foregoing items are Building Operating Expenses as defined in Paragraph 5
hereof, Tenant shall have an obligation to pay its proportionate share thereof
as set forth in Paragraph 5 hereof.
23
<PAGE>
EXHIBIT A
[See Attached Floor Plan]
<PAGE>
(Image)
Inventa Corporation
Architectural Floor Plan, First Floor
<PAGE>
EXHIBIT B
Letter of Credit
----------------
[Date]
National Rural Utilities Cooperative
Finance Corporation
2201 Cooperative Way
Herndon, VA 20171
Re: Irrevocable Standby Letter of Credit
------------------------------------
Gentlemen:
By order of the applicant, Inventa Corporation, we hereby establish our
irrevocable standby Letter of Credit No._____ in your favor for a sum or sums
not to exceed One Hundred Ninety Seven Thousand Seven Hundred Seven and 50/100
Dollars ($197,707.50) (U.S. Dollars)in the aggregate, effective immediately.
This Letter of Credit shall be payable in immediately available funds in
U.S. Dollars. Funds under this Letter of Credit are payable to you upon your
presentation to us of the original of this Letter of Credit and a sight draft
drawn on us in the form attached as Annex 1 hereto. All drafts must be marked:
"Drawn under Letter of Credit No.____ of [Name of Issuing Bank]."
----------------------
This Letter of Credit shall expire twelve months from the date hereof; but
is automatically extendable, so that this Letter of Credit shall be deemed
automatically extended, from time to time, without amendment, for one year from
the expiration date hereof and from each and every future expiration date,
unless at least sixty (60) days prior to any expiration date we shall notify you
by certified or registered mail that we elect not to consider this Letter of
Credit renewed for any such additional period. The final expiration date hereof
shall be no earlier than [fill in date which is 90 days after expiration of
--------------------------------------------------
lease].
- ------
This Letter of Credit is transferable and may be transferred one or more
times. However, no transfer shall be effective unless advice of such transfer is
received by us in our standard form.
We hereby agree to honor each draft drawn under and in compliance with this
letter of credit, if duly presented at our offices at ________, or at any other
of our offices in ______.
This Letter of Credit is subject to the International Standby Practices
1998, International Chamber of Commerce Publication No. 590.
[Name of Issuing Bank]
By:____________________________
Its:___________________________
<PAGE>
ANNEX 1
Form of Sight Draft
-------------------
Drawn under Irrevocable Standby Letter of Credit
No.___ of [Name of Issuing Bank]
[Date]
[Name and Address of Issuing Bank]
Ladies and Gentlemen:
PAY AT SIGHT to the order of National Rural Utilities Cooperative Finance
Corporation the sum of $__________.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2114
DATE: FEBRUARY 14, 2000
BENEFICIARY:
NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION
2201 COOPERATIVE WAY
HERNDON, VA 20171
AS "LANDLORD"
APPLICANT:
INVENTA CORPORATION
255 SHORELINE DRIVE, 2/ND/ FLOOR
REDWOOD SHORES, CA 94065
AS "TENANT"
AMOUNT: US$197,707.50 (ONE HUNDRED NINETY SEVEN THOUSAND SEVEN HUNDRED
SEVEN AND 50/100 U.S. DOLLARS)
EXPIRATION DATE: FEBRUARY 10, 2001
LOCATION: AT OUR COUNTERS IN SANTA CLARA, CALIFORNIA
DEAR SIR/MADAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2114 IN
YOUR FAVOR AVAILABLE BY YOUR DRAFTS DRAWN ON US AT SIGHT AND ACCOMPANIED BY THE
FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.
PARTIAL DRAWS ARE ALLOWED. THIS LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS
HEREUNDER FOR ENDORSEMENT OF THE DRAWING AMOUNT AND WILL BE RETURNED TO THE
BENEFICIARY UNLESS IT IS FULLY UTILIZED.
THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD
OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE
BUT IN ANY EVENT NOT BEYOND AUGUST 1, 2005 WHICH SHALL BE THE FINAL EXPIRATION
DATE OF THIS LETTER OF CREDIT, UNLESS, AT LEAST SIXTY (60) DAYS PRIOR TO THE
THEN CURRENT EXPIRATION DATE WE NOTIFY YOU BY REGISTERED MAIL/OVERNIGHT COURIER
SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED
BEYOND THE CURRENT EXPIRATION DATE.
Page 1 of 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2114
DATE: FEBRUARY 14, 2000
THIS LETTER OF CREDIT MAY BE TRANSFERRED IN ITS ENTIRETY MORE THAN ONCE BY THE
ISSUING BANK UPON OUR RECEIPT OF THE ATTACHEDEXHIBIT "A" DULY COMPLETED AND
EXECUTED BY THE BENEFICIARY AND ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT AND
ALL AMENDMENT(S), IF ANY, TOGETHER WITH THE PAYMENT OF OUR TRANSFER FEE OF 1/4
OF 1% OF THE TRANSFER AMOUNT (MINIMUM USD250.00).
DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF
CREDIT.
DOCUMENTS MUST BE FORWARDED TO US BY OVERNIGHT DELIVERY SERVICE TO: SILICON
VALLEY BANK. 3003 TASMAN DRIVE, SANTA CLARA CA 95054, ATTN: INTERNATIONAL
DIVISION.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONAFIDE HOLDERS THAT THE DRAFTS
DRAWN UNDER AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF
CREDIT SHALL BE DULY HONORED UPON PRESENTATION TO THE DRAWEE, IF NEGOTIATED ON
OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.
THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION 500.
/s/ XXX /s/ XXX
- ---------------------------- --------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
Page 2 of 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
EXHIBIT "A"
DATE:
TO: SILICON VALLEY BANK
3003 TASMAN DRIVE RE: STANDBY LETTER OF CREDIT
SANTA CLARA, CA 95054 NO. SVB00IS2114 ISSUED BY
ATTN: INTERNATIONAL DIVISION. SILICON VALLEY BANK, SANTA CLARA
STANDBY LETTERS OF CREDIT L/C AMOUNT:
GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF
CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS
TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF
CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS
AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS,
WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR
HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE
WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO
ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE
TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
SINCERELY,
_________________________________
(BENEFICIARY'S NAME)
_________________________________
SIGNATURE OF BENEFICIARY
SIGNATURE AUTHENTICATED
_________________________________
(NAME OF BANK)
_________________________________
AUTHORIZED SIGNATURE
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2114
DATE: FEBRUARY 14, 2000
BENEFICIARY:
NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION
2201 COOPERATIVE WAY
HERNDON, VA 20171
AS "LANDLORD"
APPLICANT:
INVENTA CORPORATION
255 SHORELINE DRIVE, 2/ND/ FLOOR
REDWOOD SHORES, CA 94065
AS "TENANT"
AMOUNT: US$197,707.50 (ONE HUNDRED NINETY SEVEN THOUSAND SEVEN HUNDRED
SEVEN AND 50/100 U.S. DOLLARS)
EXPIRATION DATE: FEBRUARY 10, 2001
LOCATION: AT OUR COUNTERS IN SANTA CLARA, CALIFORNIA
DEAR SIR/MADAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2114 IN
YOUR FAVOR AVAILABLE BY YOUR DRAFTS DRAWN ON US AT SIGHT AND ACCOMPANIED BY THE
FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.
PARTIAL DRAWS ARE ALLOWED. THIS LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS
HEREUNDER FOR ENDORSEMENT OF THE DRAWING AMOUNT AND WILL BE RETURNED TO THE
BENEFICIARY UNLESS IT IS FULLY UTILIZED.
THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD
OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE
BUT IN ANY EVENT NOT BEYOND AUGUST 1, 2005 WHICH SHALL BE THE FINAL EXPIRATION
DATE OF THIS LETTER OF CREDIT, UNLESS, AT LEAST SIXTY (60) DAYS PRIOR TO THE
THEN CURRENT EXPIRATION DATE WE NOTIFY YOU BY REGISTERED MAIL/OVERNIGHT COURIER
SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED
BEYOND THE CURRENT EXPIRATION DATE.
Page 1 of 2
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LETTERHEAD OF SILICON VALLEY BANK
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2114
DATE: FEBRUARY 14, 2000
THIS LETTER OF CREDIT MAY BE TRANSFERRED IN ITS ENTIRETY MORE THAN ONCE BY THE
ISSUING BANK UPON OUR RECEIPT OF THE ATTACHED EXHIBIT "A" DULY COMPLETED AND
EXECUTED BY THE BENEFICIARY AND ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT AND
ALL AMENDMENT(S), IF ANY, TOGETHER WITH THE PAYMENT OF OUR TRANSFER FEE OF 1/4
OF 1% OF THE TRANSFER AMOUNT (MINIMUM USD250.00).
DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF
CREDIT.
DOCUMENTS MUST BE FORWARDED TO US BY OVERNIGHT DELIVERY SERVICE TO: SILICON
VALLEY BANK. 3003 TASMAN DRIVE, SANTA CLARA CA 95054, ATTN: INTERNATIONAL
DIVISION.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONAFIDE HOLDERS THAT THE DRAFTS
DRAWN UNDER AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF
CREDIT SHALL BE DULY HONORED UPON PRESENTATION TO THE DRAWEE, IF NEGOTIATED ON
OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.
THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION 500.
/s/ XXX /s/ XXX
------------------------ --------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
Page 2 of 2
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[LETTERHEAD OF SILICON VALLEY BANK]
International Division
EXHIBIT "A"
DATE:
TO: SILICON VALLEY BANK
3003 TASMAN DRIVE RE: STANDBY LETTER OF CREDIT
SANTA CLARA, CA 95054 NO. SVB00IS2114 ISSUED BY
ATTN: INTERNATIONAL DIVISION. SILICON VALLEY BANK, SANTA CLARA
STANDBY LETTERS OF CREDIT L/C AMOUNT:
GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF
CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS
TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF
CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS
AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS,
WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR
HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE
WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO
ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE
TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
SINCERELY,
______________________________
(BENEFICIARY'S NAME)
______________________________
SIGNATURE OF BENEFICIARY
SIGNATURE AUTHENTICATED
______________________________
(NAME OF BANK)
______________________________
AUTHORIZED SIGNATURE
<PAGE>
EXHIBIT 10.31
SHOREBREEZE ASSOCIATES, LLC
AND
INVENTA CORPORATION
LEASE
<PAGE>
SUMMARY OF LEASE
----------------
1. DATE OF LEASE:
2. LANDLORD: Shorebreeze Associates, LLC
3. TENANT: Inventa Corporation,
a California corporation
4. PREMISES: 255 Shoreline Drive, Suites 103, 200 and
300 Redwood City, California
5. SQUARE FEET: 43,693 square feet
6. PERMITTED USE:
7. TERM:
(a) SCHEDULED COMMENCEMENT DATE
(b) SCHEDULED EXPIRATION DATE:
8. RENT SCHEDULE: See paragraph 3
9. SECURITY DEPOSIT: $2,800,000 Letter of Credit
10. PARKING SPACES PROVIDED:
11. OTHER IMPORTANT PROVISIONS: Tenant Improvement Allowance
Option to Extend Term
Capital Expenditures
12. EXHIBITS: Exhibit A - Premises
Exhibit B - Project
Exhibit C - [Intentionally Omitted]
Exhibit D - Rules and Regulations
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE
ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE
PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL
GOVERN.
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TABLE OF CONTENTS
ITEM PAGE
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<S> <C>
1. LEASE OF PREMISES
2. TERM; COMPLETION OF IMPROVEMENTS
3. RENTAL
4. TENANT'S SHARE OF INCREASED COSTS
5. USE
6. UTILITIES AND SERVICES
7. TAXES PAYABLE BY TENANT
8. ALTERATIONS
9. LIENS
10. REPAIRS
11. INSURANCE
12. DAMAGE OR DESTRUCTION
13. INDEMNIFICATION
14. COMPLIANCE WITH LAWS
15. ASSIGNMENT AND SUBLETTING
16. RULES AND REGULATIONS
17. ENTRY BY LANDLORD
18. COMMON AREA; PARKING
19. DEFAULT
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
21. ATTORNEYS' FEES
22. EMINENT DOMAIN
23. SUBORDINATION
24. NO MERGER
25. SALE
26. ESTOPPEL CERTIFICATE
27. NO LIGHT, AIR OR VIEW EASEMENT
28. EASEMENTS
29. HOLDING OVER
30. SURRENDER
31. SECURITY DEPOSIT
32. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
33. WAIVER
34. NOTICES
35. BROKERAGE COMMISSION
36. COMPLETE AGREEMENT
37. AUTHORITY
38. SUCCESSORS
39. SIGNAGE
40. QUIET ENJOYMENT
41. ATTORNMENT TO LENDER OR THIRD PARTY
42. DEFAULT BY LANDLORD
43. CONSTRUCTION CHANGES
44. MEASUREMENT OF PREMISES
45. PROJECT NAME
46. GOVERNING LAW
47. SEVERABILITY
48. TIME
49. RECORDING
50. TENANT'S QUITCLAIM
51. EXHIBITS AND ATTACHMENTS
52. ENVIRONMENTAL MATTERS
53. SUBMISSION OF LEASE
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
54. PREMISES TAKEN "AS IS"
55. ADDITIONAL RENT
56. LANDLORD'S OPTION TO RELOCATE PREMISES
57. JOINT AND SEVERAL
58. TENANT IMPROVEMENT ALLOWANCE
59. OPTION TO EXTEND TERM
60. CAPITAL EXPENDITURES
</TABLE>
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OFFICE LEASE
STANDARD AGREEMENT
This Lease, dated February 2, 2000, between SHOREBREEZE ASSOCIATES, LLC, a
Delaware' limited liability company ("Landlord") and INVENTA CORPORATION, a
California corporation ("Tenant").
1. LEASE OF PREMISES
(a) Landlord leases to Tenant and Tenant leases from Landlord those
certain premises shown on Exhibit A, commonly known as 255 Shoreline Drive,
Suites 103, 200 and 300, Redwood City, California (the "Premises") and, which
Landlord and Tenant hereby agree consists of approximately forty-three thousand
six hundred ninety-three (43,693) square feet. The Premises shall be delivered
to the Tenant in three phases, the "Phase 1 Space" is that certain space
commonly known as Suite 103, consisting of approximately four thousand three
hundred thirty-four (4,334) square feet as shown on Exhibit A. The "Phase 2
Space" is that portion of the Premises located on the third floor consisting of
approximately nineteen thousand one hundred fourteen (19,114) square feet as
shown on Exhibit A. The "Phase 3 Space" is that portion of the Premises located
on the second floor consisting of approximately twenty thousand two hundred
forty-five (20,245) square feet as shown on Exhibit A. As used herein the term
"Project" shall mean and include all of the land as shown on Exhibit B and all
the buildings, improvements, fixtures and equipment now or hereafter situated on
said land.
(b) Tenant covenants, as a material part of the consideration of this
Lease, to perform and observe each and all of the terms, covenants and
conditions set forth below, and this Lease is made upon the condition of such
performance and observance.
2. TERM, COMPLETION OF IMPROVEMENTS
(a) Subject to paragraph 2(b) and 2(c) below, the term of this Lease
shall commence on the date that Landlord tenders possession of the Phase 1 Space
to Tenant (the "Lease Commencement Date"), and, unless sooner terminated as
hereinafter provided, shall end on the date that is seven (7) years after the
date that Landlord tenders possession of the Phase 2 Space to Tenant (the "Lease
Expiration Date"). Landlord shall use commercially reasonable efforts to tender
possession of the Premises to Tenant in accordance with the following schedule:
(1) deliver the Phase 1
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Space on or before March 1, 2000 (the "Phase 1 Delivery Date"); (2) deliver the
Phase 2 Space on or before May 1, 2000 (the "Phase 2 Delivery Date"); and (3)
deliver the Phase 3 Space on or before April 1, 2001 (the "Phase 3 Delivery
Date"). Tenant understands that the Phase 1 Space is currently occupied under a
lease which does not expire until February 28, 2000, the Phase 2 Space is
currently occupied under a lease which does not expire until July 31, 2000 and
the Phase 3 Space is currently occupied under a lease which does not expire
until March 31, 2001 and delivery of the spaces in accordance with the above
schedule is subject to vacation of such spaces by the current occupants and in
the case of the Phase 2 Space will require early termination of the current
tenant's lease. The period commencing on the Lease Commencement Date to the
Phase 2 Delivery Date is referred to herein as "Phase 1". The period commencing
on the Phase 2 Delivery Date to the Phase 3 Delivery Date is referred to herein
as "Phase 2". The period commencing on the Phase 3 Delivery Date to the Lease
Expiration Date is referred to herein as "Phase 3".
(b) If Landlord for any reason cannot deliver possession of the Phase
1 Space to Tenant by the scheduled Lease Commencement Date, this Lease shall not
be void or voidable, Landlord shall not be liable to Tenant for any loss or
damage on account thereof and, unless Landlord's failure to deliver possession
of the Phase 1 Space to Tenant by the scheduled Lease Commencement Date is
caused by the acts or omissions of Tenant or Tenant caused delays, Tenant shall
not be liable for rent until Landlord tenders possession of the Phase 1 Space to
Tenant. The expiration date of the lease term shall be adjusted by the same
number of days that the Phase 2 Delivery Date was advanced or delayed from the
scheduled Phase 2 Delivery Date. If the actual Phase 2 Delivery Date is a date
other than the scheduled Phase 2 Delivery Date, then the parties shall
immediately execute an amendment to this Lease stating (or a letter
acknowledging) the Phase 2 Delivery Date.
(c) Tenant's inability or failure to take possession of the Phase 1
Space when delivery is tendered by Landlord shall not delay the commencement of
the term of this Lease or Tenant's obligation to pay rent. Tenant acknowledges
that Landlord shall incur significant expenses upon the execution of this Lease,
even if Tenant never takes possession of the Premises, including without
limitation brokerage commissions and fees, legal fees and other professional
fees. Tenant acknowledges that all of said expenses shall be included in
measuring Landlord's damages should Tenant breach the terms of this Lease.
3. RENTAL
(a) Base Rent. Tenant shall pay to Landlord throughout the term of
---------
this Lease as rental ("Base Rent") for the Premises as follows:
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Period Monthly Rent
- ------ ------------
From the Lease Commencement
Date to the Phase 2 Delivery
Date $ 21,670.00 per month
From the Phase 2 Delivery
Date to the Phase 3 Delivery
Date $117,240.00 per month
From the Phase 3 Delivery
Date to the first anniversary
date after the Phase 2
Delivery Date $218,465.00 per month
From the first anniversary
date after the Phase 2 Delivery
Date to the second anniversary
date after the Phase 2 Delivery
Date $225,018.95 per month
From the second anniversary
date after the Phase 2 Delivery
Date to the third anniversary
date after the Phase 2 Delivery
Date $231,769.52 per month
From the third anniversary
date after the Phase 2 Delivery
Date to the fourth anniversary
date after the Phase 2 Delivery
Date $238,722.60 per month
From the fourth anniversary
date after the Phase 2 Delivery
Date to the fifth anniversary
date after the Phase 2 Delivery
Date $245,884.28 per month
From the fifth anniversary
date after the Phase 2 Delivery
Date to the sixth anniversary
date after the Phase 2 Delivery
Date $253,260.81 per month
From the sixth anniversary
date after the Phase 2 Delivery
Date to the seventh anniversary
date after the Phase 2 Delivery
Date $260,858.63 per month
3
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The Base Rent shall be payable monthly in the monthly amounts
specified above, and each monthly payment shall be due on or before the first
day of the first full calendar month of the term hereof and on or before the
first day of each and every successive calendar month thereafter during the term
hereof. In the event the term of this Lease commences on a day other than the
first day of a calendar month, then the monthly rental for the first and last
fractional months of the term hereof shall be appropriately prorated. Rental
shall be paid to Landlord, without deduction or offset, in lawful money of the
United States of America at Shorebreeze Associates, LLC, Dept. LA 21277,
Pasadena, California 91185, or to such other person or at such other place as
Landlord may from time to time designate in writing.
(b) Operating Expense Increases. In addition to the Base Rent, Tenant
---------------------------
shall pay to Landlord Tenant's percentage share of Operating Expense Increases
as provided in paragraph 4 below.
(c) First Month's Base Rent. Concurrently with Tenant's execution of
-----------------------
this Lease, Tenant shall deposit with Landlord the sum of One Hundred Seventeen
Thousand Two Hundred Forty Dollars ($117,240.00) to be applied as follows: (1)
$21,670 to be applied against the base rent for the Phase 1 Space for the first
lease month of the term; and (2) $95,570 to be applied against the base rent for
the Phase 2 Space for the lease month commencing on the Phase 2 Delivery Date.
(d) Application of Payments. All payments received by Landlord from
-----------------------
Tenant may be applied by Landlord in Landlord's sole discretion to the oldest
payment obligation(s) owed by Tenant to Landlord or in such other order as
Landlord determines in Landlord's sole and absolute discretion. No designation
by Tenant, either in a separate writing or on a check or money order, shall
modify this clause or have any force or effect. Notwithstanding the above,
Landlord's determination not to apply such payments to the oldest payment
obligations first as specified above shall not constitute a waiver by Landlord
with respect to Landlord's claims against Tenant for such prior payment
obligation(s) of Tenant or Landlord's right to apply future payments to such
prior payment obligation(s) of Tenant in such order as Landlord may determine in
Landlord's sole and absolute discretion.
4. TENANT'S SHARE OF INCREASED COSTS
(a) In addition to the Base Rent specified in paragraph 3 above, for
each calendar year subsequent to the calendar year 2000 (the "Base Year") Tenant
shall pay to Landlord, as additional rent, Tenant's Percentage Share of the
increase, if any, in Operating Expenses paid or incurred by Landlord in such
year over Operating Expenses paid or incurred by Landlord in the Base-Year
("Operating Expense Increases"). Tenant shall not be entitled to any reduction
in or credit against the Base Rent if Operating Expenses for any year are less
than the Base Year Operating
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Expenses. As used herein, "Tenant's Percentage Share" of Operating Expenses for
the building in which the Premises are located shall be the sum of the following
percentages applicable to the spaces leased to Tenant as and when such spaces
are tendered for possession to Tenant:
(1) With respect to the Phase 1 Space: 3.75%
(2) With respect to the Phase 2 Space: 16.54%
(3) With respect to the Phase 3 Space: 17.51%
As used herein, "Operating Expenses" shall include, but not be limited
to, (i) Real Property Taxes and other taxes, assessments or charges identified
as Operating Expenses in paragraph 7, (ii) insurance premiums and other costs
identified as Operating Expenses in paragraph 11, (iii) the cost of all
utilities and services including water, gas and sewer charges, electricity,
heat, air conditioning, refuse collection, and janitorial services identified as
Operating Expenses in paragraph 6, (iv) the costs of operating and maintaining
the Common Area identified as Operating Expenses in paragraph 18, including, but
not limited to, the landscaping, elevators, parking lots, paving, sidewalks, and
security and exterminator services, (v) the costs and expenses of maintaining
and repairing the Project identified as Operating Expenses in paragraph 10, (vi)
the cost of certain alterations identified as Operating Expenses in paragraph 8,
(vii) amortization of such capital improvements having a useful life greater
than one year as Landlord may have installed for the purpose of reducing
operating costs and/or to comply with all laws, rules and regulations of
federal, state, county, municipal and other governmental authorities now or
hereafter in effect (the cost of such capital improvement shall be amortized
over its useful life in accordance with generally accepted accounting
principles, including interest at the rate of 2% over the then current Prime
Rate as published by the Wall Street Journal on the date nearest to the date
that such cost is incurred, and the monthly amortized cost thereof shall be
included in Operating Expenses), (viii) wages, salaries, employee benefits
(including union benefits) and related expenses of all on-site and off-site
personnel engaged in the operation, management and maintenance of the Project
and payroll taxes applicable thereto and all costs incurred to maintain a
management office in or near the Project (including, without limitation, rental
payments therefor or the reasonable rental value of the space so occupied; (ix)
supplies, materials, equipment and tools used or required in connection with the
operation and maintenance of the Project, (x) licenses, permits and inspection
fees, and (xi) all other operating costs incurred by Landlord in maintaining and
operating the Project. The term "maintenance" as used in this Lease shall
include, without limitation, cleaning, painting, repair and replacement.
Notwithstanding the above, "Operating Expenses" shall not include and
Tenant shall in no event have any obligation to perform or to pay directly, or
to reimburse Landlord for, all or any
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portion of the following repairs, maintenance, improvements, replacements,
premiums, claims, losses, fees, charges, costs and expenses (collectively,
"Costs"):
(1) Any charge for depreciation of the Building or Project based
on the original construction costs;
(2) Any interest, loan fees, or amortization on any mortgage or
deed of trust or ground lease payments;
(3) Wages, salaries, or other compensation paid to any executive
employees of Landlord above the level of Property Manager;
(4) Costs to correct any construction defect in the Premises or
the Building;
(5) Costs of any renovation, improvement, painting or
redecorating of any portion of the Building or the Project for
the exclusive use of other tenants;
(6) Costs incurred in connection with marketing or advertising
the Project, or the violation by Landlord or any occupant of the Project (other
than Tenant) of the terms and conditions of any lease or other agreement; and
(7) Costs incurred in connection with the presence of any
Hazardous Material, except to the extent caused by the release or emission of
the Hazardous Material in question by Tenant (without limiting Tenant's
obligations under paragraph 52 of this Lease).
(b) During December of each calendar year or as soon thereafter as
practicable, Landlord shall give Tenant written notice of its estimate of
amounts payable under paragraph 4(a) above for the ensuing calendar year. On or
before the first day of each month during the ensuing calendar year, Tenant
shall pay to Landlord one-twelfth (1/12) of such estimated amounts; provided
that, if such notice is not given in December, Tenant shall continue to pay on
the basis of the prior year's estimate until the month after such notice is
given. If at any time or times it appears to Landlord that the amounts payable
under paragraph 4(a) above for the current calendar year will vary substantially
from its estimate, Landlord may, by written notice to Tenant, revise its
estimate for such year, and subsequent payments by Tenant for such year shall be
based upon such revised estimate.
(c) Within ninety (90) days after the close of each calendar year or
as soon after such 90-day period as practicable, Landlord shall deliver to
Tenant a statement of amounts payable under paragraph 4 (a) above for such
calendar year. If such statement shows an amount owing by Tenant that is less
than the estimated payments for such calendar year previously made by
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Tenant, the excess amount shall be credited by Landlord against the Base Rent
next due from Tenant. If such statement shows an amount owing by Tenant that is
more than the estimated payments for such calendar year previously made by
Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days
after delivery of the statement. Upon written request of Tenant made within
sixty (60) days of Tenant's receipt of the annual statement of actual direct
expenses, Landlord shall make available for Tenant's review, at Tenant's cost,
copies of documentation reasonably available to Landlord to support the amounts
set forth in such statement.
(d) If, for any reason other than the default of Tenant, this Lease
shall terminate on a day other than the last day of a calendar year, the amount
of increase (if any) in rental payable by Tenant applicable to the calendar year
in which such termination shall occur shall be prorated based on the ratio of
the number of days from the commencement of such calendar year to and including
such termination date to three hundred and sixty-five (365).
(e) If the occupancy of the Project, during any part of any calendar
year (including the Base Year) is less than one hundred percent (100%), Landlord
shall make an appropriate adjustment of the variable components of Operating
Expenses for that Expense Year, as reasonably determined by Landlord using sound
accounting and management principles, to determine the amount of Operating
Expenses that would have been incurred had the Project been one hundred percent
(100%) occupied. This amount shall be considered to have been the amount of
Operating Expenses for that Expense Year. For purposes of this subparagraph
4(e), "variable components" include only those component expenses that are
affected by variations in occupancy levels.
5. USE
The Premises shall be used for general office purposes and Tenant
shall not use or permit the Premises to be used for any other purpose. Tenant
shall not do or permit to be done in or about the Premises, nor bring or keep or
permit to be brought or kept therein, anything (i) which is prohibited by or
will in any way conflict with any law, statute, ordinance or governmental rule
or regulation now in force or which may hereafter be enacted or promulgated, or
(ii) which is prohibited by the standard form of fire insurance policy, or (iii)
which will in any way increase the existing rate or affect any fire or other
insurance upon the Project or any of its contents, or cause a cancellation of
any insurance policy covering the Project or any part thereof or any of its
contents. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants of the Project, or injure or annoy them, or use or allow the Premises to
be used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises or
commit or suffer to be committed any waste in, on or about the
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Premises. No loudspeaker or other device, system or apparatus which can be
heard outside the Premises shall be used in or at the Premises without the prior
written consent of Landlord. Tenant shall not use the Premises for sleeping,
washing clothes, cooking or in any manner that may cause or emit any
objectionable odor, noise or light into the adjoining premises or common area.
Tenant shall not do anything on the Premises that will cause damage to the
Project and Tenant shall not overload the floor capacity of the Premises or the
Project. No machinery, apparatus or other appliance shall be used or operated
in or on the Premises that will in any manner injure, vibrate or shake the
Premises. Landlord shall determine, in Landlord's reasonable discretion,
whether such odor, noise, light or vibration are such as to violate the
provisions of this paragraph. No waste materials or refuse shall be dumped upon
or permitted to remain upon any part of the Premises or the Project except in
trash containers placed inside exterior enclosures designated for that purpose
by Landlord, or where otherwise designated by Landlord; and no toxic or
hazardous materials shall be disposed of through the plumbing or sewage system
in violation of law. No materials, supplies, equipment, finished products or
semi-finished products, raw materials or articles of any nature shall be stored
or permitted to remain outside of the building proper. No retail sales shall be
made on the Premises.
6. UTILITIES AND SERVICES
(a) Landlord shall furnish the Premises with (i) electricity for
lighting and the operation of office machines, (ii) heat and air conditioning
from 8:00 a.m. to 6:00 p.m. Monday through Friday, excluding holidays,
reasonably required for the comfortable occupation of the Premises, (iii)
elevator service, (iv) lighting replacement (for building standard lights), (v)
restroom supplies, (vi) window washing with reasonable frequency, and (vii)
janitorial service, all during the times and in the manner that such services
are customarily furnished in comparable office buildings in the area as
reasonably determined by Landlord. The cost of all utilities and services
provided by Landlord to the Premises and to the Project shall be included in
Operating Expenses. Landlord shall not be in default hereunder or be liable for
any damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (A) the installation, use or interruption of use
of any equipment in connection with the furnishing of any of the foregoing
services, (B) failure to furnish or delay in furnishing any such services when
such failure or delay is caused by accident, breakage, repairs, strikes,
character, governmental moratoriums, regulations or other governmental actions,
or by any other cause, similar or dissimilar, beyond the reasonable control of
Landlord, or (C) the making of necessary repairs or improvements to the Premises
or to the Project, or (D) the limitation, curtailment, rationing or restriction
on use of water or electricity, gas or any other form of energy serving the
Premises or the Project. Landlord shall use
8
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reasonable efforts diligently to remedy any interruption in the furnishing of
such services.
(b) Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises (including, without limitation, electronic
data processing machines, punch card machines or machines using current in
excess of 110 volts) which will in any way increase the amount of electricity,
water or air conditioning usually furnished or supplied to premises in the
Project being used as general office space, or connect with electric current
(except through existing electrical outlets in the Premises) or with water pipes
any apparatus or device for the purpose of using electric current or water. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied to premises in the Project being used as general office
space, then Tenant shall first obtain the written consent of Landlord, which
consent shall not be unreasonably withheld, and Tenant shall pay to Landlord
promptly on demand the full cost of such excess use. Landlord may cause an
electric current or water meter to be installed in the Premises in order to
measure the amount of electric current or water consumed for any such excess
use. The cost of any such meter and of the installation, maintenance and repair
thereof, and all charges for such excess water and electric current consumed (as
shown by meters and at the rates then charged by the furnishing public utility)
plus any additional expense incurred by Landlord in keeping account of electric
current or water so consumed, shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord.
(c) Notwithstanding any other provision hereof, in the event that any
law, ordinance or other governmental regulation now or hereafter in effect shall
impose a limit on the allocation to the Project of any utility or other service,
whether or not the same is to be supplied to the Premises by Landlord under this
paragraph 6, then Tenant shall not use or cause to be consumed on the Premises,
nor shall Landlord be required to provide to the Premises hereunder, such
utility or other service in an amount or in a manner which would result in the
violation by Landlord or Tenant of such law, ordinance or regulation.
7. TAXES
The term "Real Property Taxes" as used herein means all real and
personal property taxes and assessments incurred (on an accrual basis) during
any calendar year, including, but not limited to: special and extraordinary
assessments; water and sewer rates and charges, occupancy taxes or similar taxes
imposed on or with respect to the real or personal property whether or not
imposed on or measured by the rent payable by Tenant; and other governmental
levies and charges, general and special, ordinary and extraordinary, unforeseen
as well as foreseen, of any kind and nature whatsoever relating to the real or
personal property. If,
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by law, any property taxes are payable, or may at the opt{on of the taxpayer be
paid, in installments (whether or not interest shall accrue on the unpaid
balance of such property taxes), Landlord may, at Landlord's option, pay the
same and, in such event, any accrued interest on the unpaid balance of such
property taxes shall be deemed to be Real Property Taxes as defined herein.
Real Property Taxes shall also include all expenses reasonably incurred by
Landlord in seeking a reduction by the taxing authorities of Real Property Taxes
applicable to the Project. Real Property Taxes shall not include any capital
levy, franchise, estate, inheritance, succession, gift or transfer tax of
Landlord, or any income, profits or excess profits tax, assessment, charge or
levy upon the income of Landlord; provided, however, that if at any time during
the term of this Lease under the laws of the United States or the State of
California or any political subdivision of either, a tax or excise on rents,
space or other aspects of real property, is levied or assessed against Landlord,
the same shall be deemed to be Real Property Taxes. If any such property taxes
upon the income of Landlord shall be imposed on a graduated scale, based upon
Landlord's aggregate rental income, Real Property Taxes shall include only such
portion of such property taxes as would be payable if the rent payable with
respect to the Project were the only rental income of Landlord subject thereto.
Real Property Taxes for any year being used as a base year or comparison year
shall be adjusted, if necessary, to reflect the substantial completion of
partitioning and other normal tenant improvements in all leasable areas of the
Project, and to reflect at least 100% occupancy of the leasable area of the
Project.
In addition to the monthly rental and other charges to be paid by
Tenant hereunder, Tenant shall pay, or shall reimburse Landlord upon demand if
payable by Landlord, for any and all taxes whether or not now customary or
within the contemplation of the parties hereto: (a) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, furniture,
fixtures and other personal property located in the Premises or by the cost or
value of any leasehold improvements made in or to the Premises by or for Tenant,
other than building standard tenant improvements made by Landlord, regardless of
whether title to such improvements shall be in Tenant or Landlord; (b) upon or
measured by the monthly rental payable hereunder, including without limitation,
any gross income tax, rental tax, business tax, license or excise tax with
respect to such rental; (c) upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; (d) upon this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises. In the event that it shall not be lawful for Tenant so
to reimburse Landlord, the monthly rental payable to Landlord under this Lease
shall be revised to net Landlord the same net rental after the imposition of any
such tax upon Landlord as would have been payable to Landlord prior to the
imposition of any such tax.
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8. ALTERATIONS
Tenant shall not make or cause to be made any alteration, addition or
improvement to or of the Premises or any part thereof (collectively referred to
herein as "alterations") without (i) the prior written consent of Landlord, (ii)
a valid building permit issued by the appropriate governmental authority and
(iii) otherwise complying with all applicable laws, regulations and requirements
of governmental agencies having jurisdiction and with the rules, regulations and
requirements of any board of fire underwriters or similar body. Landlord's
consent to any requested alteration shall not create on the part of Landlord or
cause Landlord to incur any responsibility or liability for such alteration's
compliance with all laws, rules and regulations of federal, state, county,
municipal and other governmental authorities. Any alteration made by Tenant
(excluding moveable furniture and trade fixtures not attached to the Premises)
shall at once become a part of the Premises and belong to Landlord. Without
limiting the foregoing, all heating, lighting, electrical (including all wiring,
conduit, outlets, drops, buss ducts, main and subpanels), air conditioning,
partitioning, drapery, window covering and carpet installations made by Tenant,
regardless of how attached to the Premises, shall be and become part of the
Premises and belong to Landlord upon installation and shall not be deemed trade
fixtures and, subject to Landlord's right to require removal and restoration as
specified herein, shall remain upon and be surrendered with the Premises at the
termination of the lease.
If Landlord consents to the making of any alteration by Tenant, the
same shall be made by Tenant at its sole risk, cost and expense and only after
Landlord's written approval of any contractor or person selected by Tenant for
that purpose, and the same shall be made at such time and in such manner as
Landlord may from time to time designate. Tenant shall, if required by
Landlord, secure at Tenant's cost a completion and lien indemnity bond for such
work. Upon the expiration or sooner termination of the term, Landlord may, at
its sole option, require Tenant, at Tenant's sole cost and expense, to promptly
remove any such alteration made by Tenant and designated by Landlord to be
removed, repair any damage to the Premises caused by such removal and restore
the Premises to their condition prior to Tenant's alteration. Upon the prior
written request of Tenant, concurrent with giving Landlord's consent (if such
consent is given), Landlord shall state in writing if Landlord will not require
the removal of such alteration upon the expiration of term. Any moveable
furniture and equipment or trade fixtures remaining on the Premises at the
expiration or other termination of the term shall become the property of the
Landlord; provided, however, in addition to all other remedies available to
Landlord at law or in equity, Landlord may (i) require Tenant to remove same or
(ii) remove same at Tenant's cost, and Tenant shall be liable to Landlord for
all damages incurred by Landlord related thereto.
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If during the term any alteration, addition or change of the Premises
is required by law, regulation, ordinance or order of any public authority,
Tenant, at its sole cost and expense, shall promptly make the same. If during
the term any alterations, additions or changes to the Common Area or to the
Project or to the building in which the Premises is located is required by law,
regulation, ordinance or order of any public or quasi-public authority, and, in
Landlord's judgment, it is impracticable for the tenants of the Project to
individually make such alterations, additions or changes, Landlord shall make
such alterations, additions or changes and the cost thereof shall be included in
Operating Expenses.
9. LIENS
Tenant shall keep the Premises and the Project free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Tenant, its agents, employees or contractors. Upon Tenant's receipt of a
preliminary twenty (20) day notice filed by a claimant pursuant to California
Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy
of such notice. Should any lien be recorded against the Project, Tenant shall
give immediate notice of such lien to Landlord. In the event that Tenant shall
not, within ten (10) days following the imposition of such lien, cause the same
to be released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but no obligation, to cause the same to
be released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All sums paid by Landlord for such purpose, and
all expenses (including attorney fees) incurred by it in connection therewith,
shall be payable to Landlord by Tenant on demand with interest at the rate of
twelve percent (12%) per annum or the maximum rate permitted by law, whichever
is less. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper for the protection of Landlord, the Premises and the Project and any
other party having an interest therein, from mechanics' and materialmen's liens
and like liens. Tenant shall give Landlord at least fifteen (15) days' prior
notice of the date of commencement of any construction on the Premises in order
to permit the posting of such notices. In the event Tenant is required to post
an improvement bond with a public agency in connection with any work performed
by Tenant on or to the Premises, Tenant shall include Landlord as an additional
obligee.
10. REPAIRS
(a) Landlord's Obligations. Landlord shall maintain the public and
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common areas of the Project, including lobbies, stairs, elevators, corridors and
restrooms, the windows, glazing, gutters, walls, floor coverings, roofs, the
mechanical, plumbing, sewage and electrical systems, heating, ventilating and
air conditioning
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systems (excepting special HVAC to computer rooms for Tenant, if any) serving
the Project, and the structural elements of the buildings on the Project in
reasonably good order and condition except for damage occasioned by the act of
Tenant, which damage shall be repaired by Landlord at Tenant's expense. The
cost of all maintenance and repairs made by Landlord pursuant to this paragraph
10, including without limitation maintenance contracts and supplies, materials,
equipment and tools used in such repairs and maintenance, shall be included in
Operating Expenses.
(b) Tenant's Obligations. By entry hereunder Tenant accepts the
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Premises as being in the condition in which Landlord is obligated to deliver the
Premises. Tenant shall, at all times during the term hereof and at Tenant's
sole cost and expense, keep the Premises and every part thereof in good
condition and repair, ordinary wear and tear, damage thereto by fire, earthquake
and acts of God excepted. Tenant hereby waives all rights to make repairs at
the expense of Landlord or in lieu thereof to vacate the Premises as provided by
California Civil Code Section 1942 or any other law, statute or ordinance now or
hereafter in effect. Tenant shall at the end of the term hereof surrender to
Landlord the Premises and all alterations, additions and improvements thereto in
the same condition as when received, ordinary wear and tear and damage by fire,
earthquake and acts of God excepted. Landlord has no obligation and has made no
promise to alter, remodel, improve, repair decorate or paint the Premises or any
part thereof, except as specifically herein set forth. No representations
respecting the condition of the Premises or the Project have been made by
Landlord to Tenant, except as specifically herein set forth.
11. INSURANCE
Tenant, at its sole cost and expense, shall keep in force during the
term (i) commercial general liability and property damage insurance with a
combined single limit of at least $2,000,000 per occurrence insuring against
personal or bodily injury to or death of persons occurring in, on or about the
Premises or Project and any and all liability of the insureds with respect to
the Premises or arising out of Tenant's maintenance, use or occupancy of the
Premises and all areas appurtenant thereto, (ii) direct physical loss-special
insurance covering the leasehold improvements in the Premises and all of
Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and
personal property from time to time located in, on or about the Premises, with
coverage in the amount of the full replacement cost thereof, and (iii) Worker's
Compensation Insurance as required by law, together with employer's liability
coverage with a limit of not less than $1,000,000 for bodily injury for each
accident and for bodily injury by disease for each employee. Tenant's
commercial general liability and property damage insurance and Tenant's Workers
Compensation Insurance shall be endorsed to provide that said insurance shall
not be cancelled or reduced except upon at least thirty (30) days prior written
notice to Landlord. Further,
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Tenant's commercial general liability and property damage insurance shall be
primary and shall be endorsed to provide that Landlord and its partners,
officers, directors and employees and such other persons or entities (including
property management companies) as directed from time to time by Landlord shall
be named as additional insureds for all liability using ISO Bureau Form
CG20111185 (or a successor form) or such other endorsement form reasonably
acceptable to Landlord; shall contain a severability of interest clause and a
cross-liability endorsement; shall be endorsed to provide that the limits and
aggregates apply per location using ISO Bureau Form CG25041185 (or a successor
form) or such other endorsement form reasonably acceptable to Landlord; and
shall be issued by an insurance company admitted to transact business in the
State of California and rated A+VIII or better in Best's Insurance Reports (or
successor report). The deductibles for all insurance required to be maintained
by Tenant hereunder shall be satisfactory to Landlord. The commercial general
liability insurance carried by Tenant shall specifically insure the performance
by Tenant of the indemnification provisions set forth in paragraph 13 of this
Lease provided, however, nothing contained in this paragraph 11 shall be
construed to limit the liability of Tenant under the indemnification provisions
set forth in said paragraph 13. If Landlord or any of the additional insureds
named on any of Tenant's insurance, have other insurance which is applicable to
the covered loss on a contributing, excess or contingent basis, the amount of
the Tenant's insurance company's liability under the policy of insurance
maintained by Tenant shall not be reduced by the existence of such other
insurance. Any insurance carried by Landlord or any of the additional insureds
named on Tenant's insurance policies shall be excess and non-contributing with
the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at least
thirty (30) days prior to any renewal date of any insurance policy required to
be maintained by Tenant pursuant to this paragraph, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgement, attaching thereto copies of all endorsements required to
be provided by Tenant under this Lease. Tenant agrees to increase the coverage
or otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss and Worker's Compensation
Insurance as Landlord or Landlord's lender may from time to time require.
Landlord shall obtain and keep in force a policy or policies of
insurance covering loss or damage to the Premises and Project, in the amount of
the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability (including demolition), plus a policy
of rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or
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Landlord's lender may from time to time require. Landlord may, but shall not be
obligated to, obtain flood and/or earthquake insurance. Landlord shall have no
liability to Tenant if Landlord elects not to obtain flood and/or earthquake
insurance. The cost of all such insurance obtained by Landlord, plus any
charges for deferred payments of premiums and the amount of any deductible
incurred upon any covered loss within the Project shall be included in Operating
Expenses. If the cost of insurance is increased due to Tenant's use of the
Premises, then Tenant shall pay to Landlord upon demand the full cost of such
increase.
Landlord and Tenant hereby mutually waive any and all rights of
recovery against one another for real or personal property loss or damage
occurring to the Premises or the Project, or any part thereof, or to any
personal property therein, from perils insured against under fire and extended
insurance and any other property insurance policies existing for the benefit of
the respective parties. Landlord and Tenant hereby release each other and their
respective agents, employees, successors, assignees and sublessees from all
liability for injury to any person or damage to any property that is caused by
or results from a risk which is actually insured against or which is required to
be insured against under this Lease. All of Landlord's and Tenant's repair and
indemnity obligations under this Lease shall be subject to the waiver and
release contained in this paragraph.
If Tenant does not take out and maintain insurance as required
pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take
out the necessary insurance and pay the premium therefor, and Tenant shall repay
to Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
12. DAMAGE OR DESTRUCTION
(a) In the event the Premises are damaged by any casualty which is
covered under an insurance policy required to be maintained by Landlord pursuant
to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds
and shall repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect.
(b) In the event the Premises are damaged by any casualty not covered
under an insurance policy required to be maintained pursuant to paragraph 11,
Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's
expense, as soon as reasonably possible, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to
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Tenant within sixty (60) days after the date of the occurrence of such damages
of Landlord's intention to cancel and terminate this Lease as of the date of the
occurrence of the damages; provided, however, that, if such damage is caused by
an act or omission of Tenant or its agent, servants or employees, then Tenant
shall repair such damage promptly at its sole cost and expense. In the event
Landlord elects to terminate this Lease pursuant hereto, Tenant shall have the
right within ten (10) days after receipt of the required notice to notify
Landlord in writing of Tenant's intention to repair such damage at Tenant's
expense, without reimbursement from Landlord, in which event this Lease shall
continue in full force and effect and Tenant shall proceed to make such repairs
as soon as reasonably possible. If Tenant does not give such notice within the
ten (10) day period, this Lease shall be cancelled and terminated as of the date
of the occurrence of such damage. Under no circumstances shall Landlord be
required to repair any injury or damage to (by fire or other cause), or to make
any restoration or replacement of, any of Tenant's personal property, trade
fixtures or property leased from third parties, whether or not the same is
attached to the Premises.
(c) If the Premises are totally destroyed during the term from any
cause (including any destruction required by any authorized public authority),
whether or not covered by the insurance required under paragraph 11, this Lease
shall automatically terminate as of the date of such total destruction;
provided, however, that if the Premises can reasonably and lawfully be repaired
or restored within nine (9) months of the date of destruction to substantially
the condition existing prior to such destruction and if the proceeds of the
insurance payable to the Landlord by reason of such destruction are sufficient
to pay the cost of such repair or restoration, then said insurance proceeds
shall be so applied, Landlord shall promptly repair and restore the Premises and
this Lease shall continue, without interruption, in full force and effect. If
the Premises are totally destroyed during the last twelve (12) months of the
term, either Landlord or Tenant may at its option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
the other of its election to do so within thirty (30) days after the occurrence
of such damage.
(d) If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repair them pursuant to this Lease, the rent payable
hereunder for the period during which such damage and repair continues shall be
abated only in proportion to the square footage of the Premises rendered
untenantable to Tenant by such damage or destruction. Tenant shall have no
claim against Landlord for any damage, loss or expense suffered by reason of any
such damage, destruction, repair or restoration. The parties waive the
provisions of California Civil Code Sections 1932(2) and 1933(4) (which
provisions permit the termination of a lease upon destruction of the leased
premises), and hereby agree that the
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provisions of this paragraph 12 shall govern in the event of such destruction.
13. INDEMNIFICATION
Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord for any injury to or death of any person or damage to or
destruction of property in or about the Premises or the Project by or from any
cause whatsoever except (i) the failure of Landlord to perform its obligations
under this Lease where such failure has persisted for an unreasonable period of
time after notice of such failure or (ii) Landlord's negligence or willful
misconduct. Without limiting the foregoing, Landlord shall not be liable to
Tenant for any injury to, or death of any person or damages to or destruction of
property by reason of, or arising from, any latent defect in the Premises or
Project or the act or negligence of any other tenant of the Project. Tenant
shall immediately notify Landlord of any defect in the Premises or Project.
Except to the extent caused by (i) the failure by Landlord to observe
any of the terms and conditions of this Lease or (ii) Landlord's gross
negligence or willful misconduct, Tenant shall hold Landlord harmless from and
indemnify and defend Landlord against any claim, liability, loss, damage or
expense (including attorney fees) arising out of any injury to or death of any
person or damage to or destruction of property occurring in or on the Premises
from any cause whatsoever or on account of the use, condition, occupational
safety or occupancy of the Premises. Tenant shall further hold Landlord
harmless from and indemnify and defend Landlord against any liability, loss,
damage or expense (including attorney fees) arising (i) from Tenant's use of the
Premises or from the conduct of its business or from any activity or work done,
permitted or suffered by Tenant or its agents or employees in or about the
Premises or Project, (ii) out of the failure of Tenant to observe or comply with
laws or other requirements as set forth in paragraph 14, (iii) by reason of
Tenant's use, handling, storage, or disposal of toxic or hazardous materials or
waste, (iv) by reason of any labor or service performed for, or materials used
by or furnished to, Tenant or any contractor engaged by Tenant with respect to
the Premises, or (v) from any other act, neglect, fault or omission of Tenant or
its agents or employees.
The provisions of this paragraph 13 shall survive the expiration or
earlier termination of this Lease.
14. COMPLIANCE WITH LAWS
Tenant shall, in connection with its use and occupation of the
Premises, at its sole cost and expense, promptly observe and comply with (i) all
laws, statutes, ordinances and governmental rules, regulations and requirements
of federal, state, county,
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municipal and other governmental authorities, now or hereafter in effect, which
shall impose any duty upon Landlord or Tenant with respect to Tenant's
particular use, occupancy or alteration of the Premises, (ii) with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted and (iii) with any direction or occupancy certificate
issued pursuant to law by any public authority; provided, however, that no such
failure shall be deemed a breach of these provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant (whether or not Landlord is a party thereto), that Tenant has violated
any such law, statute, ordinance or governmental rule, regulation, requirement,
direction or provision, shall be conclusive of that fact as between Landlord and
Tenant. This Lease shall remain in full force and effect notwithstanding any
loss of use or other effect on Tenant's enjoyment of the Premises by reason of
any governmental laws, statutes, ordinances, rules, regulations and requirements
now or hereafter in effect.
15. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily assign, encumber or otherwise transfer
its interest in this Lease or in the Premises, or sublease all or any part of
the Premises, or allow any other person or entity to occupy or use all or any
part of the Premises, without first obtaining Landlord's written consent, which
consent shall not be unreasonably withheld, and otherwise complying with the
requirements of this paragraph 15. Any assignment, encumbrance, sublease or
other such transfer ("Transfer") without Landlord's written consent, shall
constitute a default. The proposed assignee, subtenant or other transferee is
referred to herein as the "Transferee". Reasonable grounds for denying consent
to a proposed Transfer include, without limitation, any of the following:
(a) Transferee's character, reputation, credit history, or business is
not consistent with the character or quality of the Project;
(b) In the case of an assignment, Transferee would be a significantly
less prestigious occupant of the Project than Tenant;
(c) Transferee is a government agency or instrumentality of one,
consulate, school or credit collection agency;
(d) Transferee's intended use of the Premises is inconsistent with the
permitted use specified in this Lease or will materially and adversely affect
Landlord's interest;
(e) Transferee's financial condition is or may be inadequate to
support the lease obligations of Transferee under the
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Transfer; and with respect to any assignment, that Transferee's net worth is
less than $200,000,000;
(f) The Transfer would cause Landlord to violate another lease or
agreement to which Landlord is a party or would give another tenant in the
Project the right to cancel its lease or the Transferee is a primary competitor
of another tenant leasing space in the Project and such tenant objects to such
Transfer;
(g) Transferee occupies space in the Project and such space is not
contiguous to the Premises, is negotiating with Landlord to lease space in the
Project, or has negotiated with Landlord during the six (6) months immediately
preceding notice of the proposed Transfer to Landlord;
(h) The rent charged by Tenant to Transferee during the term of the
Transfer, is less than one hundred percent (100%) of the fair market value for
comparable space in the Project and in buildings and/or projects within the same
geographical area of similar type, identity, quality and location for a
comparable term.
If Tenant desires to Transfer all or any portion of the Premises,
Tenant shall give Landlord written notice ("Transfer Notice") thereof,
specifying the projected commencement date of the proposed Transfer (which date
shall be not less than thirty (30) days or more than ninety (90) days after the
date of Landlord's receipt of such notice), the portion of the Premises which is
the subject of the proposed Transfer (the "Subject Space"), a description of any
planned alterations or improvements to the Subject Space, the terms and
conditions of the proposed Transfer (including the rent to be paid by the
Transferee and any and all other consideration to be given by the Transferee),
the name, address and telephone number of the Transferee, and a detailed
calculation of the Transfer Premium (certified by Tenant's chief financial
officer) to be paid as provided below. Tenant shall further provide Landlord
with such other information concerning the Transferee as requested by Landlord.
Landlord shall have the right to communicate with the Transferee to discuss the
terms of the proposed Transfer, to discuss and negotiate, if Landlord desires,
the terms of a direct lease between Landlord and Transferee, or any other matter
and to enter into a direct lease agreement with Transferee as provided below and
failure of Transferee to meet with Landlord and to negotiate in good faith the
terms of a direct lease with Landlord shall constitute grounds for Landlord's
refusal to consent to the proposed Transfer. For a period of thirty (30) days
after Landlord's receipt of the Transfer Notice, Landlord shall have the option,
exercisable by delivering written notice to Tenant, to terminate this Lease for
the Subject Space or for the entire Premises, in Landlord's discretion, as of
the date specified in Landlord's written notice to Tenant, which date shall not
be less than thirty (30) days nor more than ninety (90) days after the date of
Landlord's written notice to Tenant. Landlord's right to terminate the Lease as
to the entire Premises shall only apply if
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the square footage of the Subject Space when added to the square footage of any
other space previously subleased constitutes more than twenty-five percent (25%)
of the total square footage of the Premises. If Landlord exercises its option
to terminate this Lease as provided in the foregoing sentence, Landlord may, if
it so elects, enter into a new lease for the Premises or any portion thereof
with the Transferee or any other third party on such terms as Landlord and the
Transferee or other third party may agree; in such event, Tenant shall not be
entitled to any portion of the profit, if any, which Landlord may realize on
account of such termination and reletting. If Landlord exercises its option to
terminate this Lease with respect to the Subject Space only (i.e., less than the
entire Premises), then Tenant shall continue to be obligated under this Lease as
to the remaining space (i.e., the Premises less the Subject Space) and Base Rent
payable by Tenant under this Lease shall be adjusted as follows: the monthly
rent amount specified in paragraph 3 of this Lease shall be multiplied by a
fraction, the numerator of which is the square feet of the Premises retained by
Tenant after Landlord's recapture of the Subject Space and the denominator of
which is the total square feet of the Premises before Landlord's recapture.
This Lease as so amended shall continue thereafter in full force and effect.
Either party may require written confirmation of the amendments to this Lease
necessitated by Landlord's recapture of the Subject Space. If Landlord
recaptures the Subject Space, Landlord shall, at Landlord's sole expense,
construct any partitions required to segregate the Subject Space from the
remaining Premises retained by Tenant. Tenant shall, however, pay for painting,
covering, or otherwise decorating the surfaces of the partitions facing the
remaining Premises retained by Tenant.
If Landlord does not elect to terminate this Lease as provided
hereinabove in this paragraph 15 and if Landlord consents in writing to the
proposed Transfer, Tenant shall be free to make such Transfer subject to the
following conditions: (i) any Transfer shall be on the same terms set forth in
the Transfer Notice given to Landlord; (ii) no Transfer shall be valid and no
Transferee shall take possession of the Subject Space until an executed
counterpart of such Transfer has been delivered to Landlord; (iii) no Transferee
shall have a further right to assign or sublet; (iv) eighty percent (80%) of the
Bonus Rent (as defined below), if any, shall be paid by Tenant to Landlord
monthly as additional rent under this Lease without affecting or reducing any
other obligation of Tenant hereunder (such amounts are referred to herein as the
"Transfer Premium"); (v) no Transfer shall release Tenant of Tenant's obligation
or alter the primary liability of Tenant to pay the rent and to perform all
other obligations to be performed by Tenant hereunder; and (vi) any assignee
must expressly agree to assume and perform all of the covenants and conditions
of Tenant under this Lease and any subtenant must expressly agree to abide by
all the terms of this Lease; and (vii) any modification or amendment of any such
Transfer shall be deemed to be a separate Transfer transaction and shall be
subject to Landlord's right to
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recapture, Landlord's prior written consent and the other terms and provisions
of this paragraph 15. Tenant shall pay to Landlord promptly upon demand as
additional rent, Landlord's reasonable actual attorneys' fees and other costs
incurred for reviewing, processing or documenting any requested Transfer,
whether or not Landlord's consent is granted. Tenant shall not be entitled to
assign this Lease or sublease all or any part of the Premises (and any attempt
to do so shall be voidable by Landlord) during any period in which Tenant is in
default under this Lease.
For purposes of this paragraph 15, the term "Bonus Rent" shall mean
the Transfer Payments (as defined below) less the amounts specified in (A) and
(B), where (A) is a monthly credit amount equal to the sum of (1) and (2)
divided by the total number of months in the term of the Transfer, where (1) is
the actual out-of-pocket cost of leasehold improvements paid by Tenant to third
party contractors and constructed specifically for the exclusive benefit of such
Transferee in the Subject Space, but specifically excluding any costs related to
(i) the initial tenant improvements to be constructed in the Premises pursuant
to the terms of this Lease, if any, (ii) the installation, modification and/or
removal of security systems, data cabling and telephone and communication
systems, and (iii) the installation, modification and/or removal of any
furniture, fixtures or equipment or any personal property, and (2) is the amount
of broker fees paid by Tenant in connection with such Transfer, and (B) is a
monthly credit amount equal to the monthly Base Rent and Operating Expense
Increases which Tenant is obligated to pay Landlord under this Lease during the
term of such Transfer (prorated in the case of a sublease to reflect the
obligations allocable to that portion of the Premises subject to such sublease).
At Landlord's request, Tenant shall furnish a complete statement, certified by
an independent certified public accountant or Tenant's chief financial officer,
describing in detail the computation of any Transfer Premium that Tenant has
derived or will derive from the Transfer. Landlord or Landlord's agent shall
have the right to review Tenant's books and records relating to the calculation
of Bonus Rent, including the right to have an independent certified public
accountant review same. If Landlord's independent certified public accountant
finds that the Bonus Rent for any Transfer has been understated, Tenant shall,
within thirty (30) days after demand, pay the deficiency and Landlord's costs of
that review.
For purposes of this paragraph 15, the term "Transfer Payments" shall
mean any and all sums or other consideration payable to or received by Tenant as
a result of or in connection with a Transfer whether denominated rent or
otherwise, including any amounts payable to Tenant for (x) services to be
provided to Transferee by Tenant or (y) the sale, lease or use of Tenant's
furniture, fixtures and equipment or other personal property; provided that the
amounts specified in clauses (x) and (y) shall only be included to the extent
that the Transfer Payments excluding such items is less than the fair market
rent for the Subject Space
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based on the market rate for comparable space in the Project and in comparable
buildings and projects within the same geographical area of similar type,
identity, quality and location.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this Lease subject to all the
conditions of this paragraph 15. If Tenant is a corporation any dissolution,
merger, consolidation or other reorganization of Tenant or the sale or other
transfer of a controlling percentage of the capital stock of Tenant or the sale
of more than fifty percent (50%) of the value of Tenant's assets shall be an
assignment of this Lease subject to all the conditions of this paragraph 15.
The term "controlling percentage" means the ownership of, and the right to vote,
stock possessing more than 50% of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote. This
subparagraph of this paragraph 15 shall not apply if Tenant is a corporation the
stock of which is traded on the New York Stock Exchange, the American Stock
Exchange or NASDAQ or if such transfer occurs in connection with a listing of
the Tenant thereon.
The acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
Transfer shall not be deemed consent to any subsequent Transfer. In the event
of default by any Transferee of Tenant or any successor of Tenant in the
performance of any of the terms hereof, Landlord may proceed directly against
Tenant without the necessity of exhausting remedies against such Transferee or
successor. Landlord may consent to subsequent Transfers of this Lease or
amendments or modifications to this Lease with Transferees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto and such action shall not relieve Tenant of liability under this
Lease.
No interest of Tenant in this Lease shall be assignable by operation
of law (including, without limitation, the transfer of this Lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment: (i) if Tenant is or becomes bankrupt, makes an assignment for the
benefit of creditors or institutes a proceeding under the Bankruptcy Act in
which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more
than one person or entity, if any partner of the partnership or other person or
entity is or becomes bankrupt or insolvent, or makes an assignment for the
benefit of creditors; (ii) if a writ of attachment or execution is levied on
this Lease; or (iii) if, in any proceeding or action to which Tenant is a party,
a receiver is appointed with authority to take possession of the Premises. An
involuntary assignment shall constitute a default by Tenant and Landlord shall
have the right to elect to terminate this Lease, in which case this Lease shall
not be treated as an asset of Tenant.
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Tenant immediately and irrevocably assigns to Landlord, as security
for Tenant's obligations under this Lease, all rent or other consideration from
any Transfer of all or a part of the Premises as permitted by this Lease, and
Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver of
Tenant appointed on Landlord's application, may collect such rent or other
consideration and apply it toward Tenant's obligations under this Lease and any
Transferee agrees to make such payments directly to Landlord upon Landlord's
written request; provided that, until the occurrence of a default by Tenant,
Tenant shall have the right to collect such rent, subject to promptly forwarding
to Landlord any portion thereof to which Landlord is entitled pursuant to this
paragraph 15.
Notwithstanding the above requirement that Tenant obtain the consent
of Landlord prior to any Transfer, Tenant may, without obtaining the prior
consent of Landlord, assign or sublease the whole or any part of the Premises to
any corporation or other entity which (a) controls, is controlled by, or is
under common control with Tenant, (b) acquires all or substantially all of
Tenant's assets or stock, or (c) results from the merger or consolidation with
another entity; provided that (i) Tenant shall give written notice thereof to
Landlord in the manner required for other Transfers by this paragraph 15, (ii)
Tenant shall continue to be fully obligated under this lease, (iii) any such
Transferee shall expressly assume and agree to perform all the terms and
conditions of this lease to be performed by Tenant, (iv) Transferee shall have a
tangible net worth, as evidenced by financial statements delivered to Landlord
and certified by an independent certified public accountant in accordance with
generally accepted accounting principles that are consistently applied ("Net
Worth"), at least equal to the greater of (A) Tenant's Net Worth either
immediately before the Transfer or as of the date of this lease, whichever is
greater or (B) Two Hundred Million Dollars ($200,000,000), and (v) any such
Transfer shall be subject to all other terms and conditions of this paragraph 15
pertaining to Transfers as defined herein (excepting only the requirement
concerning prior written consent of Landlord).
16. RULES AND REGULATIONS
The current Rules and Regulations of the Project are attached hereto
as Exhibit D. Tenant shall faithfully observe and comply with the rules and
regulations of the Project and any and all reasonable modifications thereof and
additions thereto from time to time promulgated in writing by Landlord.
Landlord shall have the right to amend the rules and regulations from time to
time as Landlord deems necessary or appropriate; provided that the Rules and
Regulations do not unreasonably interfere with Tenant's use of, access to or
parking at the Premises and do not materially and unreasonably increase the
obligations or materially and unreasonably decrease Tenant's under this Lease.
The Rules and Regulations shall apply to all occupants of the Project on an non-
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discriminatory basis. Landlord shall not be responsible to Tenant for the
nonperformance by any other tenant or occupant of the Project of any said rules
and regulations. In the event of a conflict between the specific terms of this
Lease and the Rules and Regulations, the terms of this Lease shall control.
17. ENTRY BY LANDLORD
Landlord may enter the Premises at reasonable hours and upon
reasonable notice to (a) inspect the same, (b) exhibit the same to prospective
purchasers, lenders or tenants, (c) determine whether Tenant is complying with
all its obligations hereunder, (d) supply janitor service and any other service
to be provided by Landlord to Tenant hereunder, (e) post notices of
nonresponsibility, and (f) make repairs required of Landlord under the terms
hereof or repairs to any adjoining space or utility services or make repairs,
alterations or improvements to any other portion of the building. Landlord
shall use commercially reasonable efforts to minimize disruption of Tenant's
business. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises or any other loss occasioned by such entry
and Tenant shall not be entitled to any abatement or reduction of rent if
Landlord exercises its right of entry as specified above. Landlord shall at all
times have and retain a key with which to unlock all of the doors in, on or
about the Premises (excluding Tenant's vaults, safes and similar areas
designated in writing by Tenant and Landlord in advance); and Landlord shall
have the right to use any and all means which Landlord may deem proper to open
said doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be constructed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises, or any portion thereof.
18. COMMON AREA; PARKING
Subject to the terms and conditions of this Lease and such rules and
regulations as Landlord may from time to time prescribe, Tenant and Tenant's
employees and invitees shall, in common with other occupants of the Project and
their respective employees and invitees and others entitled to the use thereof,
have the nonexclusive right to use those areas of the common area provided and
designated by Landlord for the general use and convenience of the occupants of
the Project (which area and facilities shall include, but not be limited to,
common lobbies, corridors, restrooms, and showers, telephone, electrical,
janitorial and mechanical rooms, elevators, stairwells, vertical duct shafts,
sidewalks, parking, refuse, landscape and plaza areas, roofs, building
exteriors, electrical, mechanical, plumbing and HVAC systems, and storage
areas), which areas and facilities are
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referred to herein as "common area". This right shall terminate upon the
termination of this Lease.
Landlord reserves the right from time to time to make changes in the
shape; size, location, amount and extent of the common area; provided that
Tenant's use of and access to the Premises and parking rights are not
unreasonably and materially adversely affected. Landlord shall also have the
right at any time to change the name, number or designation by which the Project
is commonly known.
Tenant shall have the nonexclusive use of one hundred thirty-five
(135) parking spaces in the common area as designated from time to time by
Landlord. Landlord reserves the right at its sole option to assign and label
parking spaces, but it is specifically agreed that Landlord is not responsible
for policing any such parking spaces. Tenant shall not at any time park or
permit the parking of Tenant's trucks or other vehicles, or the trucks or other
vehicles of others, adjacent to loading areas so as to interfere in any way with
the use of such areas; nor shall Tenant at any time park or permit the parking
of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers
or others, in any portion of the common area not designated by Landlord for such
use by Tenant. Tenant shall not park or permit any inoperative vehicle or
equipment to be parked on any portion of the common area.
Landlord shall operate, manage and maintain the common area. The
manner in which the common area shall be operated, managed and maintained and
the expenditures for such operation, management and maintenance shall be at the
reasonable discretion of Landlord and the costs of such operation, management
and maintenance of the Common Area shall be included in Operating Expenses, to
the extent provided in paragraph 4.
19. DEFAULT
The occurrence of any of the following shall constitute a default by
Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder
within three (3) days of when due (except that with respect to the first such
failure in each calendar year, Tenant shall not be in default unless Tenant
fails to pay such amount within three (3) days after Landlord's written notice
to Tenant of Tenant's failure to pay such amount when due); (ii) abandonment of
the Premises (Tenant's failure to occupy and conduct business in the Premises
for fourteen (14) consecutive days shall be deemed an abandonment); (iii)
failure of Tenant to deliver to Landlord any instrument, assurance, financial
statement, subordination agreement or certificate of estoppel required under
this Lease within the time period specified for such performance if the failure
continues for five (5) days after written notice of the failure from Landlord to
Tenant; or (iv) failure of Tenant to perform any other obligation under this
Lease if the failure to
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perform is not cured within fifteen (15) days after written notice thereof has
been given to Tenant, except in the case of an emergency or dangerous condition,
in which case Tenant's time to perform shall be that time period which is
reasonable under the circumstances; provided, however, if the nature of Tenant's
obligations is such that more than fifteen (15) days are required for
performance, then Tenant shall not be in default if Tenant commences performance
within such fifteen (15) day period and thereafter diligently prosecutes the
same to completion. The notice referred to in clauses (iii) and (iv) above
shall specify the obligations Tenant has failed to perform. No notice shall be
deemed a forfeiture or termination of this Lease unless Landlord so elects in
the notice. No notice shall be required in the event of abandonment or vacation
of the Premises. The notices required in clauses (iii) and (iv) above shall
replace rather than supplement any equivalent or similar statutory notice,
including any notices required by Code of Civil Procedure section 1161 or any
similar or successor statute. When a statute requires service of a notice in a
particular manner, service of that notice (or a similar notice required by this
Lease) in the manner required by section 34 of this Lease shall replace and
satisfy the statutory service-of-notice procedures, including those required by
Code of Civil Procedure section 1162 or any similar or successor statute.
In addition to the above, the occurrence of any of the following
events shall also constitute a default by Tenant: (i) Tenant fails to pay its
debts as they become due or admits in writing its inability to pay its debts, or
makes a general assignment for the benefit of creditors (for purposes of
determining whether Tenant is not paying its debts as they become due, a debt
shall be deemed overdue upon the earliest to occur of the following: thirty (30)
days from the date a statement therefor has been rendered; the date on which any
action or proceeding therefor is commenced; or the date on which a formal notice
of default or demand has been sent); (ii) Tenant fails to furnish to Landlord a
schedule of Tenant's aged accounts payable within ten (10) days after Landlord's
written request; or (iii) any financial statements given to Landlord by Tenant,
any assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or
successor in interest of Tenant (including, without limitation, any schedule of
Tenant's aged accounts payable) are materially false. At any time during the
term of this Lease but not more than twice per year, Landlord, at Landlord's
option, shall have the right to receive from Tenant, upon Landlord's request,
current annual financial statements (including, but not limited to, balance
sheet and statement of operations) for Landlord's review.
On the occurrence of a default by Tenant, Landlord shall have the
right to pursue any one or more of the following remedies in addition to any
other remedies now or later available to Landlord at law or in equity. These
remedies are not exclusive but cumulative. Landlord may terminate. this Lease
and recover possession of the Premises. Once Landlord has terminated this
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Lease, Tenant shall immediately surrender the Premises to Landlord. On
termination of this Lease, Landlord may recover from Tenant all of the
following:
(a) The worth at the time of the award of any unpaid Rent that had
been earned at the time of the termination, to be computed by allowing interest
at the rate of twelve percent (12%) per annum but in no case greater than the
maximum amount of interest permitted by law;
(b) The worth at the time of the award of the amount by which the
unpaid Rent that would have been earned between the time of the termination and
the time of the award exceeds the amount of unpaid Rent that Tenant proves could
reasonably have been avoided, to be computed by allowing interest at the rate of
twelve percent (12%) per annum but in no case greater than the maximum amount of
interest permitted by law;
(c) The worth at the time of the award of the amount by which the
unpaid Rent for the balance of the Lease Term after the time of the award
exceeds the amount of unpaid Rent that Tenant proves could reasonably have been
avoided, to be computed by discounting that amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award plus one percent
(1%).
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform obligations under
this Lease, including brokerage commissions and advertising expenses, expenses
of remodeling the Premises for a new tenant (whether for the same or a different
use), and any special concessions made to obtain a new tenant; and
(e) Any other amounts, in addition to or in lieu of those listed
above, that may be permitted by applicable law.
Landlord shall have the remedy described in Civil Code section 1951.4,
which provides that, when a tenant has the right to sublet or assign (subject
only to reasonable limitations), the landlord may continue the lease in effect
after the tenant's breach and abandonment and recover Rent as it becomes due.
Accordingly, if Landlord does not elect to terminate this Lease on account of
any default by Tenant, Landlord may enforce all of Landlord's rights and
remedies under this Lease, including the right to recover all Rent as it becomes
due.
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
Landlord, at any time after Tenant commits a default, may after the
expiration of applicable notice and cure periods specified in this Lease, but
shall not be obligated to, cure the default at Tenant's cost. If Landlord at
any time, by reason of Tenant's default, pays any sum or does any act that
requires the
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payment of any sum, the sum paid by Landlord shall be due immediately from
Tenant to Landlord and shall bear interest at the rate of twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less, from the date
the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due
Landlord hereunder shall be additional rent.
21. ATTORNEYS' FEES
If either party commences an action against the other party arising
out of or in connection with this Lease, the prevailing party shall be entitled
to have and recover from the losing party all expenses of litigation, including,
without limitation, travel expenses, attorney fees, expert witness fees, trial
and appellate court costs, and deposition and transcript expenses. If either
party becomes a party to any litigation concerning this Lease or concerning the
Premises or the Project, by reason of any act or omission of the other party or
its authorized representatives, the party that causes the other party to become
involved in the litigation shall be liable to the other party for all expenses
of litigation, including, without limitation, travel expenses, attorney fees,
expert witness fees, trial and appellate court costs, and deposition and
transcript expenses.
22. EMINENT DOMAIN
If all or any part of the Premises shall be taken by any public or
quasi-public authority under the power of eminent domain or conveyance in lieu
thereof, this Lease shall terminate as to any portion of the Premises so taken
or conveyed on the date when title vests in the condemnor, and Landlord shall be
entitled to any and all payments, income, rent, award or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance. Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing, Tenant
shall be entitled to any compensation for alterations paid for by Tenant,
depreciation to and cost of removal of Tenant's equipment and fixtures and any
compensation for its relocation expenses necessitated by such taking, but in
each case only to the extent the condemning authority makes a separate award
therefor or specifically identifies a portion of the award as being therefor.
Each party waives the provisions of Section 1265.130 of the California Code of
Civil Procedure (which section allows either party to petition the Superior
Court to terminate this Lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the
Premises or any portion thereof or of any other space in the Project, or if
Landlord is advised in writing by any entity or body having the right or power
of condemnation of its intention to condemn the Premises or any portion thereof
or of any other space in the Project, and Landlord shall decide to discontinue
the use
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and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this Lease by giving
Tenant written notice thereof within sixty (60) days of the earlier of the date
of Landlord's receipt of such notice of intention to condemn or the commencement
of said action or proceeding. Such termination shall be effective as of the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
In the event of a partial taking, or conveyance in lieu thereof, of
the Premises and fifty percent or more of the number of square feet in the
Premises are taken, then Tenant may terminate this Lease. Any election by
Tenant to so terminate shall be by written notice given to Landlord within sixty
(60) days from the date of such taking or conveyance and shall be effective on
the last day of the calendar month next following the month in which such notice
is given or the date on which title shall vest in the condemnor, whichever
occurs first.
If a portion of the Premises is taken by power of eminent domain or
conveyance in lieu thereof and neither Landlord nor Tenant terminates this Lease
as provided above, then this Lease shall continue in full force and effect as to
the part of the Premises not so taken or conveyed and all payments of rent shall
be apportioned as of the date of such taking or conveyance so that thereafter
the amounts to be paid by Tenant shall be in the ratio that the area of the
portion of the Premises not so taken bears to the total area of the Premises
prior to such taking.
23. SUBORDINATION
(a) This Lease shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation of security now or hereafter placed
upon the Premises or the Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided that Tenant's right to quiet
possession of the Premises shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. Landlord shall use reasonable efforts to obtain a subordination,
non-disturbance and attornment agreement from the current lien holder, if any,
in customary form. If any mortgagee, trustee or ground lessor shall elect to
have this Lease prior to the lien of its mortgage, deed of trust or ground
lease, and shall give written notice thereof to Tenant, this Lease shall be
deemed prior to such mortgage, deed of trust or ground lease, whether this Lease
is dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of the recording thereof.
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(b) Tenant agrees to execute any documents reasonably required to
effectuate an attornment, a subordination, or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Tenant's failure to execute such documents within ten (10) days after written
demand shall constitute a material default by Tenant hereunder without further
notice to Tenant.
24. NO MERGER
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord terminate all or any existing subleases or subtenancies, or may, at the
option of Landlord, operate as an assignment to it of any or all such subleases
or subtenancies.
25. SALE
In the event the original Landlord hereunder, or any successor owner
of the Project shall sell or convey the Project, all liabilities and obligations
on the part of the original Landlord, or such successor owner, under this Lease
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations accruing after the date of sale or conveyance shall be binding upon
the new owner. Tenant agrees to attorn to such new owner and to look solely to
the new owner for performance of any and all such liabilities and obligations
accruing after the date of sale or conveyance; provided if such new owner has
assumed Landlord's obligations hereunder in writing.
26. ESTOPPEL CERTIFICATE
Each party shall, within five (5) business days after request
therefor, execute and deliver to the other party, in recordable form, a
certificate stating that the lease is unmodified and in full force and effect,
or in full force and effect as modified and stating the modifications. The
certificate shall also state the amount of the monthly rent, the date to which
monthly rent has been paid in advance, the amount of the security deposit and/or
prepaid monthly rent, and, if the request is made by Landlord, shall include
such other items as Landlord or Landlord's lender may reasonably request.
Failure to deliver such certificate within such time shall constitute a
conclusive acknowledgement by the party failing to deliver the certificate that
the lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate. Any such certificate
requested by Landlord may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises or Project. Further, within five (5)
calendar days following written request made from time to time by Landlord,
Tenant shall furnish to Landlord current financial statements of Tenant.
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27. NO LIGHT, AIR OR VIEW EASEMENT
This Lease confers no rights either with regard to the subsurface of
or airspace above the land on which the Project is located or with regard to
airspace above the building of which the Premises are a part. Any diminution or
shutting off of light, air or view by any structure which may be erected on
lands adjacent to the building in which the Premises are located shall in no way
affect this Lease or impose any liability on Landlord.
28. EASEMENTS
Landlord reserves the right to alter the boundaries of the Project and
grant easements and dedicate for public use portions of the Project without
Tenant's consent, provided that no such grant or dedication shall interfere with
Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense.
From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge
and deliver to Landlord, in accordance with Landlord's instructions, any and all
documents, instruments, maps or plats necessary to effectuate Tenant's covenants
hereunder.
29. HOLDING OVER
Any holding over after the expiration or termination of this Lease
with the written consent of Landlord shall be construed to be a tenancy from
month-to-month at the monthly rent agreed upon by Landlord and Tenant, but in no
event less than the monthly rent payable under this Lease for the last lease
month before the date of such expiration or termination. All provisions of this
Lease, except (i) as modified by the preceding sentence and (ii) those
provisions pertaining to the term, expansion rights and any option to extend,
shall apply to the month-to-month tenancy.
If Tenant shall retain possession of the Premises or any part thereof
without Landlord's written consent following the expiration or sooner
termination of this Lease for any reason, then Tenant shall pay to Landlord as
rent during the holdover period an amount equal to the greater of (i) two
hundred percent (200%) of the amount of the monthly rent in effect during the
last full lease month prior to the date of such expiration or termination or
(ii) one hundred fifty percent (150%) of the fair market rental (as reasonably
determined by Landlord) for the Premises. Tenant shall also indemnify and hold
Landlord harmless from any loss, liability and expense (including, but not
limited to, attorneys fees) resulting from delay by Tenant in surrendering the
Premises, including without limitation any claims made by any succeeding tenant
founded on such delay. Acceptance of rent by Landlord following expiration or
termination shall not constitute a renewal of this Lease, and nothing contained
in this paragraph shall waive Landlord's right of re-entry or any other right.
Tenant shall be only a tenant at sufferance, Whether or not Landlord accepts any
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rent from Tenant, while Tenant is holding over without Landlord's written
consent.
The provisions of this paragraph 29 are in addition to, and do not
affect, Landlord's right of re-entry or other rights hereunder or provided by
law. Nothing in this paragraph 29 shall be construed as implied consent by
Landlord to any holding over by Tenant. Landlord expressly reserves the right
to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease on expiration or other termination of this Lease. The
provisions of this paragraph 29 shall not be considered to limit or constitute a
waiver of any other rights or remedies of Landlord provided in this Lease or at
law. The provisions of this paragraph 29 shall survive the expiration or early
termination of this Lease.
30. SURRENDER
On the last day of the term or on the effective date of any earlier
termination, Tenant shall surrender to Landlord the Premises in its condition
existing as of the commencement of the term and, except as otherwise provided by
Landlord pursuant to the terms of paragraph 8 of this Lease, all of the
improvements and alterations made to the Premises in their condition existing as
of the date of completion of construction and/or installation (normal wear and
tear, acts of God, casualties and condemnation excepted).On or prior to the last
day of the term or the effective date of any earlier termination, Tenant shall
remove all of Tenant's personal property and trade fixtures, together with
improvements or alterations that Tenant is obligated to remove pursuant to the
provisions of paragraph 8 of this Lease, from the Premises, and all such
property not removed shall be deemed abandoned. In addition, on or prior to any
expiration or earlier termination of this Lease, Tenant shall remove, at
Tenant's sole cost and expense, all telephone, other communication, computer and
any other cabling and wiring or any sort installed in the space above the
suspended ceiling of the Premises or anywhere else in the Premises and shall
promptly repair any damage to the suspended ceiling, lights, light fixtures,
walls and any other part of the Premises resulting from such removal.
If the Premises are not surrendered as required in this paragraph 30,
Tenant shall indemnify Landlord against all loss, liability and expense
(including, but not limited to, attorney fees) resulting from the failure by
Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenants. It is agreed between Landlord and Tenant
that the provisions of this paragraph 30 shall survive termination of this
Lease.
31. SECURITY DEPOSIT
Concurrent with Tenant's execution and delivery of this Lease, Tenant
shall deliver to Landlord an unconditional and
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irrevocable letter of credit ("Letter of Credit") in the amount of Two Million
Eight Hundred Thousand Dollars ($2,800,000) to secure the faithful performance
by Tenant of all of the terms, covenants and conditions of this Lease to be kept
and performed by Tenant. The Letter of Credit shall be issued by a bank (the "L-
C Bank") approved by Landlord in the reasonable exercise of its discretion and
shall be in a form that is acceptable to Landlord in Landlord's reasonable
discretion. The L-C Bank shall be a bank that accepts deposits, maintains
accounts, has a local office that will negotiate a letter of credit, and the
deposits of which are insured by the Federal Deposit Insurance Corporation.
Tenant shall pay all expenses, points, or fees incurred by Tenant in obtaining
the Letter of Credit. The Letter of Credit shall be available by draft at
sight, subject only to receipt by the bank of a notarized statement from
Landlord or Landlord's authorized representative requesting such draw. The
Letter of Credit shall be transferable by Landlord and Tenant shall cooperate as
reasonably necessary in connection with any such transfer. The Letter of Credit
shall by its terms expire not less than one year from the date issued, and shall
provide for automatic one (1) year extensions unless Landlord is notified in
writing not less than ninety (90) days prior to such expiration from the L-C
Bank that the Letter of Credit will not be extended. In any event, unless
Tenant deposits with Landlord a cash security deposit of like amount as
permitted below, said Letter of Credit shall be renewed by Tenant for successive
periods of not less than one year each to and including the date that is sixty
(60) days after the expiration date of this Lease. The bank's written renewal
of the Letter of Credit shall in each case be delivered to Landlord not less
than ninety (90) days prior to the expiration date of the then outstanding
Letter of Credit. Tenant's failure to so deliver, renew (including specifically
but not limited to the delivery to Landlord of such renewal not less than ninety
(90) days prior to expiration of the Letter of Credit) and maintain such Letter
of Credit, shall constitute a default under this Lease without any further
notice or grace period.
If Tenant is in default under this Lease, including, without
limitation, providing, renewing and maintaining the Letter of Credit as required
above, or payment of rent or any other amounts due Landlord under this Lease,
Landlord may, without prejudice to any other remedy available to Landlord,
immediately and without further notice draw down the entire amount of the Letter
of Credit to be held by Landlord as a cash security deposit for the faithful
performance by Tenant of all of the terms, covenants and conditions of this
Lease to be kept and performed by Tenant.
In the event Landlord draws on the Letter of Credit due to Tenant's
failure to renew the Letter of Credit, Tenant shall have a one-time right to
restore the Letter of Credit within ninety (90) days of such draw by landlord
and upon receipt of the replacement Letter of Credit (Landlord shall return the
cash Security Deposit less applicable offsets, if any). If Tenant
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defaults with respect to any provision of this Lease, Landlord may (but shall
not be required to) use, apply or retain all or any part of this security
deposit for the payment of any amount which Landlord may spend by reason of
Tenant's default or to compensate Landlord for any other expense, loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of said
deposit is so used, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
security deposit to its original amount and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds and Tenant shall not be
entitled to interest on such deposit. The security deposit or any balance
thereof shall be returned to Tenant after Tenant has vacated the Premises less
any deductions or offsets to which Landlord may be entitled hereunder. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said deposit to Landlord's successor in interest, and Tenant agrees
that upon such transfer and upon such successor's written assumption of
Landlord's obligations hereunder Landlord shall thereupon be released from
liability for the return of such deposit or any accounting therefor. Provided
that Tenant has not been in default under the terms of this Lease (as defined in
paragraph 19 of this Lease), then Landlord shall allow Tenant to reduce the
amount of the Letter of Credit as follows: (1) the amount of the Letter of
Credit may be reduced annually by the amount which is equal to the product
obtained by multiplying the Letter of Credit amount prior to such reduction by a
fraction, the numerator of which is 1 and the denominator of which is the number
of full lease years remaining in the lease term on each anniversary date of the
Phase 2 Delivery Date; (2) the outstanding balance of the Letter of Credit may
be reduced by fifty percent (50%) provided that the Tenant has a $200,000,000
net worth and provided that Tenant has achieved four consecutive quarters of net
income of at least $1,000,000 per quarter (all calculations shall be based upon
generally accepted accounting principles and certified by an independent
certified public accounting firm reasonably acceptable to Landlord); provided
that in no event shall the Letter of Credit be reduced to less than $1,000,000
prior to the 54th lease month after the Phase 2 Delivery Date.
32. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
(a) Any amount due from Tenant to Landlord hereunder which is not paid
when due shall bear interest at the rate of five percentage points above the
discount rate of the Federal Reserve Bank of San Francisco as of the date due or
the maximum rate allowable under the law, whichever is less, from the date due
until paid, but the payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
(b) In addition, Tenant acknowledges that late payment by Tenant to
Landlord of monthly rent or of any other amount due
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Landlord from Tenant will cause Landlord to incur accounting, administrative and
other costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Therefore, if any such payment due
from Tenant is not received in full by Landlord within three (3) days after the
date such payment is due, which payments are subject to application by Landlord
as provided in paragraph 3 (d) of this Lease, Tenant shall pay to Landlord an
additional sum of five percent (5%) of the entire payment as a late charge. The
parties agree that this late charge represents a fair and reasonable estimate of
the costs that Landlord will incur by reason of late payment by Tenant.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies available to Landlord. No notice to Tenant of
failure to pay shall be required prior to the imposition of such interest and/or
late charge. Any interest and late charge imposed pursuant to this paragraph
shall be and constitute additional rent payable by Tenant to Landlord.
33. WAIVER
The waiver by Landlord or Tenant of any agreement, condition or
provision herein contained shall not, nor shall any custom or practice which may
evolve between the parties in the administration of the terms hereof, be
construed to waive or to lessen the right of a party to insist upon performance
in strict accordance with said terms. No delay or omission in the exercise of
any right or remedy on any default shall impair such right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent
rent or other payments shall not constitute a waiver of any other default and
acceptance of partial payments shall not be construed as a waiver of the balance
of such payment due. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. In such case, only a written notice from Landlord to Tenant shall
constitute acceptance of the surrender of the Premises and accomplish a
termination of this Lease. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval shall not be deemed to waive or
render unnecessary Landlord's consent to or approval of any subsequent act by
Tenant. Any waiver by Landlord of any default must be in writing and shall not
be a waiver of any other default concerning the same or any other provision of
this Lease.
34. NOTICES
Except for legal process, statutory notices and Notice of Belief of
Abandonment which may be served either as provided by law or as provided herein,
all notices, demands, requests, consents, approvals and other communications
("Notices") which may be given or are required to be given by either party to
the other shall be
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in writing and shall be deemed given to and received by the party intended to
receive such Notice and deemed sufficiently given for all purposes as follows:
(a) when personally delivered to the recipient, notice is effective on
delivery;
(b) when mailed first class to the last address of the recipient known
to the party giving notice, notice is effective on delivery;
(c) when mailed by certified mail with return receipt requested,
notice is effective on receipt if delivery is confirmed by a return receipt; or
(d) when delivered by reputable overnight courier (e.g. Federal
Express, Airborne) or other comparable service with charges prepaid or charged
to the sender's account, notice is effective on delivery if delivery is
confirmed by the courier service.
Any correctly addressed Notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified shall be
deemed effective as of the first date that the Notice was refused, unclaimed, or
considered undeliverable by the postal authorities, messenger, or overnight
delivery service.
Prior to the commencement date, all such Notices from Landlord to
Tenant shall be served or addressed to Tenant at 255 Shoreline Drive, Suite 200,
Redwood City, California. On or after the commencement date all such Notices
from Landlord to Tenant shall be addressed to Tenant at the Premises.
All such Notices by Tenant to Landlord shall be sent to Landlord c/o
Grubb & Ellis Management Services, Inc., 255 California Street, 14th Floor, San
Francisco, California 94111.
Either party may change its address by giving the other party notice
of such change in any manner permitted by this paragraph 34.
35. BROKERAGE COMMISSION
Landlord and Tenant warrant that they have had no contract or dealings
regarding this Lease through any licensed real estate broker other than Grubb &
Ellis Company (Landlord's Broker) and Cornish & Carey (Tenant's Broker). In the
event that any other broker, finder or person asserts a claim to a commission or
finder's fee in connection with this Lease, the party through whom the broker or
finder makes its claim shall indemnify, hold harmless and defend the other party
from said claim and all costs and expenses, including reasonable attorneys'
fees, incurred by the other party in defending against the same.
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36. COMPLETE AGREEMENT
There are no oral agreements between Landlord and Tenant affecting
this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, if any,
between Landlord and Tenant or displayed by Landlord to Tenant with respect to
the subject matter of this Lease or the Project. There are no representations
between Landlord and Tenant other than those contained in this Lease.
37. AUTHORITY
Each individual executing this Lease on behalf of Tenant represents
and warrants that (i) he/she is duly authorized to execute and deliver this
Lease on behalf of Tenant and: (a) if Tenant is a corporation, such
authorization is in accordance with a duly adopted resolution of the Board of
Directors of said corporation, (b) if Tenant is a partnership, such
authorization is in accordance with the partnership agreement now in effect, and
(c) if Tenant is a limited liability company, such authorization is in
accordance with the company's governing documents; and (ii) this Lease is
binding upon Tenant in accordance with its terms. Upon Landlord's request,
Tenant shall deliver to Landlord within ten (10) days after such request
evidence of the authorization specified above as Landlord may reasonably
request, including, without limitation, in the case where Tenant is a
corporation, a copy of the resolution of the Board of Directors of Tenant
authorizing the execution of this Lease and naming the officers that are
authorized to execute this Lease on behalf of Tenant, which copy shall be
certified by Tenant's secretary as correct and in full force and effect.
38. SUCCESSORS
The agreements, conditions and provisions herein contained shall,
subject to the provisions as to assignment, apply to and bind the heirs,
executors, administrators, successors and assigns of the parties hereto.
39. SIGNAGE
Tenant shall not, without obtaining the prior written consent of
Landlord, install or attach any sign or advertising material on any part of the
outside of the Premises, or on any part of the inside of the Premises which is
visible from the outside of the Premises, or in the halls, lobbies, windows or
elevators of the building in which the Premises are located or on or about any
other portion of the common area or Project. If Landlord consents to the
installation of any sign or other advertising material, the location, size,
design, color and other physical aspects thereof shall be subject to Landlord's
prior written approval and shall be in accordance with any sign program
applicable to the Project. In
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addition to any other requirements of this paragraph 39, the installation of any
sign or other advertising material by or for Tenant must comply with all
applicable laws, statutes, requirements, rules, ordinances and any C.C. & R.'s
or other similar requirements. With respect to any permitted sign installed by
or for Tenant, Tenant shall maintain such sign or other advertising material in
good condition and repair and shall remove such sign or other advertising
material on the expiration or earlier termination of the term of this Lease.
The cost of any permitted sign or advertising material and all costs associated
with the installation, maintenance and removal thereof shall be paid for solely
by Tenant. If Tenant fails to properly maintain or remove any permitted sign or
other advertising material, Landlord may do so at Tenant's expense. Any cost
incurred by Landlord in connection with such maintenance or removal shall be
deemed additional rent and shall be paid by Tenant to Landlord within ten (10)
days following notice from Landlord. Landlord may remove any unpermitted sign
or advertising material without notice to Tenant and the cost of such removal
shall be additional rent and shall be paid by Tenant within ten (10) days
following notice from Landlord. Landlord shall not be liable to Tenant for any
damage, loss or expense resulting from Landlord's removal of any sign or
advertising material in accordance with this paragraph 39. The provisions of
this paragraph 39 shall survive the expiration or earlier termination of this
Lease.
40. QUIET ENJOYMENT
Provided Tenant has performed all of the terms, covenants, agreements
and conditions of this Lease, including the payment of rent and all other sums
due hereunder, Tenant shall peaceably and quietly hold and enjoy the Premises
for the term hereof, without hindrance from Landlord and all persons claiming
by, through or under Landlord, but subject to the provisions and conditions of
this Lease. Tenant's right to use the premises and the common area as herein
provided shall be subject to restrictions or other limitations or prohibitions
resulting from any law, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force and no such
event shall in any way affect this Lease, abate rent, relieve Tenant of any
liabilities or obligations under this Lease or give rise to any claim whatsoever
against Landlord.
41. ATTORNMENT TO LENDER OR THIRD PARTY
In the event the interest of Landlord in the land and buildings in
which the Premises are located (whether such interest of Landlord is a fee title
interest or a leasehold interest) is encumbered by deed of trust, and such
interest is acquired by a lender or any other third party through judicial
foreclosure or by exercise of a power of sale at private trustee's foreclosure
sale, Tenant hereby agrees to release Landlord of any obligation arising on or
after any such foreclosure sale and to attorn to the
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purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease.
42. DEFAULT BY LANDLORD
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event
earlier than thirty (30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises
specifying wherein Landlord has failed to perform such obligations; provided,
however, that if the nature of Landlord's obligations is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
If Landlord is in default of this Lease, Tenant's sole remedy shall be
to institute suit against Landlord in a court of competent jurisdiction, and
Tenant shall have no right to offset any sums expended by Tenant as a result of
Landlord's default against future rent and other sums due and payable pursuant
to this Lease. If Landlord is in default of this Lease, and as a consequence
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the judgment
and levy against the right, title and interest of Landlord in the Project of
which the Premises are a part, and out of rent or other income from such real
property receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's right, title
and interest in the Project of which the Premises are a part. Neither Landlord
nor any of the partners comprising the partnership designated as Landlord shall
be personally liable for any deficiency.
43. CONSTRUCTION CHANGES
It is understood that the description of the Premises and the location
of ductwork, plumbing and other facilities therein are subject to such changes
as Landlord or Landlord's architect determines to be desirable in the course of
construction of the premises and/or the improvements constructed or being
constructed therein, and no such change nor any change in plans for any other
portions of the Project, shall affect this Lease or entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to Tenant;
provided Tenant's use of the Premises is not materially impaired.
44. MEASUREMENT OF PREMISES
Tenant understands and agrees that any reference to square footage of
the Premises is approximate only. Landlord and
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Tenant hereby stipulate that the Premises consist of rentable square feet stated
in paragraph 1 of this Lease. Tenant waives any claim against Landlord
regarding the accuracy of any such measurement and agrees that there shall not
be any adjustment in monthly rent or other amounts payable hereunder by reason
of inaccuracies in such measurement.
45. PROJECT NAME
Tenant shall not use the name of the Project for any purpose other
than as the address of the business conducted by Tenant in the Premises without
the prior written consent of Landlord.
46. GOVERNING LAW
This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California.
47. SEVERABILITY
If any provision of this Lease shall be held or rendered invalid,
unenforceable or ineffective for any reason whatsoever, all other provisions
hereof shall be and remain in full force and effect.
48. TIME
Time is of the essence of this Lease and of each and all of its
provisions.
49. RECORDING
Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
50. TENANT'S QUITCLAIM
At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after written
demand from Landlord to Tenant, any quitclaim deed or other document required to
remove the cloud or encumbrance created by this Lease from the real property of
which the Premises are a part. This obligation shall survive said expiration or
termination.
51. EXHIBITS AND ATTACKERS
All exhibits and attachments to this Lease are a part hereof and the
terms and provisions thereof are incorporated into this Lease by this reference
as though set forth herein in full.
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52. ENVIRONMENTAL MATTERS
A. Tenant's Covenants Regarding Hazardous Materials.
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(1) Hazardous Materials Handling. Tenant, its agents, invitees,
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employees, contractors, sublessees, assigns and/or successors shall not use,
store, dispose, release or otherwise cause to be present or permit the use,
storage, disposal, release or presence of Hazardous Materials (as defined below)
on or about the Premises or Project. As used herein "Hazardous Materials" shall
mean any petroleum or petroleum by-products, flammable explosives, asbestos,
urea formaldehyde, radioactive materials or waste and any "hazardous substance",
"hazardous waste", "hazardous materials" "toxic substance" or "toxic waste" as
those terms are defined under the provisions of the California Health and Safety
Code and/or the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by
the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section
9601 et seq.), or any other hazardous or toxic substance, material or waste
which is or becomes regulated by any local governmental authority, the State of
California or any agency thereof, or the United States Government or any agency
thereof.
(2) Notices. Tenant shall immediately notify Landlord in
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writing of: (i) any enforcement, cleanup, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any law,
regulation or ordinance relating to the industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, presence,
disposal or transportation of any Hazardous Materials (collectively "Hazardous
Materials Laws"); (ii) any claim made or threatened by any person against
Tenant, the Premises, Project or buildings within the Project relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
or claimed to result from any Hazardous Materials; and (iii) any reports made to
any environmental agency arising out of or in connection with any Hazardous
Materials in, on or removed from the Premises, Project or buildings within the
Project, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant shall also supply to Landlord as
promptly as possible, and in any event within five (5) business days after
Tenant first receives or sends the same, with copies of all claims, reports,
complaints, notices, warnings or asserted violations relating in any way to the
Premises, Project or buildings within the Project or Tenant's use thereof.
Tenant shall promptly deliver to Landlord copies of hazardous waste manifests
reflecting the legal and proper disposal of all Hazardous Materials removed from
the Premises.
B. Indemnification of Landlord. Tenant shall indemnify, defend (by
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counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents,
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attorneys, successors and assigns, free and harmless from and against any and
all claims, liabilities, penalties, forfeitures, losses or expenses (including
attorneys' fees) for death of or injury to any person or damage to any property
whatsoever (including water tables and atmosphere), arising from or caused in
whole or in part, directly or indirectly, by (i) the presence in, on, under or
about the Premises, Project or buildings within the Project where such presence
or discharge was caused by Tenant, (ii) Tenant's use, analysis, storage,
transportation, disposal, release, threatened release, discharge or generation
of Hazardous Materials to, in, on, under, about or from the Premises, Project or
buildings within the Project, or (iii) Tenant's failure to comply with any
Hazardous Materials Laws whether knowingly, unknowingly, intentionally or
unintentionally. Tenant's obligations hereunder shall include, without
limitation, and whether foreseeable or unforeseeable, all costs of any required
or necessary repair, cleanup or detoxification or decontamination of the
Premises, Project or buildings within the Project, and the preparation and
implementation of any closure, remedial action or other required plans in
connection therewith. In addition, Tenant shall reimburse Landlord for (i)
losses in or reductions to rental income resulting from Tenant's use, storage,
disposal or release of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or buildings within the Project required as
a result of Tenant's use, storage, or disposal of Hazardous Materials
including, without limitation, alterations required to accommodate an alternate
use of the Premises, Project or buildings within the Project, and (iii) any
diminution in the fair market value of the Premises, Project or buildings within
the Project caused by Tenant's use, storage, or disposal of Hazardous Materials.
For purposes of this paragraph 52, any acts or omissions of Tenant, or by
employees, agents, assignees, contractors or subcontractors of Tenant or others
acting for or on behalf of Tenant (whether or not they are negligent,
intentional, willful or unlawful) shall be strictly attributable to Tenant.
C. Survival. The provisions of this paragraph 52 shall survive the
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expiration or earlier termination of the term of this Lease.
D. Landlord's Representations. To Landlord's actual knowledge,
--------------------------
without duty to investigate or inquire, there are no Hazardous Materials on the
Premises or Project in violation of any Hazardous Materials Laws.
53. SUBMISSION OF LEASE
The submission of this Lease to Tenant for examination or signature by
Tenant is not an offer to lease the Premises to Tenant nor an agreement by
Landlord to reserve the Premises for Tenant. Landlord will not be bound to
Tenant until this Lease has been duly executed and delivered by both Landlord
and Tenant.
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54. PREMISES TAKEN "AS IS"
Tenant is leasing the Premises from Landlord "as is" in their
condition existing as of the date hereof, subject to the current occupant's
right to remove its personal property and trade fixtures as provided in its
lease. Landlord shall have no obligation to alter or improve the Premises.
Landlord warrants and represents that, as of the Lease Commencement Date, (i)
the Premises, the Building and the Project will comply with all applicable laws,
rules, regulations, codes, ordinances, underwriters' requirements, covenants,
conditions and restrictions ("Laws") to the extent such compliance is required
by governmental authority to have been completed by the Lease Commencement Date,
(ii) the Premises will be clean and in good operating condition and repair,
(iii) the electrical, mechanical, HVAC, plumbing, sewer, elevator and other
systems serving the Premises and the Building will be in good operating
condition and repair, and (iv) the roof of the Building will be in good
condition and water tight. Tenant's acceptance of the Premises shall not be
deemed a waiver of Tenant's right to have defects in the Premises repaired at
Landlord's sole expense. Landlord shall, promptly after receipt of written
notice from Tenant, remedy any non-compliance with such warranty at Landlord's
sole cost and expense.
55. ADDITIONAL RENT
All costs, charges, fees, penalties, interest and any other payments
(including Tenant's reimbursement to Landlord of costs incurred by Landlord)
which Tenant is required to make to Landlord pursuant to the terms and
conditions of this Lease and any amendments to this Lease shall be and
constitute additional rent payable by Tenant to Landlord when due as specified
in this Lease or any amendments to this Lease.
56. [INTENTIONALLY OMITTED]
57. JOINT AND SEVERAL
If Tenant is comprised of more than one entity or person, the
obligations imposed on each entity or person that comprises Tenant shall be
joint and several.
58. TENANT IMPROVEMENT ALLOWANCE
Landlord hereby grants to Tenant a one-time tenant improvement
allowance of up to One Hundred Fifty-Six Thousand Three Hundred Five Dollars
($156,305) (the "Allowance") to reimburse Tenant for the direct costs of
building standard tenant improvements which are permanently affixed to the
Premises, including design, engineering, finish modification and construction
(the "Tenant Improvements") and installed in the Premises by Tenant
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during the first year after the Phase 2 Delivery Date, subject to the following
terms and conditions:
(a) The Tenant Improvements shall be deemed alterations to the
Premises subject to Landlord's prior written consent and shall be subject to all
the terms and conditions of paragraph 8 of this Lease. Tenant shall submit
preliminary space plans and final space plans to Landlord for Landlord's prior
written consent, which consent shall not be unreasonably withheld by Landlord.
Upon Landlord's approval of the final space plan, Tenant shall thereafter cause
to be prepared by licensed architects and engineers a fully coordinated set of
architectural, structural, mechanical, electrical and plumbing working drawings
(the "Final Construction Drawings") for the Tenant Improvements, if applicable,
and shall submit copies of the Final Construction Drawings to Landlord for
Landlord's approval. After Landlord's approval of the Final Construction
Drawings, Tenant shall submit the Final Construction Drawings as approved by
Landlord to the City to obtain all requisite building permits. No changes,
modifications or alterations to the Final Construction Drawings shall be made
without Landlord's prior written consent.
(b) A general contractor shall be retained by Tenant to construct the
Tenant Improvements. The general contractor shall be subject to Landlord's
approval. Tenant shall only use contractors and subcontractors approved by
Landlord, which approval shall not be unreasonably withheld by Landlord. All of
Tenant's contractors and subcontractors shall carry workers' compensation
insurance covering all of their respective employees and shall also carry
commercial general liability and property damage insurance, all with limits, in
form and with companies as are required to be carried by Tenant in paragraph 11
of this Lease. Tenant shall also carry "Builder's All Risk" insurance in an
amount approved by Landlord covering construction of the Tenant Improvements and
such other insurance as Landlord may reasonably require. Certificates for all
insurances required hereunder shall be provided to Landlord prior to
commencement of construction of the Tenant Improvements.
(c) Landlord will be notified at least ten (10) days prior to the
commencement of any construction in order to post a Notice of Non-
Responsibility. Tenant agrees to conform with Landlord's rules and regulations
associated with construction to minimize the disruption to the other tenants in
the building. Any construction which causes significant noise or other
disturbance to the tenants shall be done during non-business hours (i.e.,
evenings after 6:30 p.m. or weekends). Tenant will require its general
contractor to clean the exterior of the Premises daily and shall keep the common
areas clean and debris-free at all times and shall park construction vehicles
and store materials in areas designated by Landlord. Mechanical systems shall
be designed so as to not affect the systems of the adjoining suites or otherwise
alter the airflow to the other tenants in the building.
44
<PAGE>
(d) The Tenant Improvements for which Tenant may seek reimbursement
shall be substantially completed within one (1) year after the Phase 2 Delivery
Date.
(e) All outstanding claims for labor, materials, fixtures and all
other costs and expenses relating to the Tenant Improvements shall have been
paid in full by Tenant (with evidence of payment to be provided to Landlord) and
Tenant shall have obtained lien releases from all contractors and materialmen
(copies of lien releases to be provided to Landlord), satisfactory to Landlord.
(f) The Tenant Improvements shall have been constructed in accordance
with all applicable local, state and federal laws, statutes, codes, ordinances,
rules and regulations.
(g) Tenant shall not be in default under this Lease and no event shall
have occurred which with the passage of time or the giving of notice or both
would constitute a default; unless Tenant cures such default and Landlord elects
not to terminate this Lease based on such default.
(h) Landlord shall have the right to enter the Premises at all times
during construction of the Tenant Improvements to inspect and monitor such
construction, but shall have no obligation to do so and assumes no liability or
responsibility for such construction and/or compliance with laws applicable
thereto, which is and shall be Tenant's sole responsibility.
(i) Tenant shall not be entitled to any portion of the Allowance which
exceeds the actual cost incurred and paid by Tenant for construction of the
Tenant Improvements and Tenant shall not be entitled to any credit against rent
or any other payment due Landlord under this Lease for any unused portion of the
Allowance. Tenant shall not be entitled to any reimbursement hereunder and no
disbursement of any part of the Allowance shall be required until all of the
conditions specified in this paragraph 58 have been fully satisfied.
59. OPTION TO EXTEND TERM
Landlord grants to Tenant the option to extend the term for one period
of five (5) years (the "Extended Term") following the expiration of the initial
term set forth in paragraph 2 ("Initial Term") under all the provisions of this
Lease except for the amount of the basic rent and security deposit. The basic
rent and security deposit for the Extended Term shall be adjusted to one hundred
percent (100%) of the market rate (as defined in paragraph (c) below); provided
that in no event shall the basic rent and security deposit for the Extended Term
be less than the basic rent and security deposit in effect at the expiration of
the Initial Term. This option is further subject to the following terms and
conditions:
45
<PAGE>
(a) Tenant must deliver its irrevocable written' notice of Tenant's
exercise of this option to Landlord not less than twelve (12) lease months, nor
more than fifteen (15) lease months, prior to the expiration of the Initial
Term. Time is of the essence with respect to the time period during which
Tenant must deliver to Landlord its written notice of exercise and, therefore,
if Tenant fails to give Landlord its irrevocable written notice of its exercise
of this option within the time period provided above then this option shall
expire and be of no further force or effect.
(b) The parties shall have thirty (30) days from the date Landlord
receives Tenant's notice of exercise in which to agree on the amount
constituting the market rate. If Landlord and Tenant agree on the amount of the
market rate, they shall immediately execute an amendment to this Lease setting
forth the expiration date of the extended term and the amount of the basic rent
to be paid by Tenant during the extended term, including the annual adjustment
provision. If Landlord and Tenant are unable to agree on the amount of the
market rate within such time period, then, at the request of either party, the
market rate shall be determined by appraisal in the following manner: (i) within
ten (10) days of the request for such appraisal, Landlord and Tenant shall each
select a licensed real estate broker with not less than five (5) years
experience in the business of commercial leasing of property of the same type
and use, and in the same geographic area, as the Premises; (ii) within fifteen
(15) days of their appointment, such two real estate brokers shall select a
third broker similarly qualified; (iii) within thirty (30) days from the
appointment of the third broker, the three brokers so selected shall, acting as
a board of arbitrators, then appraise the Premises and determine the amount of
the market rate, basing their determination on using standard procedures and
tests normally employed in making such appraisals and applying the factors
included within definition of market rate set forth in subparagraph (c) below.
The decision of the majority of said brokers shall be final and binding upon the
parties hereto. If a majority of the brokers are unable to agree on the market
rate within the stipulated period of time, the three appraisals shall be added
together and their total divided by three; the resulting quotient shall be the
market rate. If, however, the low appraisal and/or the high appraisal are/is
more than 15% lower and/or higher than the middle appraisal, the low appraisal
and/or the high appraisal, as the case may be, shall be disregarded. If only
one appraisal is disregarded, the remaining two appraisal shall be added
together and their total divided by two and the resulting quotient shall be the
market rate. If both the low appraisal and the high appraisal are disregarded
as stated in this paragraph, the middle appraisal shall be the market rate. If a
party does not appoint a broker within the required time period, the broker
appointed by the other party shall be the sole broker and shall determine the
market rate. If the two brokers appointed by the parties are unable to agree on
the third broker, either of the parties to the lease, by giving ten (10) days'
notice to the other party, can apply to the then president of the county
46
<PAGE>
real estate board of the county in which the Premises are located, or to the
presiding judge of the superior court of that county, for the selection of a
third broker who meets the qualifications stated in this paragraph. Each party
shall pay the expenses and charges of the broker appointed by it and the parties
shall pay the expenses and charges of the third broker in equal shares. When
the market rate has been so determined, Landlord and Tenant shall immediately
execute an amendment to this Lease stating the revised basic rent and adjustment
provision for the extended term.
(c) As used herein, the "market rate" shall be the monthly rental
rate, including all escalations, and security deposit then obtained for five (5)
year leases with comparable terms for comparable space in the Project and in
buildings and/or projects within the same geographical area of similar type,
identity, quality and location as the Project and shall take into consideration
the views, location within the submarket, and rental abatement concessions, if
any, being granted to comparable tenants in connection with comparable space.
(d) Direct expenses shall continue to be determined and payable as
provided in paragraphs 3 and 4 of this Lease.
(e) Neither party shall have the right to have any court or other
third party determine the market rate or the basic rent. Tenant shall not assign
or otherwise transfer this option or any interest therein and any attempt to do
so shall render this option null and void. Tenant shall have no right to extend
the term beyond the Extended Term. If Tenant is in default under this Lease at
the date of delivery of Tenant's notice of exercise to Landlord, then such
notice shall be of no effect and this Lease shall expire at the end of the
Initial Term; if Tenant is in default under this Lease on the last day of the
Initial Term, then Landlord may in its sole discretion elect to have Tenant's
exercise of this option be of no effect, in which case this Lease shall expire
at the end of the Initial Term.
(f) The rights contained in this paragraph 59 shall be personal to the
originally named Tenant and may be exercised only by the originally named Tenant
(and may not be transferred or assigned or exercised by any assignee, sublessee,
or other transferee of Tenant's interest in this Lease) and only if the
originally named Tenant occupies the entire Premises as of the date it exercises
this option in accordance with the terms of this paragraph 59.
60. CAPITAL EXPENDITURES
Notwithstanding anything to the contrary in this Lease, (i) as to any capital
expenditure to the Premises made by Landlord under this Lease, Tenant shall pay
to Landlord, as additional rent and in equal monthly installments over the
remaining term of this Lease (including any extension thereof), the amortized
cost thereof
47
<PAGE>
applicable to the lease term and any extension thereof, determined by amortizing
the total cost of such capital expenditure over its useful life (including
interest at a rate of two percent (2%) over the then current Prime Rate as
published by the Wall Street Journal); and (ii) as to any required capital
expenditure to the common area or the Project made by Landlord under this Lease
and the cost of which exceeds $50,000, the amortized cost thereof, determined by
amortizing the total cost of such capital expenditure over its useful life
(including interest at a rate of two percent (2%) over the then current Prime
Rate as published by the Wall Street Journal), shall be included within
Operating Expenses and Tenant shall pay its share thereof as provided in
paragraph 4 of this Lease. Any determination of what constitutes a capital
expenditure and what is the useful life of a capital expenditure, as such terms
are used in this paragraph 60, shall be made by Landlord in accordance with
generally accepted accounting principles. Any capital expenditure which costs
less than $50,000.00 does not have to be amortized over its useful life, but may
be charged and passed through as an Operating Expense in the year incurred.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease on the date first above written.
Landlord: Tenant:
- -------- ------
SHOREBREEZE ASSOCIATES LLC, INVENTA CORPORATION,
a Delaware limited liability a California corporation
company
By: Connecticut General Life By: /s/ Michael Makishima
--------------------------------
Insurance Company on
behalf of its Separate Name: Michael Makishima
------------------------------
Account R, Member Title.
Title: VP Controller
-----------------------------
By: CIGNA Investments,
Inc., its Authorized Date: 01/25/00
------------------------------
Agent
By: /s/ Leon Pouncy By:
---------------------- --------------------------------
Name: LEON POUNCY Name:
----------------------- ------------------------------
Title: MANAGING DIRECTOR Title:
---------------------- -----------------------------
Date: 2/2/00 Date:
----------------------- -----------------------------
48
<PAGE>
EXHIBIT A
Phase 1 - Space #103
Not Available
Phase 2 -- Space #300
[GRAPHIC]
Phase 3 - Space #200
Not Available
<PAGE>
[SITE PLAN]
EXHIBIT B
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exists, entrances, elevators,
escalators, if any, and stairways of the Project shall not be obstructed by any
of the tenants or used by them for any purpose other than for ingress to and
egress from their respective premises. The halls, passages, exits, entrances,
elevators, escalators and stairways are not for the general public, and Landlord
shall in all cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Landlord would be prejudicial to the
safety, character, reputation and interests of the Project and its tenants,
provided that nothing herein contained shall be construed to prevent such access
to persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No tenant and
no employee or invitee of any tenant shall go upon the roof of the building.
2. Except as authorized by a lease, no sign, placard, picture, name,
advertisement or notice visible from the exterior of any tenant's premises shall
be inscribed, painted, affixed or otherwise displaced by any tenant on any part
of such premises or the Project without the prior written consent of Landlord.
All approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the tenant by a person approved by Landlord.
Material visible from outside the building will not be permitted.
3. The premises shall not be used for the storage of merchandise held for
sale to the general public or for lodging. No cooking shall be done or
permitted by any tenant on the premises, except that use by the tenant of
Underwriter's Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages shall be permitted, provided that such use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations.
4. No tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the premises, unless otherwise agreed to by
Landlord in writing. Except with the written consent of Landlord, no person or
persons other than those approved by Landlord shall be permitted to enter the
building for the purpose of cleaning the same. No tenant shall cause any
unnecessary labor by reason of such tenant's carelessness or indifference in the
preservation of good order and cleanliness. Janitorial service will not be
furnished on nights when rooms are occupied after 9:00 P.M. unless, by
agreement in writing, service is extended to a later hour for specifically
designated rooms.
5. Landlord will furnish each tenant free to charge with two keys to each
door lock in the premises. Landlord shall require
1
<PAGE>
payment of a $10 ($5.00 of which is refundable upon return of keys) deposit for
each additional key provided to tenant. No tenant shall have any keys made or
duplicated. No tenant shall alter and lock or install a new or additional lock
or any bolt on any door of its premises without the prior written consent of
Landlord. If Landlord consents to such installation, the tenant shall in each
case furnish Landlord with a key for any such lock. Each tenant, upon the
termination of its tenancy, shall deliver to Landlord all keys to doors in the
building which shall have been furnished to tenant.
6. Landlord shall have the right to prescribe the maximum weight, size and
position of all equipment, materials, furniture or other property brought into
the Premises. Heavy objects shall, if considered necessary by Landlord, stand
on wood strips of such thickness as is necessary to properly distribute the
weight. Landlord will not be responsible for loss of or damage to any such
property from any cause, and all damage done to the Premises or the Project by
moving or maintaining such property shall be repaired at the expense of the
tenant. The persons employed to move such property in or out of the Premises or
Project must be approved by Landlord in advance.
7. No tenant shall use or keep in the Premises or the Project any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or without Landlord's prior written approval, use any
method of heating or air conditioning other than that supplied by Landlord. No
tenant shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the premises, or permit or suffer the premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Project by reason of noise, odors or vibration; or interfere in any way with
other tenants or those having business therein.
8. The directory for each building in the Project is provided for the
display of the name and location of tenants and a reasonable number of the
principal officers and employees of tenants as determined by Landlord, and
Landlord reserves the right to exclude any other names therefrom. Any
additional name which a tenant shall desire to place upon said bulletin board
must first be approved by Landlord, and, if so approved, charge will be made
therefor.
9. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the premises or Project without the prior
written consent of Landlord.
10. No tenant shall obtain for use in the premises, ice, drinking water,
food, beverage, towel or other similar services,
2
<PAGE>
except at such reasonable hours and under such reasonable regulations as may be
fixed by Landlord.
11. Each tenant shall see that the doors of its premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before tenant or tenant's employees leave the premises, so as to prevent waste
or damage. On multiple-tenant floors, the tenants shall keep the doors to the
building corridors closed at all times except for ingress and egress.
12. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown therein
and the expense of any breakage, stoppage or damage resulting from the violation
of this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused it.
13. Except with the prior written consent of Landlord, no tenant shall
sell, or permit the sale at retail, of newspapers, magazines, periodicals,
theatre tickets or any other goods or merchandise to the general public in or on
the premises, nor shall any tenant carry on, or permit or allow any employee or
other person to carry on, the business of stenography, typewriting or any
similar business in or from the premises for the service or accommodation of
occupants of any other portion of the Project, nor shall the premises of any
tenant be used for manufacturing of any kind. or any business or activity other
than that specifically provided for in such tenant's lease.
14. No tenant shall install any satellite dish, radio or television
antenna, loudspeaker, or other device on the roof or exterior walls of the
Project.
15. There shall not be used in any space, or in the public halls of the
Project, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material handling equipment as
Landlord may approve. No other vehicles of any kind shall be brought by any
tenant into the building or Project or kept in or about its premises.
16. Each tenant shall store all its trash and garbage within its premises.
No material shall be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage without being in violation
of any law or ordinance governing such disposal. All garbage and refuse
disposal shall be made only through entryways and elevators provided for such
purposes and at such times as Landlord shall designate.
3
<PAGE>
17. Canvassing, peddling, soliciting, and distribution of handbills or
other written materials in the Project are prohibited, and each tenant shall
cooperate to prevent the same.
18. Any service required by any tenant shall be attended to only upon
request made by telephone to Landlord's designated property manager. Employees
and agents of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord.
19. Landlord may waive any one or more of these rules and regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such rules and regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
rules and regulations against any or all of the tenants of the Project.
20. Proper protection of carpeting is required such as plastic carpet
protectors under wheeled chairs.
21. Each tenant shall be responsible for any and all costs, damage, loss
or expense incurred or resulting from such tenant's failure to abide by the
rules and regulations of the Project.
22. These rules and regulations are in addition to, and supplement the
terms of the leases. In the event of any conflict between the terms of these
rules and regulations and the specific terms of a lease, the terms of the lease
shall control.
23. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Project, and for the preservation of good
order therein.
4
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2041
DATE: JANUARY 25, 2000
BENEFICIARY:
SHOREBREEZE ASSOCIATES, L.L.C.
C/O GRUBB & ELLIS MANAGEMENT SERVICES, INC.
255 CALIFORNIA STREET, 14/TH /FLOOR
SAN FRANCISCO, CA 94111
AS "LANDLORD"
APPLICANT:
INVENTA CORPORATION
255 SHORELINE DRIVE, 2/ND/ FLOOR
REDWOOD SHORES, CA 94065
AS "TENANT"
AMOUNT: US$2,800,000.00 (TWO MILLION EIGHT HUNDRED THOUSAND AND NO/100 U.S.
DOLLARS)
EXPIRATION DATE: FEBRUARY 1,2001
LOCATION: AT OUR COUNTERS IN SANTA CLARA, CALIFORNIA
DEAR SIR/MADAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2041 IN
YOUR FAVOR AVAILABLE BY YOUR DRAFTS DRAWN ON US AT SIGHT AND ACCOMPANIED BY THE
FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.
2. A DATED CERTIFICATION SIGNED BY AN AUTHORIZED OFFICER OF THE BENEFICIARY,
FOLLOWED BY ITS DESIGNATED TITLE, STATING THE FOLLOWING:
"THE AMOUNT OF OUR DRAFT IS BEING DRAWN PURSUANT TO AND IN ACCORDANCE WITH
THE TERMS OF THE LEASE AGREEMENT BETWEEN INVENTA CORPORATION ("APPLICANT")
AND SHOREBREEZE ASSOCIATES, L.L.C. ("BENEFICIARY") DATED __________ 2000
("THE LEASE") AS AMENDED (IF APPLICABLE)."
PARTIAL DRAWS ARE ALLOWED. THIS LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS
HEREUNDER FOR ENDORSEMENT OF THE DRAWING AMOUNT AND WILL BE RETURNED TO THE
BENEFICIARY UNLESS IT IS FULLY UTILIZED.
PAGE 1 OF 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2041
DATED: JANUARY 25, 2000
THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD
OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE
BUT IN ANY EVENT NOT BEYOND MAY 3l, 2006, WHICH SHALL BE THE FINAL EXPIRATION
DATE OF THIS LETTER OF CREDIT, UNLESS, AT LEAST NINETY (90) DAYS PRIOR TO THE
THEN CURRENT EXPIRATION DATE WE NOTIFY YOU BY REGISTERED MAIL/OVERNIGHT COURIER
SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED
BEYOND THE CURRENT EXPIRATION DATE. BENEFICIARY'S ADDRESS MAY BE CHANGED BY
BENEFICIARY UPON WRITTEN NOTICE THEREOF TO THE SILICON VALLEY BANK.
THIS LETTER OF CREDIT MAY ONLY BE TRANSFERRED IN ITS ENTIRETY BY THE ISSUING
BANK UPON OUR RECEIPT OF THE ATTACHED EXHIBIT "A" DULY COMPLETED AND EXECUTED BY
THE BENEFICIARY AND ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT AND ALL
AMENDMENT(S), IF ANY, TOGETHER WITH THE PAYMENT OF OUR TRANSFER FEE OF 1/4 OF
1% OF THE TRANSFER AMOUNT (MINIMUM USD250.00).
DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF
CREDIT.
DOCUMENTS MUST BE FORWARDED TO US BY OVERNIGHT DELIVERY SERVICE TO: SILICON
VALLEY BANK. 3003 TASMAN DRIVE, SANTA CLARA CA 95054, ATTN: INTERNATIONAL
DIVISION.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONAFIDE HOLDERS THAT THIS
LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO.
500.
/s/ XXX /s/ XXX
- ---------------------- --------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
PAGE 2 OF 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
EXHIBIT "A"
DATE:
TO: SILICON VALLEY BANK
3003 TASMAN DRIVE RE: STANDBY LETTER OF CREDIT
SANTA CLARA, CA 95054 NO. SVB00IS2041 ISSUED BY
ATTN: INTERNATIONAL DIVISION. SILICON VALLEY BANK, SANTA CLARA
STANDBY LETTERS OF CREDIT L/C AMOUNT:
GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF
CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS
TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF
CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS
AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS,
WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR
HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE
WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO
ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE
TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
SINCERELY,
___________________________
(BENEFICIARY'S NAME)
___________________________
SIGNATURE OF BENEFICIARY
SIGNATURE AUTHENTICATED
___________________________
(NAME OF BANK)
___________________________
AUTHORIZED SIGNATURE
PAGE 1 OF 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2041
DATE: JANUARY 25, 2000
BENEFICIARY:
SHOREBREEZE ASSOCIATES, L.L.C.
C/O GRUBB & ELLIS MANAGEMENT SERVICES, INC.
255 CALIFORNIA STREET, 14/TH /FLOOR
SAN FRANCISCO, CA 94111
AS "LANDLORD"
APPLICANT:
INVENTA CORPORATION
255 SHORELINE DRIVE, 2/ND/ FLOOR
REDWOOD SHORES, CA 94065
AS "TENANT"
AMOUNT: US$2,800,000.00 (TWO MILLION EIGHT HUNDRED THOUSAND AND NO/100 U.S.
DOLLARS)
EXPIRATION DATE: FEBRUARY 1, 2001
LOCATION: AT OUR COUNTERS IN SANTA CLARA, CALIFORNIA
DEAR SIR/MADAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2041 IN
YOUR FAVOR AVAILABLE BY YOUR DRAFTS DRAWN ON US AT SIGHT AND ACCOMPANIED BY THE
FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.
2. A DATED CERTIFICATION SIGNED BY AN AUTHORIZED OFFICER OF THE BENEFICIARY,
FOLLOWED BY ITS DESIGNATED TITLE, STATING THE FOLLOWING:
"THE AMOUNT OF OUR DRAFT IS BEING DRAWN PURSUANT TO AND IN ACCORDANCE WITH
THE TERMS OF THE LEASE AGREEMENT BETWEEN INVENTA CORPORATION ("APPLICANT")
AND SHOREBREEZE ASSOCIATES, L.L.C. ("BENEFICIARY") DATED ___________ 2000
("THE LEASE") AS AMENDED (IF APPLICABLE)."
PARTIAL DRAWS ARE ALLOWED. THIS LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS
HEREUNDER FOR ENDORSEMENT OF THE DRAWING AMOUNT AND WILL BE RETURNED TO THE
BENEFICIARY UNLESS IT IS FULLY UTILIZED.
PAGE 2 OF 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2041
DATED: JANUARY 25, 2000
THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD
OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE
BUT IN ANY EVENT NOT BEYOND MAY 3l, 2006, WHICH SHALL BE THE FINAL EXPIRATION
DATE OF THIS LETTER OF CREDIT, UNLESS, AT LEAST NINETY (90) DAYS PRIOR TO THE
THEN CURRENT EXPIRATION DATE WE NOTIFY YOU BY REGISTERED MAIL/OVERNIGHT COURIER
SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED
BEYOND THE CURRENT EXPIRATION DATE. BENEFICIARY'S ADDRESS MAY BE CHANGED BY
BENEFICIARY UPON WRITTEN NOTICE THEREOF TO THE SILICON VALLEY BANK.
THIS LETTER OF CREDIT MAY ONLY BE TRANSFERRED IN ITS ENTIRETY BY THE ISSUING
BANK UPON OUR RECEIPT OF THE ATTACHED EXHIBIT "A" DULY COMPLETED AND EXECUTED BY
THE BENEFICIARY AND ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT AND ALL
AMENDMENT(S), IF ANY, TOGETHER WITH THE PAYMENT OF OUR TRANSFER FEE OF 1/4 OF
1% OF THE TRANSFER AMOUNT (MINIMUM USD250.00).
DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF
CREDIT.
DOCUMENTS MUST BE FORWARDED TO US BY OVERNIGHT DELIVERY SERVICE TO: SILICON
VALLEY BANK. 3003 TASMAN DRIVE, SANTA CLARA CA 95054, ATTN: INTERNATIONAL
DIVISION.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONAFIDE HOLDERS THAT THIS
LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO.
500.
/s/ XXX /s/ XXX
- ----------------------- -----------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
PAGE 3 OF 2
<PAGE>
[LETTERHEAD OF SILICON VALLEY BANK]
International Division
EXHIBIT "A"
DATE:
TO: SILICON VALLEY BANK
3003 TASMAN DRIVE RE: STANDBY LETTER OF CREDIT
SANTA CLARA, CA 95054 NO. SVB00IS2041 ISSUED BY
ATTN: INTERNATIONAL DIVISION. SILICON VALLEY BANK, SANTA CLARA
STANDBY LETTERS OF CREDIT L/C AMOUNT:
GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF
CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS
TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF
CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS
AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS,
WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR
HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE
WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO
ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE
TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
SINCERELY,
____________________________
(BENEFICIARY'S NAME)
____________________________
SIGNATURE OF BENEFICIARY
SIGNATURE AUTHENTICATED
____________________________
(NAME OF BANK)
____________________________
AUTHORIZED SIGNATURE
PAGE 1 OF 2
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 to Registration
Statement (No. 333-95813) on Form S-1 of our reports dated February 11, 2000
relating to the consolidated financial statements and Financial Statement
Schedules for Inventa Corporation, and February 11, 2000 relating to the
financial statements of XTEND-Tech, Inc. which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INVENTA
CORPORATION BALANCE SHEETS AT DECEMBER 31, 1999 AND STATEMENT OF OPERATIONS FOR
YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
*Identify the financial statement(s) to be reference in the legend:
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,244
<SECURITIES> 0
<RECEIVABLES> 2,187
<ALLOWANCES> 174
<INVENTORY> 0
<CURRENT-ASSETS> 6,932
<PP&E> 3,068
<DEPRECIATION> 1,066
<TOTAL-ASSETS> 9,222
<CURRENT-LIABILITIES> 8,774
<BONDS> 0
18,132
1
<COMMON> 5
<OTHER-SE> (18,144)
<TOTAL-LIABILITY-AND-EQUITY> 9,222
<SALES> 13,520
<TOTAL-REVENUES> 13,520
<CGS> 0
<TOTAL-COSTS> 24,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> (10,911)
<INCOME-TAX> 15
<INCOME-CONTINUING> (10,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,926)
<EPS-BASIC> 3.36
<EPS-DILUTED> 3.36
</TABLE>
