<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2000
REGISTRATION NO. 333-30648
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOFTWARE TECHNOLOGIES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 95-4249153
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
404 EAST HUNTINGTON DRIVE
MONROVIA, CALIFORNIA 91016
(626) 471-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES T. DEMETRIADES
CHIEF EXECUTIVE OFFICER
SOFTWARE TECHNOLOGIES CORPORATION
404 EAST HUNTINGTON DRIVE
MONROVIA, CALIFORNIA 91016
(626) 471-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY D. SAPER, ESQ. SUZANNE SAWOCHKA HOOPER, ESQ.
J. ROBERT SUFFOLETTA, ESQ. COOLEY GODWARD LLP
WILSON SONSINI GOODRICH & ROSATI 5 PALO ALTO SQUARE
PROFESSIONAL CORPORATION 3000 EL CAMINO REAL
650 PAGE MILL ROAD PALO ALTO, CA 94306
PALO ALTO, CA 94304 (650) 843-5000
(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 of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value......... 7,015,000 Shares $18.00 $126,270,000 $33,336
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</TABLE>
(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933.
(3) Includes $26,400 previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 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> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS (Subject to Completion)
Issued March 24, 2000
6,100,000 Shares
[STC Logo]
COMMON STOCK
-------------------------
STC IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING
AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $16 AND $18 PER SHARE.
-------------------------
WE HAVE FILED AN APPLICATION FOR OUR COMMON STOCK TO BE QUOTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "STCS."
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
-------------------------
PRICE $ A SHARE
-------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS STC
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................................... $ $ $
Total....................................................... $ $ $
</TABLE>
STC has granted the underwriters the right to purchase up to an additional
915,000 shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
-------------------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
, 2000
<PAGE> 3
[Inside Front Cover Artwork]
Graphical representation of STC's e*Xchange product connecting various
e-business systems on a global basis, together with a picture of a computer
screen illustrating use of the e*Gate product. The graphic also includes the
following text: The STC Solution: The e*Xchange eBusiness Integration Suite
Connects e-Business Systems
o Optimizes business processes
o Globally deployed; centrally managed
o Fully graphical-minimal programming
o Proven customer success
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Special Note Regarding
Forward-Looking Statements........ 15
Use of Proceeds..................... 16
Concurrent Sale of Stock to EDS..... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Consolidated Financial
Data.............................. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 20
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................ 30
Management.......................... 43
Related Party Transactions.......... 53
Principal Shareholders.............. 54
Description of Capital Stock........ 56
Shares Eligible for Future Sale..... 59
Underwriters........................ 61
Legal Matters....................... 63
Experts............................. 63
Where You Can Find More
Information....................... 63
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of the common stock.
Until 2000, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to unsold allotments or
subscriptions.
2
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and accompanying notes
appearing elsewhere in this prospectus.
We are a leading provider of electronic business, or e-Business,
integration software that enables the seamless flow of information within and
among enterprises on a global basis. e*Xchange, our comprehensive software
suite, provides companies with a flexible and easily configurable platform to
connect applications and systems not only within an organization but also across
geographically dispersed enterprises. We believe that we offer the only
end-to-end e-Business integration solution encompassing intra-enterprise, or
application-to-application, integration and inter-enterprise, or
business-to-business, integration, as well business process management
capabilities. Our e*Xchange product suite includes our core technology engine,
e*Gate, together with a combination of specialized product offerings that meet
specific integration needs. e*Xchange builds upon more than nine years of our
dedication to the continuous development of application and systems integration
solutions within and among enterprises.
e*Xchange enables our customers to connect applications, databases or
systems, deploy and manage trading partner paradigms, including direct
business-to-business, or B2B, and trading exchanges, and manage and optimize
business processes that occur within and beyond an enterprise. Our solution
provides customers with the flexibility to implement and adapt their business
strategies in response to market dynamics and pursue new business initiatives to
enhance revenue, profit and customer service. e*Xchange's distributed
architecture is designed to scale throughout an organization's network of
customers, partners and suppliers and meet the performance requirements of
global e-Business. Our comprehensive graphically-based solution reduces or
eliminates the need for custom programming and is designed for easy deployment,
enabling rapid time-to-market for e-Business initiatives. e*Xchange can also
lower operational costs for customers by streamlining business processes as well
as by reducing information technology investments and costs.
To promote additional market penetration of our products, we have
established strategic alliances with three of the largest independent systems
integrators, Andersen Consulting, Computer Sciences Corporation, or CSC, and
Electronic Data Systems Corporation, or EDS. The alliances provide for joint
development and marketing of vertical market offerings and generation of license
revenues for STC. We have incentivized each of these partners by issuing them
warrants to purchase shares of our common stock, with the vesting of the shares
conditioned upon achievement of agreed upon milestones, which include the
generation of qualified customer introductions or revenues for STC. In addition,
Andersen Consulting has an equity interest in STC, and EDS has agreed to buy
shares of our common stock concurrently with our initial public offering at the
public offering price.
We license our products and sell our services primarily through our direct
sales force, complemented by the selling and support efforts of our systems
integrators and resellers. We have 12 international sales and support offices.
As of December 31, 1999, we had licensed our products to over 1,200 customers
globally in a variety of industries, including financial services/insurance,
healthcare, manufacturing, retail/e-Commerce/services and
telecommunications/utilities. Our customers include Amdahl, ABN Amro, Barnes &
Noble.com, Bausch and Lomb, Denticare of California, Fluor, Hewlett-Packard,
J.P. Morgan, Nike, Northern Trust, PETsMART, UBS AG and WestLB Bank.
We were incorporated as STDC Corporation in the state of California in
December 1989 and changed our name to Software Technologies Corporation in June
1992. Our principal executive offices are located at 404 East Huntington Drive,
Monrovia, California 91016, and our telephone number at this address is (626)
471-6000. Our World Wide Web address is www.stc.com. The information on our Web
site is not incorporated by reference into this prospectus. Our registered
trademarks include e*Gate, DataGate and the STC logo. This prospectus also
includes other trade names, trademarks and service marks of ours and of other
companies and organizations.
3
<PAGE> 6
THE OFFERING
Common stock offered.................. 6,100,000 shares
Common stock to be outstanding after
this offering......................... 68,064,745 shares
Use of proceeds....................... For repayment of debt and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol................................ STCS
The foregoing information is based on the number of shares outstanding as
of January 31, 2000 and excludes:
- 2,662,500 shares of common stock issuable upon exercise of outstanding
warrants as of January 31, 2000 at a weighted average exercise price of
$5.59 per share;
- 21,375,903 shares of common stock reserved for issuance under our stock
option plans, of which 12,232,314 shares at a weighted average exercise
price of $2.02 per share were subject to outstanding options as of
January 31, 2000; and
- 2,250,000 shares of common stock reserved for issuance under our employee
stock purchase plan.
In addition, except as otherwise noted, all information in this prospectus
assumes:
- the conversion of all outstanding preferred stock into 13,972,162 shares
of common stock upon the closing of this offering;
- the issuance and sale of 1,200,000 shares of common stock to EDS
concurrently with the closing of this offering; and
- the underwriters' over-allotment option is not exercised.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The pro forma basic and diluted share calculation below reflects the
conversion upon the closing of this offering of all outstanding shares of
preferred stock into 13,972,162 shares of common stock as if the conversion
occurred at the date of original issuance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
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<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $ 26,699 $ 37,461 $ 55,171
Gross profit........................................... 17,177 22,739 29,990
Income (loss) from operations.......................... 779 (11,259) (25,350)
Net income (loss)...................................... 506 (11,243) (25,865)
Basic and diluted net income (loss) per share available
to common shareholders............................... $ .01 $ (.27) $ (.62)
Weighted average shares used in computation of basic
and diluted net income (loss) per share available to
common shareholders.................................. 42,801 43,748 45,954
Pro forma basic and diluted net loss per share......... $ (.44)
Pro forma basic and diluted weighted average shares.... 58,470
</TABLE>
The pro forma column below gives effect to the automatic conversion of our
redeemable convertible preferred stock into common stock upon the closing of
this offering. The pro forma as adjusted column below gives effect to the sale
of the 6,100,000 shares of common stock in this offering at an assumed public
offering price of $17.00 per share, less the estimated underwriting discounts
and commissions and estimated offering expenses, the sale of 1,200,000 shares of
common stock to EDS in a concurrent private placement at the assumed initial
public offering price and the repayment of outstanding debt from the proceeds of
this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,572 $ 1,572 $106,650
Working capital (deficit)............................ (1,917) (1,917) 103,161
Total assets......................................... 29,852 29,852 134,930
Deferred revenue..................................... 10,354 10,354 10,354
Long-term liabilities................................ 10,000 10,000 --
Redeemable convertible preferred stock............... 24,681 -- --
Total shareholders' equity (deficit)................. (28,421) (3,740) 111,338
</TABLE>
5
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
adversely affected by any of these risks. The trading price of our common stock
could decline due to any of these risks, and you may lose all or part of your
investment.
RISKS RELATED TO STC
WE HAVE A LARGE ACCUMULATED DEFICIT, WE EXPECT FUTURE LOSSES AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
We incurred substantial losses in 1998 and 1999 as we increased funding of
the development of our products and technologies and expanded our sales and
marketing organization. As of December 31, 1999, we had an accumulated deficit
of $42.3 million. We intend to continue to invest heavily in sales and marketing
and research and development. As a result, we expect to incur losses in 2000 and
2001, and we will need to significantly increase our quarterly revenues to
achieve profitability. We cannot predict when we will operate profitably, if at
all.
WE EXPERIENCE LONG AND VARIABLE SALES CYCLES, WHICH COULD HAVE A NEGATIVE
IMPACT ON OUR RESULTS OF OPERATIONS FOR ANY GIVEN QUARTER.
Our products are often used by our customers throughout their organizations
to address critical business problems. Customers generally consider a wide range
of issues before committing to purchase our products, including product
benefits, the ability to operate with existing and future computer systems, the
ability to accommodate increased transaction volumes and product reliability.
Many customers are addressing these issues for the first time when they consider
whether to buy our products and services. As a result, we or other parties,
including systems integrators, must educate potential customers on the use and
benefits of our products and services. In addition, the purchase of our products
generally involves a significant commitment of capital and other resources by a
customer. This commitment often requires significant technical review,
assessment of competitive products and approval at a number of management levels
within a customer's organization. Our sales cycle may vary based on the industry
in which the potential customer operates and is difficult to predict for any
particular license transaction. The length and variability of our sales cycle
makes it difficult to predict whether particular sales will be concluded in any
given quarter. If one or more of our license transactions are not consummated in
a given quarter, our results of operations for that quarter may be below our
expectations and the expectations of analysts and investors.
OUR OPERATING RESULTS ARE HIGHLY DEPENDENT ON LICENSE REVENUES FROM ONE
SOFTWARE SUITE, AND OUR BUSINESS COULD BE MATERIALLY HARMED BY FACTORS THAT
ADVERSELY AFFECT THE PRICING AND DEMAND FOR THIS SOFTWARE SUITE.
Substantially all of our license revenues have been, and are expected to
continue to be, derived from the license of our e*Xchange software suite.
Accordingly, our future operating results will depend on the demand for
e*Xchange by future customers, including new and enhanced releases that are
subsequently introduced. Our core technology engine, e*Gate version 4.0, was
completed in September 1999 and commercially launched in November 1999. If our
competitors release new products that are superior to e*Xchange in performance
or price, or if we fail to enhance e*Xchange and introduce new products in a
timely manner, demand for our products may decline, and we may have to reduce
the pricing of our products. A decline in demand or pricing for e*Xchange as a
result of these or other factors would significantly reduce our revenues.
6
<PAGE> 9
In the past, we have experienced delays in the commencement of commercial
releases of our e*Xchange software suite. To date, these delays have not had a
material impact on our revenues. In the future, we may fail to introduce or
deliver new products on a timely basis. If new releases or products are delayed
or do not achieve market acceptance, we could experience customer
dissatisfaction or a delay or loss of revenues. For example, the introduction of
new enterprise and business applications requires us to introduce new e*Ways
adapters to support the integration of these applications. Our failure to
introduce these or other modules in a timely manner could cause our revenues and
market share to decline. In addition, customers may delay purchases of our
products in anticipation of future releases. If customers defer material orders
in anticipation of new releases or new product introductions, our revenues may
decline.
Moreover, as we release enhanced versions of our products, we may not be
successful in upgrading our customers who purchased previous versions of
e*Xchange to the current version. We also may not be successful in selling
add-on modules for our products to existing customers. Any failure to continue
to upgrade existing customers' products or sell new modules, if and when they
are introduced, could negatively impact customer satisfaction and our revenues.
WE MUST CONTINUE TO SUCCESSFULLY SELL OUR PRODUCTS TO COMMERCIAL CUSTOMERS
OUTSIDE OF THE HEALTHCARE INDUSTRY OR OUR REVENUES MAY DECLINE.
Since 1998, we have invested a significant amount of our sales and
marketing resources to target various commercial markets outside of the
healthcare industry, particularly for business-to-business integration. As a
result, license revenues from customers in the healthcare industry accounted for
approximately 32% of total license revenues in 1999, down from approximately 65%
of total license revenues in 1998. We expect that license revenues for
non-healthcare customers will continue to increase as a percentage of license
revenues as a result of this continued investment. A license to a commercial
customer is expected to involve a longer sales cycle and higher revenues
compared to a license to a healthcare customer. We must continue to increase the
size of our direct sales force to implement our strategy of increased sales to
commercial customers. In addition, because the healthcare industry, which has
historically represented our largest customer base, has generally not required
business-to-business capabilities, e*Xchange has been deployed to a greater
extent in intra-enterprise environments than in business-to-business
environments. We cannot assure you that e*Xchange will be commercially
successful for business-to-business environments, and we expect to devote
significant resources to the continued development, support, sales and marketing
of e*Xchange for these environments. If we fail to increase our sales force or
to penetrate additional commercial accounts in a meaningful way, our operating
results will suffer.
The revenue potential from the healthcare market and the various commercial
markets may fluctuate due to industry-specific conditions. For example, in 1999
the healthcare market reduced spending on IT systems because of a downturn in
the healthcare industry. Given our limited market penetration and experience in
other commercial markets, such as financial services, telecommunications and
manufacturing, and the high degree of competition and the rapidly changing
environment in these industries, we cannot assure you that we will be able to
expand sales with respect to these markets. If we fail to successfully penetrate
commercial accounts in these markets, we may experience decreased sales in
future periods. Moreover, if we penetrate additional markets, our results of
operations may fluctuate with the economic conditions in those markets.
7
<PAGE> 10
OUR REVENUES WILL LIKELY DECLINE IF WE DO NOT DEVELOP AND MAINTAIN
SUCCESSFUL RELATIONSHIPS WITH OUR SYSTEMS INTEGRATION PARTNERS, AND THESE
SYSTEMS INTEGRATORS ALSO HAVE RELATIONSHIPS WITH OUR COMPETITORS.
We recently entered into agreements with Andersen Consulting, CSC and EDS
for them to install and deploy our products and perform custom integration of
systems and applications. These systems integrators will also engage in joint
marketing and sales efforts with us. If these relationships fail, we will have
to devote substantially more resources to the sales and marketing, and
implementation and support of our products than we would otherwise, and our
efforts may not be as effective as those of the systems integrators. In many
cases, these parties have extensive relationships with our existing and
potential customers and influence the decisions of these customers. We rely upon
these firms to recommend our products during the evaluation stage of the
purchasing process, as well as for implementation and customer support services.
These systems integrators are not contractually required to implement our
products, and competition for these resources may preclude us from obtaining
sufficient resources to provide the necessary implementation services to support
our needs. If the number of installations of our products exceeds our access to
the resources provided by these systems integrators, we will be required to
provide these services internally, which would increase our expenses and
significantly limit our ability to meet our customers' implementation needs. A
number of our competitors have stronger relationships with some of these systems
integrators and, as a result, these systems integrators might be more likely to
recommend competitors' products and services instead of ours. In addition, a
number of our competitors have relationships with a greater number of these
systems integrators or have stronger systems integrator relationships based on
specific vertical markets and, therefore, have access to a broader base of
customers.
Our failure to establish or maintain systems integrator relationships would
significantly harm our ability to license and successfully implement our
software products. In addition, we rely on the industry expertise and customer
contacts of these firms in order to market our products more effectively.
Therefore, any failure of these relationships would also harm our ability to
increase revenues in key commercial markets. We are currently investing, and
plan to continue to invest, significant resources to develop these
relationships. Our operating results could be adversely affected if these
efforts do not generate license and service revenues necessary to offset this
investment.
OUR MARKETS ARE HIGHLY COMPETITIVE AND, IF WE DO NOT COMPETE EFFECTIVELY,
WE MAY SUFFER PRICE REDUCTIONS, REDUCED GROSS MARGINS AND LOSS OF MARKET
SHARE.
The market for our products is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition to
increase in the future. As a result of increased competition, we may have to
reduce the price of our products and services, and we may experience reduced
gross margins and loss of market share, any one of which could significantly
reduce our future revenues and operating results. Our current competitors
include vendors offering enterprise application integration, or EAI, and
traditional electronic data interchange, or EDI, software products, as well as
"in house" information technology departments of potential customers that have
developed or may develop systems that provide some or all of the functionality
of our e*Xchange product suite. We may also encounter competition from major
enterprise software developers in the future.
Many of our existing and potential competitors have more resources, broader
customer relationships and better-established brands than we do. In addition,
many of these competitors have extensive knowledge of our industry. Some of our
competitors have established or may establish cooperative relationships among
themselves or with third parties to offer a single solution and increase the
ability of their products to address customer needs.
8
<PAGE> 11
OUR GROWTH CONTINUES TO PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT
SYSTEMS AND RESOURCES. IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO
MARKET AND SELL OUR PRODUCTS AND DEVELOP NEW PRODUCTS MAY BE HARMED.
We must plan and manage our growth effectively in order to offer our
products and services and achieve revenue growth and profitability in a rapidly
evolving market. We continue to increase the scope of our operations
domestically and internationally and have recently added a number of employees.
Our growth has and will continue to place a significant strain on our management
systems and resources, and we may not be able to effectively manage our growth
in the future.
Furthermore, if our relationships with systems integrators succeed and we
are able to penetrate additional commercial markets, we will need additional
sales and marketing and professional services resources to support these
customers. The growth of our customer base will require us to invest significant
resources in the training and development of our employees and our systems
integration partners. If these organizations fail to keep pace with the number
and demands of the customers that license our products, our ability to market
and sell our products and services and our ability to develop new products and
services will be harmed. For us to effectively manage our growth, we must
continue to:
- expand our direct sales force;
- expand our professional services organization;
- hire and retain qualified software engineers;
- improve our operational, financial and management controls;
- improve our reporting systems and procedures;
- enhance our management and information control systems; and
- expand, train and motivate our workforce.
In addition, in September 1999, we opened an office in Redwood Shores,
California, where our sales and marketing organization is located. This move
will result in higher expenses and will require us to coordinate these
activities with our other operations in Monrovia, California.
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, AND AN UNANTICIPATED DECLINE
IN REVENUES OR GROSS MARGIN MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS
AND RESULT IN A DECLINE IN OUR STOCK PRICE.
Our quarterly operating results have fluctuated significantly in the past
and may vary significantly in the future. We believe that period-to-period
comparisons of our historical results of operations are not a good predictor of
our future performance.
Our revenues and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, a
substantial portion of revenues in a given quarter has been recorded in the
final month of that quarter, with a concentration of these revenues in the last
two weeks of the final month. We expect this trend to continue and, therefore,
any failure or delay in the closing of orders would have a material adverse
effect on our quarterly operating results. Since our operating expenses are
based on anticipated revenues and because a high percentage of these expenses
are relatively fixed, a delay in the recognition of revenues from one or more
license transactions could cause significant variations in operating results
from quarter to quarter and cause a decline in our stock price. We realize
substantially higher gross margins on our license revenues compared to our
services and maintenance revenues. Thus, our margins for any particular quarter
will be highly dependent on our revenues mix in that quarter. In our
international markets, we have experienced some seasonality of revenues, with
lower revenues in the summer months. Although this seasonality has not had a
material impact on our operating results in the past, we cannot assure you that
our operating results will not fluctuate in the future as a result of these and
other international trends.
9
<PAGE> 12
We record as deferred revenue payments from customers that do not meet our
revenue recognition policy requirements. Since only a small portion of our
revenues each quarter is recognized from deferred revenue, our quarterly results
depend primarily upon entering into new contracts to generate revenues for that
quarter. New contracts may not result in revenues in the quarter in which the
contract was signed, and we may not be able to predict accurately when revenues
from these contracts will be recognized. If our operating results are below the
expectations of securities analysts or investors for these or other reasons, our
stock price would likely decline, perhaps substantially.
IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR ABILITY TO
COMPETE WILL BE HARMED.
We depend on the continued service of our key technical, sales and senior
management personnel, including our founder and Chief Executive Officer, James
T. Demetriades. None of these persons is bound by an employment agreement, and
we do not maintain key person life insurance on any of these persons. The loss
of any of our senior management or other key research and development or sales
and marketing personnel could adversely affect our future operating results. We
are currently seeking to hire a senior executive to oversee our European
operations. In addition, we must attract, retain and motivate highly skilled
employees, including sales personnel and software engineers. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure you that we will be able to
recruit and retain sufficient numbers of these highly skilled employees. If we
fail to do so, our ability to compete will be significantly harmed.
OUR SUBSTANTIAL AND EXPANDING INTERNATIONAL OPERATIONS ARE SUBJECT TO
UNCERTAINTIES WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Revenues from the sale of our products and services outside the United
States accounted for 14.9% of our total revenues in 1997, 20.3% of our total
revenues in 1998 and 27.1% of our total revenues in 1999. Revenues from the sale
of our products and services in the United Kingdom as a percent of total
revenues were 8.9% in 1997, 9.9% in 1998 and 9.7% in 1999, while revenues from
the sale of our products and services in Germany as a percent of total revenues
were 2.7% in 1997, 5.6% in 1998 and 10.6% in 1999. We believe that revenues from
sales outside the United States will continue to account for a material portion
of our total revenues for the foreseeable future. We are exposed to several
risks inherent in conducting business internationally, such as:
- fluctuations in currency exchange rates, which could result in increased
expenses;
- unexpected changes in regulatory requirements, including imposition of
currency exchange controls, applicable to our business or to the
Internet, which could result in increased costs of doing business
overseas;
- difficulties and costs of staffing and managing international operations;
- political and economic instability, which could result in increasing
governmental ownership or regulation of businesses or other
instrumentalities of commerce, wage and price controls, higher interest
rates and spiraling inflation; and
- reduced protection for intellectual property rights in some countries.
Any of these factors could adversely affect our international operations
and, consequently, our operating results.
10
<PAGE> 13
WE COULD SUFFER LOSSES AND NEGATIVE PUBLICITY IF NEW VERSIONS OR RELEASES
OF OUR PRODUCTS CONTAIN ERRORS OR DEFECTS.
Our products and their interactions with customers' software applications
and IT systems are complex and, accordingly, there may be undetected errors or
failures when products are introduced or as new versions are released. In the
past we have discovered software errors in our new releases and new products
after their introduction, which has resulted in additional research and
development expenses. To date, these additional expenses have not been material.
These errors have resulted in product release delays, delayed revenues and
customer dissatisfaction. In the future we may discover errors, including
performance limitations, in new releases or new products after the commencement
of commercial shipments. Since many customers are using our products for
mission-critical business operations, any of these occurrences could seriously
harm our business and generate negative publicity, which could have a negative
impact on future sales. Although we maintain product liability and errors and
omissions insurance, we cannot assure you that these policies will be sufficient
to compensate for losses caused by any of these occurrences.
IF OUR PRODUCTS DO NOT OPERATE WITH THE MANY HARDWARE AND SOFTWARE
PLATFORMS USED BY OUR CUSTOMERS AND KEEP PACE WITH TECHNOLOGICAL CHANGE,
OUR BUSINESS MAY FAIL.
We currently serve a customer base with a wide variety of constantly
changing hardware, software applications and networking platforms. If our
products fail to gain broad market acceptance due to an inability to support a
variety of these platforms, our operating results may suffer. Our business
depends on a number of factors, including the following:
- our ability to integrate our products with multiple platforms and
existing, or legacy, systems and to modify our products as new versions
of software applications are introduced;
- the portability of our products, particularly the number of operating
systems and databases that our products can source or target;
- our ability to anticipate and support new standards, especially Internet
standards;
- the integration of additional software modules under development with our
existing products; and
- our management of software being developed by third parties for our
customers for use with our products.
Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. We have also found that the technological life
cycles of our products are difficult to estimate. We believe that we must
continue to enhance our current products and concurrently develop and introduce
new products that anticipate emerging technology standards and keep pace with
competitive and technological developments. Failure to do so will harm our
ability to compete. As a result, we are required to continue to make substantial
product development investments.
RISKS RELATED TO OUR INDUSTRY
THE MARKET FOR E-BUSINESS INTEGRATION SOFTWARE MAY NOT GROW AS QUICKLY AS
WE ANTICIPATE, WHICH WOULD CAUSE OUR REVENUES TO FALL BELOW EXPECTATIONS.
The market for e-Business integration software is rapidly evolving. We earn
substantially all of our license revenues from sales of our e*Xchange software
suite. We expect to earn substantially all of our revenues in the foreseeable
future from sales of e*Xchange and related products and services. Our future
financial performance will depend on continued growth in the number of
organizations demanding software and services for application integration and
e-Business solutions and seeking outside vendors to develop, manage and maintain
this software for their critical applications. Many of our potential
11
<PAGE> 14
customers have made significant investments in internally developed systems and
would incur significant costs in switching to third-party products, which may
substantially inhibit the growth of the market for e-Business integration
software. If this market fails to grow, or grows more slowly than we expect, our
revenues will be adversely affected.
IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WE MAY LOSE THESE
RIGHTS AND OUR BUSINESS MAY BE SERIOUSLY HARMED.
We depend upon our ability to develop and protect our proprietary
technology and intellectual property rights to distinguish our product from our
competitors' products. The use by others of our proprietary rights could
materially harm our business. We rely on a combination of copyright, trademark
and trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect our proprietary rights. We have no issued
patents. Despite our efforts to protect our proprietary rights, existing laws
afford only limited protection. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, we cannot be certain that we will be able to protect
our proprietary rights against unauthorized third-party copying or use.
Furthermore, policing the unauthorized use of our products is difficult, and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
OUR PRODUCTS COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
CAUSING COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.
Third parties may claim that we have infringed their current or future
intellectual property rights. We expect that software developers in our market
will increasingly be subject to infringement claims as the number of products in
different software industry segments overlap. Any claims, with or without merit,
could be time-consuming, result in costly litigation, prevent product shipment
or cause delays, or require us to enter into royalty or licensing agreements,
any of which could harm our business. Patent litigation in particular has
complex technical issues and inherent uncertainties. In the event an
infringement claim against us is successful and we cannot obtain a license on
acceptable terms, license a substitute technology or redesign our products to
avoid infringement, our business would be harmed. Furthermore, former employers
of our current and future employees may assert that our employees have
improperly disclosed to us or are using their confidential or proprietary
information.
RISKS RELATED TO THIS OFFERING
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
agreements that substantially all of our shareholders have entered into with the
underwriters and with us. The lockup agreements restrict those shareholders from
selling, pledging or otherwise disposing of their shares for a period of 180
days after the date of this prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. However, Morgan Stanley & Co. Incorporated
may, in its sole discretion, release all or any portion of the common stock from
the restrictions of the lockup agreements. The following table indicates
approximately when the 61,964,745 shares of our common stock that are
12
<PAGE> 15
not being sold in the offering but which were outstanding as of January 31,
2000, after giving effect to the concurrent private placement to EDS, will be
eligible for sale into the public market:
<TABLE>
<CAPTION>
FIRST ELIGIBLE FOR SALE NUMBER
----------------------- ------------
<S> <C>
On the date of this prospectus............................ 1.1 million
180 days after the date of this prospectus................ 53.9 million
At various times thereafter............................... 7.0 million
</TABLE>
Additional shares will be eligible for sale upon the exercise of
outstanding options or warrants to purchase our common stock, including warrants
to purchase an aggregate of up to 3,600,000 additional shares of our common
stock held by Andersen Consulting, CSC and EDS. Issuance of additional shares
upon exercise of options and warrants could result in a dilution to our
shareholders and a decline in the market price of our common stock. For a
further description of the eligibility of shares for sale into the public market
following the offering, see "Shares Eligible for Future Sale."
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE
OUR ABILITY TO COMPETE AND RESULT IN LOWER REVENUES.
We expect that the net proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next 12
months. After that, we may need to raise additional funds, and we cannot be
certain that we will be able to obtain additional debt or equity financing on
favorable terms, or at all. If we raise additional equity financing, our
shareholders may experience significant dilution of their ownership interests
and the per share value of our common stock could decline. If we engage in debt
financing, we may be required to accept terms that restrict our ability to incur
additional indebtedness and that force us to maintain specified liquidity or
other ratios, any of which could harm our business. If we need additional
capital and cannot raise it on acceptable terms, we may not be able to, among
other things:
- develop or enhance our products and services;
- continue to expand our sales and marketing organizations;
- acquire complementary technologies, products or businesses;
- expand operations, in the United States or internationally;
- hire, train and retain employees; or
- respond to competitive pressures or unanticipated working capital
requirements.
Our failure to do any of these things could result in lower revenues and could
seriously harm our business.
OUR STOCK PRICE MAY BE VOLATILE BECAUSE OUR SHARES HAVE NOT BEEN PUBLICLY
TRADED BEFORE, AND YOU MAY LOSE ALL OR A PART OF YOUR INVESTMENT.
Prior to this offering, you could not buy or sell our common stock in the
public market. The price of the common stock that will prevail in the market
after this offering may be higher or lower than the price you pay. An active
public market for our common stock may not develop or be sustained after the
offering, and therefore, we cannot predict how liquid this market will become.
We will negotiate and determine the initial public offering price with the
representatives of the underwriters, and this price may not be indicative of
prices that will prevail in the trading market.
13
<PAGE> 16
As a result, you may be unable to sell your shares of common stock at or
above the offering price, and you may lose all or a part of your investment. The
market price of the common stock may fluctuate significantly in response to the
following factors, most of which are beyond our control, including:
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major customer or failure to complete significant license
transactions;
- additions or departures of key personnel; and
- fluctuations in stock market price and volume, which are particularly
common among securities of software and Internet-oriented companies.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS
OF THIS OFFERING AND MAY FAIL TO USE THESE FUNDS EFFECTIVELY.
Our management will have broad discretion with respect to the use of the
net proceeds from this offering, and investors will be relying on the judgment
of our management regarding the application of these proceeds. Currently,
anticipated uses include the repayment of debt, general corporate purposes and
working capital, as well as expansion of our sales and marketing efforts.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS
AND PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING
SIGNIFICANT CORPORATE DECISIONS.
Upon completion of this offering, our chief executive officer, James T.
Demetriades, will beneficially own approximately 44.4% of our outstanding common
stock. Mr. Demetriades, together with our other executive officers, directors
and principal shareholders will beneficially own, in the aggregate,
approximately 70.7% of our outstanding common stock. As a result, these
shareholders will be able to exercise control over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. This could have the effect of delaying or
preventing a change of control of STC and will make some transactions difficult
or impossible without the support of these shareholders. See "Principal
Shareholders."
WE MAY BE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
This risk is especially acute for us because technology companies have
experienced greater than average stock price volatility in recent years and, as
a result, have been subject to, on average, a greater number of securities class
action claims than companies in other industries. In the future, we may be the
target of similar litigation. Securities litigation could result in substantial
costs and divert our management's attention and resources, and could seriously
harm our business.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD DISCOURAGE OR
PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS.
Some provisions of California law and our articles of incorporation and
bylaws could have the effect of delaying or preventing a third party from
acquiring us, even if a change in control would be beneficial to our
shareholders. For example, our articles of incorporation provide for a
classified board of directors
14
<PAGE> 17
whose members serve staggered three-year terms and do not provide for cumulative
voting in the election of directors. Our board of directors has the authority,
without further action by our shareholders, to fix the rights and preferences of
and issue shares of preferred stock. In addition, our shareholders are unable to
act by written consent. These and other provisions could make it more difficult
for a third party to acquire us, even if doing so would benefit our
shareholders. See "Description of Capital Stock" for additional information.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $15.36 in net tangible
book value per share of common stock, based on an assumed initial public
offering price of $17.00 per share. Our existing shareholders paid an average
price of $.56 per share, or an aggregate of $33.8 million, for their
approximately 60.5 million shares held as of December 31, 1999. Based upon an
assumed public offering price of $17.00 per share, the value of the shares held
by our existing shareholders will increase by an aggregate of $994.7 million, or
$16.44 per share. In addition, the number of shares available for issuance under
our stock option and employee stock purchase plans will automatically increase
without shareholder approval. Investors will incur additional dilution upon the
exercise of outstanding stock options.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "intend," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined in the Risk
Factors section above. These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform these statements to actual results
or to changes in our expectations.
15
<PAGE> 18
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering will be
approximately $95.0 million, or approximately $109.5 million if the
underwriters' over-allotment option is exercised in full, at an assumed initial
public offering price of $17.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased
research and development expenditures, sales and marketing expenditures, and
general and administrative expenditures. We also intend to use $10.0 million of
the proceeds from this offering to repay our outstanding long-term note. This
note bears interest at a rate of prime plus 2% and is due on February 1, 2001.
Through December 31, 1999, we had paid approximately $175,000 in total interest
on this note, at an average interest rate of 10.5% per annum.
We may also use a portion of the net proceeds to acquire additional
businesses, products and technologies, to lease additional facilities, or to
establish joint ventures that we believe will complement our current or future
business. However, we have no specific plans, agreements or commitments to do so
and are not currently engaged in any negotiations for any acquisition or joint
venture.
The amounts that we actually expend for working capital and other general
corporate purposes will vary significantly depending on a number of factors,
including future revenues growth, if any, and the amount of cash we generate
from operations. As a result, we will retain broad discretion in the allocation
of the net proceeds of this offering. Pending the uses described above, we will
invest the net proceeds of this offering in short-term interest bearing,
investment-grade securities.
CONCURRENT SALE OF STOCK TO EDS
Electronic Data Systems Corporation, or EDS, has agreed to purchase from
us, in a private placement to occur concurrently with the closing of this
offering, 1,200,000 shares of our common stock, subject to reduction if the
aggregate purchase price for the shares would exceed $24.0 million. EDS has
agreed to pay a per share purchase price for this common stock equal to the
initial public offering price in this offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of December 31, 1999;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of redeemable convertible preferred stock upon the
closing of this offering; and
- our pro forma as adjusted capitalization to give effect to the sale of
the 6,100,000 shares of common stock in this offering at an assumed
initial public offering price of $17.00 per share, less the estimated
underwriting discounts and commissions and estimated offering expenses,
the sale of 1,200,000 shares of common stock to EDS in a concurrent
private placement at the assumed initial public offering price and the
repayment of outstanding debt from the proceeds of this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Note payable......................................... $ 10,000 $ 10,000 $ --
======== ======== ========
Redeemable convertible preferred stock, Series A: no
par value; 2,864,583 shares authorized; 2,864,583
shares issued and outstanding, actual; no shares
issued and outstanding, pro forma and pro forma as
adjusted........................................... $ 12,856 $ -- $ --
Redeemable convertible preferred stock, Series B: no
par value; 2,637,900 shares authorized; 2,588,215
shares issued and outstanding, actual; no shares
issued and outstanding, pro forma and pro forma as
adjusted........................................... 11,825 -- --
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding,
pro forma and pro forma as adjusted............. -- -- --
Common stock: no par value; 200,000,000 shares
authorized; 46,531,377 shares issued and
outstanding, actual; 60,503,539 shares issued
and outstanding, pro forma; 67,803,539 shares
issued and outstanding, pro forma as adjusted... 19,519 44,200 159,278
Deferred stock compensation........................ (5,379) (5,379) (5,379)
Accumulated other comprehensive loss............... (237) (237) (237)
Accumulated deficit................................ (42,324) (42,324) (42,324)
-------- -------- --------
Total shareholders' equity (deficit)....... (28,421) (3,740) 111,338
-------- -------- --------
Total capitalization.................. $ (3,740) $ (3,740) $111,338
======== ======== ========
</TABLE>
This table excludes the following:
- 2,662,500 shares of common stock issuable upon exercise of outstanding
warrants as of January 31, 2000 at a weighted average exercise price of
$5.59 per share;
- 21,375,903 shares of common stock reserved for issuance under our stock
option plans, of which 12,232,314 shares at a weighted average exercise
price of $2.02 per share were subject to outstanding options as of
January 31, 2000; and
- 2,250,000 shares of common stock reserved for issuance under our employee
stock purchase plan.
17
<PAGE> 20
DILUTION
The pro forma net tangible book value (deficit) of our common stock, as of
December 31, 1999, after giving effect to the conversion of all outstanding
shares of redeemable preferred stock upon the closing of the offering was
approximately $(3.7) million, or approximately $(.06) per share. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities divided by the number of shares of common stock
outstanding. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. Assuming our sale of 6,100,000 shares of
common stock offered by this prospectus at an assumed initial public offering
price of $17.00 per share and our sale of 1,200,000 shares of common stock in
the concurrent private placement to EDS at an assumed price of $17.00 per share,
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our net tangible book value as of December 31, 1999
would have been approximately $111.3 million or $1.64 per share. This represents
an immediate decrease in net tangible book value of $15.36 per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $17.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $ (.06)
Increase per share attributable to new investors.......... 1.70
------
Pro forma net tangible book value per share after the
offering.................................................. 1.64
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $15.36
======
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing shareholders and by the new investors purchasing shares in this
offering. We have assumed an initial public offering price of $17.00 per share,
and we have not deducted estimated underwriting discounts and commissions and
estimated offering expenses in our calculations.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders..... 60,503,539 89.2% $ 33,771,000 21.4% $ .56
New investors............. 7,300,000 10.8 124,100,000 78.6 17.00
---------- ----- ------------ -----
Total........... 67,803,539 100.0% $157,871,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants. The exercise of options or warrants having an
exercise price less than the offering price would increase the dilutive effect
to new investors. See "Capitalization" and "Management -- Employee Stock Plans."
If the underwriters exercise their over-allotment in full, the following
will occur: the number of shares of common stock held by existing shareholders
will decrease to approximately 88.0% of the total number of shares of our common
stock outstanding; and the number of shares held by new investors will increase
to 8,215,000, or approximately 12.0% of the total number of our common stock
outstanding after this offering.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended December 31, 1997, 1998 and 1999, and the
balance sheet data as of December 31, 1998 and 1999, are derived from the
audited consolidated financial statements included elsewhere in this prospectus.
The consolidated statements of operations data for the years ended December 31,
1995 and 1996, and the balance sheet data as of December 31, 1995, 1996 and
1997, are derived from the audited consolidated financial statements not
included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License.................................................. $ 6,419 $ 7,575 $ 10,911 $ 18,142 $ 24,051
Services................................................. 4,181 6,397 10,149 10,853 20,268
Maintenance.............................................. 717 1,506 2,919 5,142 9,055
Other.................................................... 1,938 2,237 2,720 3,324 1,797
------- ------- -------- -------- --------
Total revenues......................................... 13,255 17,715 26,699 37,461 55,171
------- ------- -------- -------- --------
Cost of revenues:
License.................................................. 136 5 229 959 690
Services................................................. 3,222 5,578 6,727 11,269 20,904
Maintenance.............................................. 180 339 366 587 2,368
Other.................................................... 1,282 1,910 2,200 1,907 1,219
------- ------- -------- -------- --------
Total cost of revenues................................. 4,820 7,832 9,522 14,722 25,181
------- ------- -------- -------- --------
Gross profit............................................... 8,435 9,883 17,177 22,739 29,990
------- ------- -------- -------- --------
Operating expenses:
Research and development................................. 2,317 3,786 4,242 8,496 11,990
Sales and marketing...................................... 3,174 6,311 6,849 16,273 28,652
General and administrative............................... 3,066 2,958 5,307 9,229 12,176
Amortization of alliance warrants........................ -- -- -- -- 814
Amortization of stock-based compensation................. -- -- -- -- 1,708
------- ------- -------- -------- --------
Total operating expenses............................... 8,557 13,055 16,398 33,998 55,340
------- ------- -------- -------- --------
Income (loss) from operations.............................. (122) (3,172) 779 (11,259) (25,350)
Interest income (expense), net............................. (103) (151) (263) 16 (515)
------- ------- -------- -------- --------
Income (loss) before provision for taxes................... (225) (3,323) 516 (11,243) (25,865)
Provision for income taxes................................. 72 (297) 10 -- --
------- ------- -------- -------- --------
Net income (loss).......................................... $ (297) $(3,026) $ 506 $(11,243) $(25,865)
======= ======= ======== ======== ========
Accretion on preferred stock............................... -- -- -- 686 2,410
------- ------- -------- -------- --------
Net income (loss) available to common shareholders......... $ (297) $(3,026) $ 506 $(11,929) $(28,275)
======= ======= ======== ======== ========
Basic and diluted net income (loss) per share available to
common shareholders...................................... $ (.01) $ (.08) $ .01 $ (.27) $ (.62)
Weighted average shares used in computation of basic and
diluted net income (loss) per share available to common
shareholders............................................. 37,772 40,047 42,801 43,748 45,954
Pro forma basic and diluted net loss per share............. $ (.44)
Pro forma basic and diluted weighted average shares........ 58,470
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 347 $ 3,587 $ 750 $ 3,255 $ 1,572
Working capital (deficit)................................... 212 3,313 1,797 (1,196) (1,917)
Total assets................................................ 6,769 13,701 15,519 22,857 29,852
Deferred revenue............................................ 986 2,731 4,415 6,122 10,354
Long-term liabilities....................................... 597 812 802 367 10,000
Redeemable convertible preferred stock...................... -- -- -- 11,445 24,681
Total shareholders' equity (deficit)........................ 1,342 5,073 4,458 (7,335) (28,421)
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
consolidated financial statements and related notes of STC appearing elsewhere
in this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties, including statements regarding anticipated
costs and expenses, mix of revenues and plans for introducing new products and
services. Our actual results could differ materially from the results
contemplated by these forward-looking statements as a result of a number of
factors, including those discussed below, under "Risk Factors" and elsewhere in
this prospectus.
OVERVIEW
We were founded in 1989 and sold our first products and services in 1991.
From 1991 to 1998, our sales and marketing efforts were primarily focused on
customers in the healthcare industry. In 1998, we began to significantly
increase our sales and marketing expenses to target customers in other vertical
markets, such as financial services/insurance, manufacturing,
retail/e-Commerce/services and telecommunications/utilities. As a result of
these efforts, license sales to non-healthcare customers accounted for
approximately 68% of our license revenues in 1999 compared to 35% of our license
revenues in 1998 and 11% of our license revenues in 1997. In November 1999, we
launched the fourth generation of our primary product with the introduction of
e*Gate 4.0 and changed the name of this product from DataGate to e*Gate. In
anticipation of this release, we accelerated the growth of our product
development, services and sales and marketing organizations. We incurred
significant losses in 1998 and 1999, and as of December 31, 1999, we had an
accumulated deficit of $42.3 million.
We derive revenues primarily from three sources: licenses, services and
maintenance. We market our products and services on a global basis through our
direct sales force, and augment our marketing efforts through relationships with
systems integrators, and in other instances, through value-added resellers and
technology vendors. Our products are typically licensed directly to customers
for a perpetual term, with pricing based on the number of systems or
applications the customer is integrating or connecting with our products. We
recently began licensing our products based on the customer's system CPU power,
or Mhz. We record license revenues when a license agreement has been signed by
both parties, the fee is fixed or determinable, collection of the fee is
probable, delivery of our products has occurred and no other significant
obligations remain. Payments for licenses, services and maintenance received in
advance of revenue recognition are recorded as deferred revenue.
In 1994, we opened our first international sales office in Belgium, and we
completed our first international sale in 1995. We currently have sales offices
in six countries outside of the United States. Revenues derived from
international sales have grown from 15% of total revenues in 1997 to 27% in
1999. We believe that international revenues will continue to be significant in
future periods. To date, we have not experienced significant seasonality of
revenues. However, we expect that our future results will fluctuate in response
to the fiscal or quarterly budget cycles of our customers.
Revenues from services include consulting and implementation services and
training. A majority of our customers use third-party systems integrators to
implement our products. Customers also typically purchase additional consulting
services from us to support their implementation activities. These consulting
services are generally sold on a time and materials or fixed fee basis, and
services revenues are recognized as the services are performed. We also offer
training services, which are sold on a per student basis and for which revenues
are recognized as the classes are attended.
Customers who license our products normally purchase maintenance contracts.
These contracts provide unspecified software upgrades and technical support over
a fixed term, which is typically 12 months. Maintenance contracts are usually
paid in advance, and revenues from these contracts are recognized ratably over
the term of the contract.
20
<PAGE> 23
In the past, we offered our healthcare customers our expertise in
configuring hardware and software systems in conjunction with their purchase of
our products. In these instances, we would sell third-party hardware and
software to our customers in addition to our products. Other revenues consists
of these sales of third-party hardware and software. We discontinued offering
this service to our customers during the fourth quarter of 1999.
For 1997 and prior years, we recognized revenues in accordance with
American Institute of
Certified Public Accountants Statement of Position, or SOP, 91-1 "Software
Revenue Recognition". Commencing in 1998, we began recognizing revenues in
accordance with American Institute of Certified Public Accountants SOP 97-2,
"Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9. To date,
our adoption of these new standards has not had any material effect on our
revenue recognition.
Cost of revenues consists of cost of license revenues, cost of services
revenues, cost of maintenance revenues and cost of other revenues. Cost of
license revenues includes the cost of third-party licensed software embedded or
bundled with our products. Cost of services revenues consists of compensation
and related overhead costs for personnel engaged in implementation consulting
and services and training. Cost of maintenance revenues includes compensation
and related overhead costs for personnel engaged in maintenance and support
activities. Cost of other revenues consists of the cost of third-party hardware
and software sales. In 1999, our gross margin was 97.1% on our license revenues,
(3.1%) on our services revenues and 73.8% on our maintenance revenues. We expect
in the future to continue to earn substantially higher gross margins on our
license and maintenance revenues compared to our services revenues. As a result,
our overall gross margin depends significantly on our revenues mix.
Our operating expenses are classified as research and development, sales
and marketing and general and administrative. Each category includes related
expenses for salaries, employee benefits, incentive compensation, bonuses,
travel, telephone, communications, rent and allocated facilities and
professional fees. Our sales and marketing expenses include additional
expenditures specific to the marketing group, such as public relations and
advertising, trade shows, and marketing collateral materials and expenditures
specific to the sales group, such as commissions. To date, all software product
development costs have been expensed as incurred. Also included in our operating
expenses are the amortization of alliance warrants and the amortization of stock
compensation.
In order to increase both our company's and our products' market presence,
we entered into strategic alliances with Andersen Consulting in November 1999,
EDS in January 2000 and CSC in March 2000. We granted each of these strategic
partners a warrant to purchase up to 1,200,000 shares of our common stock which
becomes exercisable upon the achievement of various milestones, which include
the creation of e*Gate market offerings in the case of Andersen Consulting and
CSC and the generation of STC license revenues in the case of EDS and CSC. These
warrants expire from July 2002 to November 2003, and have a per share exercise
price of $5.33 for Andersen Consulting, $6.67 for EDS and the greater of $14.00
or the initial public offering price for CSC. These warrants contain a
significant economic disincentive for non-performance, and accordingly, the fair
value of these warrants was measured at the date of grant in accordance with
Emerging Issues Task Force No. 96-18. Using the Black-Scholes option pricing
model, we valued the warrants granted to Andersen Consulting in 1999 at $3.3
million as of December 31, 1999. This amount is included in additional paid-in
capital and is being amortized by charges to operations over the vesting periods
of the warrants. In the first quarter of 2000, we expect to record an additional
$14.3 million related to the valuation of the remaining warrants to purchase
2,400,000 shares granted to EDS and CSC, based on an assumed exercise price
equal to the assumed initial public offering price of $17.00 per share for the
warrants granted to CSC. We valued these warrants using the Black-Scholes option
pricing model. We recognized amortization of $814,000 for 1999, and we will
recognize additional amortization of $8.3 million in 2000, $7.2 million in 2001
and $1.3 million in 2002, based on an assumed exercise price equal to the
assumed initial public offering price
21
<PAGE> 24
of $17.00 per share for the warrants granted to CSC. The amortization of the
alliance warrants is classified as a separate component of operating expenses in
our consolidated statement of operations.
In connection with stock option grants to our employees, we have recorded
deferred stock compensation totaling $4.6 million through December 31, 1999, of
which approximately $2.9 million remains to be amortized. This amount represents
the difference between the exercise price and the estimated fair value of our
common stock on the date the options were granted multiplied by the number of
option shares granted. This amount is included as a component of shareholders'
equity and is being amortized by charges to operations over the vesting period
of the options, consistent with the method described in Financial Accounting
Standards Board Interpretation No. 28. We recognized amortization of deferred
compensation expense of $1.7 million in 1999. We expect to record additional
deferred stock compensation with respect to stock option grants made subsequent
to December 31, 1999. The amortization of the remaining deferred stock
compensation at December 31, 1999 will result in additional charges to
operations through 2004. The amortization of stock compensation is classified as
a separate component of operating expenses in our consolidated statement of
operations.
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues:
License................................................... 41% 48% 44%
Services.................................................. 38 29 37
Maintenance............................................... 11 14 16
Other..................................................... 10 9 3
--- --- ---
Total revenues.......................................... 100 100 100
Cost of revenues:
License................................................... 1 2 1
Services.................................................. 25 30 38
Maintenance............................................... 2 2 4
Other..................................................... 8 5 2
--- --- ---
Gross profit............................................ 64 61 55
--- --- ---
Operating expenses:
Research and development.................................. 16 23 22
Sales and marketing....................................... 25 43 52
General and administrative................................ 20 25 22
Amortization of alliance warrants......................... -- -- 2
Amortization of stock based compensation.................. -- -- 3
--- --- ---
Total operating expenses................................ 61 91 101
--- --- ---
Income (loss) from operations............................... 3 (30) (46)
Interest income (expense), net.............................. (1) -- (1)
--- --- ---
Income (loss) before tax provision.......................... 2 (30) (47)
Provision for income taxes.................................. -- -- --
--- --- ---
Net income (loss)........................................... 2% (30)% (47)%
=== === ===
</TABLE>
22
<PAGE> 25
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Revenues
Our total revenues were $26.7 million for 1997, $37.5 million for 1998 and
$55.2 million for 1999, representing increases of $10.8 million, or 40%, from
1997 to 1998 and $17.7 million, or 47%, from 1998 to 1999. We had no customer
that accounted for more than 10% of our total revenues in 1998 or 1999. In 1997,
one of our customers, HBO and Company, accounted for approximately 11.3% of our
total revenues.
License Revenues. Our license revenues were $10.9 million for 1997, $18.1
million for 1998 and $24.1 million for 1999, representing increases of $7.2
million, or 66%, from 1997 to 1998 and $6.0 million, or 33%, from 1998 to 1999.
License revenues as a percentage of total revenues were 41% for 1997, 48% for
1998 and 44% for 1999. The increase in license revenues from 1997 to 1998 was
due to sales of e*Gate 3.6, expansion of our direct sales force, and a 392%
increase in sales to non-healthcare industry customers from $1.3 million in 1997
to $6.4 million in 1998. The increase in license revenues from 1998 to 1999 was
due to the continued license sales of e*Gate 3.6 during 1999, the introduction
of e*Gate 4.0 in November 1999, and a 165% increase in sales to non-healthcare
industry customers from $6.4 million in 1998 to $17.0 million in 1999.
Services Revenues. Our services revenues were $10.1 million for 1997, $10.9
million for 1998 and $20.3 million for 1999, representing increases of $800,000,
or 8%, from 1997 to 1998 and $9.4 million, or 86%, from 1998 to 1999. Services
revenues as a percentage of total revenues were 38% in 1997, 29% in 1998 and 37%
in 1999. The increases in services revenues from 1997 to 1998 and from 1998 to
1999 were primarily due to increases in our professional services staff and the
impact of increases in license revenues from 1997 to 1998.
Maintenance Revenues. Our maintenance revenues were $2.9 million for 1997,
$5.1 million for 1998 and $9.1 million for 1999, representing increases of $2.2
million, or 76%, from 1997 to 1998 and $4.0 million, or 78%, from 1998 to 1999.
Maintenance revenues as a percentage of total revenues were 11% in 1997, 14% in
1998 and 16% in 1999. The increases in maintenance revenues and maintenance
revenues as a percentage of total revenues from 1997 to 1998 and from 1998 to
1999 were primarily due to increased licenses for our products, and, to a lesser
extent, to renewals of prior period maintenance contracts.
Other Revenues. Our other revenues were $2.7 million for 1997, $3.3 million
for 1998 and $1.8 million for 1999, representing an increase of $600,000, or
22%, from 1997 to 1998 and a decrease of $1.5 million, or 45%, from 1998 to
1999. Other revenues as a percentage of total revenues were 10% in 1997, 9% in
1998 and 3% in 1999. The increase in other revenues from 1997 to 1998 was due to
an increase in the number of healthcare customers that required us to provide
third party hardware in conjunction with the sale of our software. The decrease
in other revenues from 1998 to 1999 was due to a decrease in our customer mix of
the type of customer that required us to provide third party hardware with our
software. In the fourth quarter of 1999, we discontinued providing this service.
Cost of Revenues
Our cost of revenues was $9.5 million for 1997, $14.7 million for 1998 and
$25.2 million for 1999. Gross margin was 64% in 1997, 61% in 1998 and 54% in
1999. The decrease in gross margin from 1997 to 1998 resulted primarily from
focusing our services organization on assisting our sales organization in the
sales cycle by performing non-billable services to potential customers in the
form of proof of concepts and software pilots. The decrease in gross margin from
1998 and 1999 was due to the continued use of our services organization in the
selling cycle combined with an increase in services revenues as a percentage of
total revenues.
23
<PAGE> 26
Cost of License Revenues. Cost of license revenues was $229,000 for 1997,
$959,000 for 1998 and $690,000 for 1999. Cost of license revenues as a
percentage of total revenues was 1% in 1997, 2% in 1998 and 1% in 1999. The
increase in cost of license revenues from 1997 to 1998 and the decrease in cost
of license revenues from 1998 to 1999 were primarily due to the change in the
sales mix of products which contain third-party software which is embedded or
bundled with our software product offerings.
Cost of Services Revenues. Cost of services revenues was $6.7 million for
1997, $11.3 million for 1998 and $20.9 million for 1999. Cost of services
revenues as a percentage of total revenues was 25% in 1997, 30% in 1998 and 38%
in 1999. The increases in cost of services revenues from 1997 to 1998 and from
1998 to 1999 were primarily due to the increase in professional services staff
and the related increases in revenues, as well as to services personnel
assisting our sales organization in the sales cycle by performing non-billable
services to potential customers in the form of proof of concepts and software
pilots.
Cost of Maintenance Revenues. Cost of maintenance revenues was $366,000 for
1997, $587,000 for 1998 and $2.4 million for 1999. Cost of maintenance revenues
as a percentage of total revenues was 2% in 1997, 2% in 1998 and 4% in 1999. The
increases in cost of maintenance revenues from 1997 to 1998 and from 1998 to
1999 were primarily due to the increases in maintenance revenues from 1997 to
1998 and from 1998 to 1999.
Cost of Other Revenues. Cost of other revenues was $2.2 million for 1997,
$1.9 million for 1998 and $1.2 million for 1999. Cost of other revenues as a
percentage of total revenues was 8% in 1997, 5% in 1998 and 2% in 1999. The
increase in cost of other revenues from 1997 to 1998 and decrease from 1998 to
1999 were directly related to the increase and decrease in other revenues.
Operating Expenses
Research and Development Expenses. Research and development expenses were
$4.2 million for 1997, $8.5 million for 1998 and $12.0 million for 1999.
Research and development expenses as a percentage of total revenues were 16% in
1997, 23% in 1998 and 22% in 1999. The increases in research and development
expenses from 1997 to 1998 and from 1998 to 1999 were primarily due to the
increase in the number of software developers and quality assurance personnel to
support our product development, documentation and testing activities related to
the development and release of the latest versions of our products. We
anticipate that research and development expenses will continue to increase in
absolute dollars for the foreseeable future as we continue to add to our
research and development staff.
Sales and Marketing Expenses. Sales and marketing expenses were $6.8
million for 1997, $16.3 million for 1998 and $28.7 million for 1999. Sales and
marketing expenses as a percentage of total revenues were 25% in 1997, 43% in
1998 and 52% in 1999. The increases in sales and marketing expenses from 1997 to
1998 and from 1998 to 1999 were primarily due to the expansion of our domestic
and international direct sales forces. The increase in sales and marketing
expenses from 1998 to 1999 also reflects increased hiring rates, and, to a
lesser extent, increased public relations and marketing costs related to the
launch of e*Gate 4.0 in November 1999. We anticipate that our sales and
marketing expenses will increase in absolute dollars for the foreseeable future
as we expand our domestic and international sales forces, expand our marketing
staff and develop product marketing and awareness campaigns for both the company
and our products.
General and Administrative Expenses. General and administrative expenses
were $5.3 million for 1997, $9.2 million for 1998 and $12.2 million for 1999.
General and administrative expenses as a percentage of total revenues were 20%
in 1997, 25% in 1998 and 22% in 1999. The increases in costs from 1997 to 1998
and from 1998 to 1999 were primarily due to hiring additional finance, executive
and administrative personnel to support the growth of our business during those
periods. We expect that
24
<PAGE> 27
general and administrative expenses will increase in absolute dollars for the
foreseeable future as we expand our operations.
Amortization of Stock-Based Compensation. In connection with stock option
grants to employees and non-employee directors during 1999, we recorded total
deferred compensation of $4.6 million, of which $1.7 million was expensed as
amortization of stock compensation in 1999. In connection with the grant of
common stock warrants to a strategic alliance partner during 1999, we recorded
deferred compensation related to the warrants of $3.3 million in 1999 of which
$814,000 was expensed as amortization of alliance warrants in 1999.
Interest Income (Expense), Net
Interest income (expense), net, was $(263,000) in 1997, $16,000 in 1998 and
$(515,000) in 1999. At December 31, 1999, we had unamortized financing fees of
$596,000 related to common stock warrants issued in connection with our $10.0
million note payable and a $10.0 million asset-based line of credit. We plan to
use a portion of the proceeds from this offering to prepay the note payable in
its entirety. As a result, we will recognize the unamortized interest balance as
an expense in the period we prepay the note.
Income Taxes
No provision for income taxes has been recorded since our inception because
we have incurred net losses in all periods except 1997. As of December 31, 1999,
we had net operating loss carryforwards for federal income tax reporting
purposes of approximately $24.8 million that expire in various amounts beginning
in 2018. We also had net operating loss carryforwards for state income tax
reporting purposes of approximately $10.9 million that expire in various amounts
beginning in 2003. The U.S. tax laws contain provisions that limit the use in
any future period of net operating loss and credit carryforwards upon the
occurrence of certain events, including a significant change in ownership
interests. We had deferred tax assets, including our net operating loss
carryforwards and tax credits of approximately $14.7 million as of December 31,
1999. A valuation allowance has been recorded for the entire deferred tax asset
as a result of uncertainties regarding the realization of the asset balance. See
note 5 of notes to consolidated financial statements.
25
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth quarterly data from our consolidated
statements of operations and such data as a percentage of total revenues. The
consolidated statements of operations data have been derived from our unaudited
consolidated financial statements, which have been prepared on substantially the
same basis as our audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. You
should read this information in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus. Our
operating results in any quarter are not necessarily indicative of the results
that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License............................ $2,825 $ 4,276 $ 5,514 $ 5,527 $ 3,661 $ 4,919 $ 7,580 $ 7,891
Services........................... 2,219 2,443 2,820 3,371 3,979 5,530 6,099 4,660
Maintenance........................ 1,080 1,178 1,338 1,546 1,798 2,081 2,450 2,726
Other.............................. 573 1,180 704 867 1,070 603 115 9
------ ------- ------- ------- ------- ------- ------- --------
Total revenues................... 6,697 9,077 10,376 11,311 10,508 13,133 16,244 15,286
------ ------- ------- ------- ------- ------- ------- --------
Cost of revenues:
License............................ 23 367 325 244 125 222 27 316
Services........................... 1,940 2,145 3,032 4,152 4,352 5,222 5,713 5,617
Maintenance........................ 95 92 167 233 477 451 646 794
Other.............................. 397 761 254 495 826 352 1 40
------ ------- ------- ------- ------- ------- ------- --------
Gross profit..................... 4,242 5,712 6,598 6,187 4,728 6,886 9,857 8,519
------ ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and development........... 1,335 1,744 2,318 3,099 2,789 3,275 2,980 2,946
Sales and marketing................ 2,480 3,279 4,817 5,697 6,056 6,135 7,212 9,249
General and administrative......... 1,347 2,389 2,556 2,937 2,306 2,688 2,625 4,557
Amortization of alliance
warrants......................... -- -- -- -- -- -- -- 814
Amortization of stock
compensation..................... -- -- -- -- 3 622 479 604
------ ------- ------- ------- ------- ------- ------- --------
Total operating expenses......... 5,162 7,412 9,691 11,733 11,154 12,720 13,296 18,170
------ ------- ------- ------- ------- ------- ------- --------
Loss from operations................. (920) (1,700) (3,093) (5,546) (6,426) (5,834) (3,439) (9,651)
Interest income (expense), net....... (73) (26) 52 63 (55) 66 (85) (441)
------ ------- ------- ------- ------- ------- ------- --------
Income (loss) before tax provision... (993) (1,726) (3,041) (5,483) (6,481) (5,768) (3,524) (10,092)
Provision for income taxes........... -- -- -- -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- --------
Net income (loss).................... $ (993) $(1,726) $(3,041) $(5,483) $(6,481) $(5,768) $(3,524) $(10,092)
====== ======= ======= ======= ======= ======= ======= ========
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License............................ 42% 47% 53% 49% 35% 37% 47% 52%
Services........................... 33 27 27 30 38 42 37 30
Maintenance........................ 16 13 13 13 17 16 15 18
Other.............................. 9 13 7 8 10 5 1 --
--- --- --- --- --- --- --- ---
Total revenues................... 100 100 100 100 100 100 100 100
Cost of revenues:
License............................ -- 4 3 2 1 2 -- 2
Services........................... 29 23 29 37 41 40 35 37
Maintenance........................ 2 1 2 2 5 3 4 5
Other.............................. 6 8 2 4 8 3 -- --
--- --- --- --- --- --- --- ---
Gross profit..................... 63 64 64 55 45 52 61 56
--- --- --- --- --- --- --- ---
Operating expenses:
Research and development........... 20 20 22 27 26 25 18 19
Sales and marketing................ 37 36 46 52 58 47 45 61
General and administrative......... 20 27 25 25 22 20 16 30
Amortization of alliance
warrants......................... -- -- -- -- -- -- -- 5
Amortization of stock
compensation..................... -- -- -- -- 5 3 4
--- --- --- --- --- --- --- ---
Total operating expenses......... 77 82 93 104 106 97 82 119
--- --- --- --- --- --- --- ---
Loss from operations................. (14) (19) (29) (49) (61) (45) (21) (63)
Interest income (expense), net....... (1) -- -- 1 (1) 1 (1) (3)
--- --- --- --- --- --- --- ---
Income (loss) before tax provision... (15) (19) (29) (48) (62) (44) (22) (66)
Provision for income taxes........... -- -- -- -- -- -- -- --
--- --- --- --- --- --- --- ---
Net income (loss).................... (15)% (19)% (29)% (48)% (62)% (44)% (22)% (66)%
=== === === === === === === ===
</TABLE>
Revenues. Our revenues have fluctuated from quarter to quarter due to many
factors, including the timing of new product introductions and the signing of
significant license agreements. During 1998, we experienced sequential quarterly
total revenues increases due to increases in license and services revenues. From
the fourth quarter of 1998 to the first quarter of 1999, we experienced a
decrease in sequential quarterly license revenues due to strong year-end sales
in 1998. During 1999, we experienced sequential quarterly total revenues
increases, except from the third quarter to the fourth quarter which was due to
a decrease in services revenues. Services revenues in the fourth quarter of 1999
decreased from the third quarter in 1999 due to a slowdown in customer activity
during the holidays and as a result of customers preparing for the year 2000.
Cost of Revenues. Our cost of revenues has fluctuated in both absolute
dollars and as a percentage of total revenues, primarily as a result of changes
in the level of quarterly services revenues as the majority of our cost of
revenues is directly related to our services revenues. Gross margins have been
affected by changes in our sales mix, especially with respect to the mix between
services revenues and license revenues.
Operating Expenses. Operating expenses have generally increased each
quarter beginning with the first quarter of 1998. These increases primarily
reflect the addition of sales staff as we expanded our domestic and
international direct sales forces and our research and development efforts
leading up to the launch of e*Gate 4.0 in November 1999. In the fourth quarter
of 1999, sales and marketing expenses increased primarily due to the expansion
of our domestic and international sales forces and the launch of e*Gate 4.0.
General and administrative expenses increased as we added staff to support a
larger, more global organization.
27
<PAGE> 30
Our operating results have varied widely in the past, and we expect that
they will continue to fluctuate in the future as a result of a variety of
factors, many of which are outside of our control. These factors include the
timing of significant orders and the length of our sales cycle, the growth rate
of the e-Business software market, our ability to continue to attract and retain
customers in international markets and the success of our strategic partners and
other distributors in selling our products. Due to the emerging nature of the
markets in which we compete, it may be difficult to forecast our revenues
accurately. Normal payment terms for our license fees range from being due upon
signing an agreement to ninety days from signing an agreement. To date we have
not offered extended payment terms to our customers. Slow paying and delinquent
accounts are identified and estimated reserve requirements are provided for in
the allowance for doubtful accounts. Our expense levels are based in part on our
expectations with regard to future revenues. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenues shortfall. Any of
these factors may seriously harm our business, results of operations and
financial condition. See "Risk Factors" for a further description of these and
other factors that could harm our business, results of operations and financial
condition.
LIQUIDITY AND CAPITAL RESOURCES
From our inception until 1995, we funded our operations internally. Since
1995, we have funded our operations primarily through private sales of our
capital stock. We have raised an aggregate of $32.4 million from the sale of
common and preferred stock through December 31, 1999. To a lesser extent, we
have financed our operations through lending arrangements and equipment
financing.
As of December 31, 1999, we had cash and cash equivalents of $1.6 million,
a decrease from $3.3 million of cash and cash equivalents held as of December
31, 1998. Our working capital deficit as of December 31, 1999 was $1.9 million
compared to a working capital deficit of $1.2 million as of December 31, 1998.
The increase in working capital deficit is attributable to the net loss incurred
during 1999 offset by the proceeds received from the sale of preferred and
common stock, and, to a lesser extent, the refinancing of our lending facility
in 1999.
We have a $10.0 million senior line of credit facility with a lending
institution that bears interest at a rate of prime plus 2%, payable monthly, and
expires on February 1, 2001. As of December 31, 1999, borrowings under the line
totaled $3.4 million. During the year ended December 31, 1999, we paid
approximately $26,000 in total interest on this line of credit, at an average
interest rate of 10.5% per annum. This line of credit is secured by accounts
receivable and other assets. We also have a $10.0 million long-term note payable
which bears interest at the same rate and is due on February 1, 2001. Through
December 31, 1999, we had paid approximately $175,000 in total interest on this
note, at an average interest rate of 10.5% per annum. We plan to use a portion
of the net proceeds from this offering to repay the note in its entirety. Our
line of credit contains no financial covenants other than borrowing base
restrictions and restrictions on related party transactions and incurrence of
additional debt.
We also have noncancelable operating leases for office space and equipment
of approximately $13.4 million, which are payable through 2004.
Net cash used in operating activities in 1998 was $6.0 million, resulting
primarily from the net loss incurred in 1998. Net cash used in operating
activities in 1999 was $21.9 million, resulting primarily from the net loss
incurred in 1999.
Net cash used in investing activities was $3.3 million in 1998 and $4.4
million in 1999. Net cash used in investing activities in these periods was
related primarily to the purchase of computer equipment, principally desktop and
network hardware and software, leasehold improvements and the implementation of
our information and data processing systems.
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Net cash provided by financing activities was $11.8 million in 1998 and
$24.7 million in 1999. Cash provided by financing activities primarily was the
result of proceeds generated from the sale of our preferred stock and, to a
lesser extent, our common stock and lending arrangement refinancing.
We anticipate continued growth in our operating expenses for the
foreseeable future, particularly in sales and marketing expenses and, to a
lesser extent, research and development and general and administrative expenses.
As a result, we expect our operating expenses and capital expenditures to
constitute the primary uses of our cash resources. In addition, we may require
cash resources to fund acquisitions or investments in complementary businesses,
technologies or product lines. We believe that the net proceeds from the
offering, together with our current cash and cash equivalents and our expected
cash from operations, will be sufficient to meet our anticipated cash
requirements for working capital and capital expenditures for at least the next
12 months. Thereafter, we may need to raise additional funds, and we cannot be
certain that we will be able to obtain additional debt or equity financing on
favorable terms, if at all.
YEAR 2000 READINESS DISCLOSURE
In late 1999, we completed our remediation and testing of systems related
to year 2000 compliance. As a result of these efforts, we experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believe those systems successfully
responded to the year 2000 date change. We are not aware of any material
problems resulting from year 2000 issues, either with our products, our internal
systems, or the products and services of third parties. We will continue to
monitor our mission-critical computer applications and those of our vendors
throughout the year 2000 to ensure that any latest year 2000 matters that may
arise are addressed promptly.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. In July
1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" was
issued. We will be required to adopt SFAS No. 133 in 2000.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell them in North America,
Europe, Africa and the Pacific Rim. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. If any of the events described above
were to occur, our revenues could be seriously impacted, since a significant
portion of our revenues are derived from international customers. In 1999, we
incurred net gains of approximately $12,000 due to foreign currency
fluctuations, as compared to net losses of ($1,000) in 1997 and ($22,000) in
1998. Revenues from international customers represented 27.1% of total revenues
in 1999. Our line of credit and note payable carry floating interest rates based
on prime plus 2%. Accordingly, we are subject to the risk of incurring
additional interest expense should the prime interest rate increase in the
future. The interest rate on our line of credit and note payable as of December
31, 1999 was 10.5%.
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BUSINESS
OVERVIEW
We are a leading provider of e-Business integration software that enables
the seamless flow of information within and among enterprises on a global basis.
We believe that we offer the only end-to-end e-Business integration solution
encompassing intra-enterprise, or application-to-application, integration and
inter-enterprise, or business-to-business, integration, as well business process
management capabilities. As of December 31, 1999, we had licensed our products
to over 1,200 customers worldwide.
INDUSTRY BACKGROUND
Escalating competitive pressures are requiring businesses to respond
quickly to market dynamics. Corporate mergers and acquisitions, the ubiquity of
the Internet, shortened development and production cycles, shifting supplier
relationships and diverse customer demands are forcing companies to adopt
aggressive e-Business initiatives, whereby business transactions and
relationships are conducted electronically both within and among enterprises.
The speed of e-Business demands higher levels of business process integration,
which is increasingly complex and dynamic. e-Business initiatives have evolved
from relatively simple internal "intranets" and business-to-consumer e-Commerce
to intricate business-to-business, or B2B, relationships. Dynamic B2B exchanges
have recently emerged, where multiple vendors, suppliers, partners and customers
transact business electronically in real-time. The goals of these initiatives
are significant increases in efficiency and profitability. However, if business
applications are not integrated, the full potential of e-Business to automate
and optimize falls short of being realized. As companies seek to capitalize on
e-Business by connecting to each other electronically, integrating business
processes and related information technology, or IT, systems will become
critical to meet consumer and business expectations.
E-BUSINESS INTEGRATION CHALLENGES
Integrating business systems in order to automate and improve business
processes presents major challenges. Companies have made significant investments
in a range of custom and packaged software applications, which generally were
not designed to communicate with each other. The proliferation of packaged
applications such as enterprise resource planning, or ERP, supply chain
management, customer relationship management, sales force automation, decision
support and e-Commerce technologies has resulted in highly disconnected and
disparate IT infrastructures. These diverse systems and applications often
reside on different hardware platforms with varying and incompatible data
formats and communication methods. As a result, information stays trapped within
isolated systems. To enable a truly automated e-Business process, these isolated
systems must be seamlessly integrated.
As companies deploy new e-Business initiatives that extend beyond the
confines of an enterprise, the need to integrate disparate IT systems will
increase substantially. These external integration challenges are exacerbated by
the growth in corporate acquisition strategies and the subsequent need to
integrate acquired systems, as well as by the growth of geographically
distributed companies. Examples of e-Business integration challenges are as
follows:
- Companies, both business-to-consumer and B2B, are attempting to improve
the individual user experience by delivering personalized information to
their online users. Delivering customized information, however, requires
seamless integration with a variety of data sources that may not
otherwise communicate with one another. For example, online catalogs need
to be integrated with back-office systems of both buyers and sellers to
provide real-time information such as product availability and delivery
schedule. An online catalog should also integrate with a buyer's
purchasing system in order to automate and streamline the procurement
process. The dynamic
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integration of these systems is critical in order to provide higher
quality service, satisfy customer demands and compete more effectively.
- New B2B trading exchanges that bring buyers and sellers together via the
Internet have complex integration requirements. Each buyer and seller
must integrate its systems with one or more exchanges in order to
transact business online. A seller's inventory and order management
systems must be integrated with each exchange to enable real-time product
availability and order fulfillment, and a buyer's purchasing systems must
be integrated with each exchange to automatically initiate the purchasing
process once an order has been submitted. The trading exchange itself
must provide for the management of trading partner relationships and the
routing and transformation of transactions between buyers and sellers.
The seamless integration of these systems over the Internet in a secure,
automated and reliable fashion is critical for a trading exchange to meet
customer and market demands.
LIMITATIONS OF TRADITIONAL APPROACHES FOR E-BUSINESS INTEGRATION
Companies have historically tried to bridge disparate systems through
in-house or third-party custom development of point-to-point interfaces. This
approach is no longer viable for many companies given the large and growing
number of applications and the cost, time and resources required to create and
maintain integration in a rapidly changing environment. Integrating systems
outside of an enterprise is an additional challenge that requires expertise in
Internet technologies and a solution that is reliable, secure, centrally managed
and scalable to a very large number of users.
The integration demands of e-Business present major technical challenges.
In an attempt to address these challenges, companies have implemented ERP,
enterprise application integration, or EAI, and electronic data interchange, or
EDI, technologies. However, these solutions each have their own limitations in
terms of time-to-market, cost, performance or flexibility, and no one approach
fully addresses the entire e-Business integration challenge.
While ERP software can automate business processing within an enterprise,
it generally requires lengthy implementation times, is difficult to maintain, is
difficult to integrate with third-party technologies and was not designed to
meet e-Business performance requirements, such as security and scalability. EAI
software helps solve some aspects of enterprise integration but generally does
not have some key capabilities, such as security and business process
management, that are necessary for rapid and cost-effective integration between
enterprises. Traditional EAI solutions are also limited by their "hub and spoke"
architecture, whereby a centralized software hub serves as the integration
broker, limiting scalability and creating a single point of failure.
Historically, EDI has been used by large organizations for B2B integration, but
it generally is expensive to implement and deploy, lacks the flexibility to
quickly respond to business changes, lacks real-time data exchange capabilities
and is not scalable to large numbers of users.
We believe there is a significant opportunity to provide companies with an
e-Business integration solution that rapidly and cost-effectively addresses
integration challenges and enables the flow of information within and among
enterprises. This system would provide a comprehensive integration platform and
provide the flexibility and scalability to adjust to dynamic business needs and
to enable companies to capitalize on e-Business opportunities.
THE STC SOLUTION
We provide a comprehensive solution for e-Business integration, enabling
the seamless flow of information across systems, applications and enterprises on
a global basis. Our e*Xchange software suite provides companies with a flexible
and easily configurable platform to connect applications and systems not only
within an organization, but also among geographically dispersed enterprises,
allowing for continuous and reliable information exchange to meet today's
fast-paced e-Business demands. In
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contrast to traditional EAI approaches, our solution allows companies to
integrate applications, business systems and resources without altering existing
application code, as well as to automate, monitor and optimize business
processes. We believe that we offer the only end-to-end e-Business integration
solution encompassing both intra-enterprise, or application-to-application,
integration and B2B integration, with built-in business process management
capabilities.
Our application-to-application integration capability provides extensive
pre-built application connectivity to rapidly deploy interfaces to packaged
applications, legacy applications, Web and object technologies and industry
standard relational databases. Our products provide a robust and highly scalable
integration platform that can be fully distributed on a global basis, yet
efficiently managed and configured from a single location.
Our B2B integration capability enables various trading partner paradigms,
including direct partner-to-partner integration and trading exchange or
marketplace integration, as well as more traditional EDI integration. Trading
partner management enables a company to maintain partner profiles that allow for
the transformation, routing and transportation of transactions to the
appropriate recipients in a format or message standard that is appropriate for
that recipient. We also provide support for a wide range of traditional and
emerging communications standards including TCP/IP, XML, EDI or EDI over the
Internet, and e-Commerce standards such as RosettaNet and Microsoft Biztalk.
Our business process management capability enables a customer to model,
monitor and manage business processes that occur within and among enterprises.
This allows users to automate business processes, understand how long a
particular process takes to execute and optimize that business process.
Our solution provides the following business benefits to our customers:
Enhanced Revenue, Profit and Customer Service. The open architecture and
robust functionality of our solution allows our customers to efficiently
implement and adapt their business strategies in response to market dynamics and
other factors. Customers can quickly react and easily adapt to operational and
system changes as a result of dynamic supplier and customer relationships,
e-Business initiatives and mergers and acquisitions. Our flexible integration
platform enables our customers to focus on pursuing new business initiatives
designed to enhance revenue, profit and customer service.
Scalable e-Business Integration Platform. Our modular solution is designed
to be expandable not only within a customer's organization, but also throughout
its geographically dispersed and technologically diverse network of customers,
suppliers and partners. Our e*Xchange product suite can grow to manage the
transaction levels required for global e-Business with minimal technical or
administrative complexity. The distributed architecture of e*Xchange avoids the
typical bottlenecks associated with traditional approaches by distributing
processing throughout a network and providing a central registry that manages
this distributed configuration across the entire network.
Rapid Time to Market. Our solution is designed for easy and rapid
deployment, enabling our customers to reduce time to market for their products
and services and to facilitate the implementation of e-Business strategies. Our
e*Xchange platform is designed to allow the efficient incorporation of, and
integration with, evolving technologies and standards, minimizing programming
effort and enabling real-time integration of applications and systems. Our
comprehensive solution is fully integrated, eliminating the need for disparate
integration technologies from multiple vendors.
Lower Operational Costs. Our solution is designed to enable customers to
automate and streamline business processes for increased operating efficiency,
resulting in improved cycle times, optimized service level agreements and lower
operational costs. Our platform builds upon companies' existing IT investments
and minimizes the need for expensive custom programming. As a result, our
solution allows for efficient business modification in response to application,
system or process changes, substantially reducing the implementation and
maintenance costs associated with traditional integration approaches.
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Dependable Performance. With over 1,200 customers to date, we believe our
solution provides the performance, security and reliability necessary to
integrate and manage mission-critical business processes. Our e-Business
integration solution builds upon more than nine years of dedication to the
continuous development of application and systems integration solutions within
and among enterprises.
THE STC STRATEGY
Our objective is to provide the leading e-Business integration solution to
manage the seamless flow of information within and among enterprises on a global
basis. Our strategy for achieving this objective includes the following
elements:
Capitalize on e-Business Growth. An increasing number of companies are
implementing e-Business initiatives that require rapid integration of multiple
software, hardware and networking technologies that interoperate and support a
large number of users. We intend to capitalize on this growth opportunity
through our e*Xchange software platform, which supports all major aspects of e-
Business integration and process automation. We are developing a number of new
technologies that are designed to further enable seamless B2B transactions and
incorporate additional support for e-Business applications.
Maintain Technological Leadership. We are a leader in application
integration within and among enterprises, and we are extending this leadership
to the emerging e-Business integration market. The fourth generation of our core
product, e*Gate, is a comprehensive and centrally managed solution that
addresses the need for a distributed, scalable, global e-Business
infrastructure. We will continue to invest in e*Gate and other products to
enhance the functionality of our solution. Our product architecture is open, and
we intend to incorporate new technologies and standards for messaging,
communications, process management and business applications to provide a
complete solution for e-Business integration.
Enhance Presence in Targeted Vertical Markets. Our e*Xchange product suite
is designed to be easily adaptable to different vertical markets, and our
products have been adopted by customers across a broad range of industry
segments, including healthcare, financial services/insurance, retail/
e-Commerce/services, telecommunications/utilities and manufacturing. We intend
to continue expanding penetration of vertical markets that we believe represent
significant revenue opportunities. We have dedicated sales and marketing
resources targeted at specific vertical markets, and we plan to extend this
approach to additional industry segments. We also intend to provide additional
industry-specific product functionality and partner with systems integrators
that have expertise in particular vertical markets.
Build upon STC Awareness. We intend to leverage our installed base of
customers and to make substantial investments in sales and marketing to increase
our visibility and market share. We will focus on increasing our sales to
existing customers and new customers, particularly by providing integration
solutions for their expansion into e-Business activities. We are also expanding
our geographic coverage by increasing our presence internationally, including in
Europe, the Middle East, Africa and the Pacific Rim.
Expand Distribution, Consulting and Implementation Through Strategic
Alliances. We intend to expand and seek additional strategic alliances with
leading systems integrators and software vendors to increase our market
penetration. We believe that our e*Xchange solution enables our strategic
partners to offer readily deployable, repeatable e-Business solutions.
Consistent with our strategy to foster strategic alliances, Andersen Consulting,
CSC and EDS have acquired equity interests in and entered into alliances with
STC. Our alliance with Andersen Consulting provides for qualified customer
introductions and the joint development and marketing of repeatable vertical
industry market offerings, our alliance with CSC provides for the generation of
license revenues for STC and the joint development and marketing of repeatable
vertical industry market offerings, and our alliance with EDS provides for the
generation of license revenue for STC. We have also signed reseller agreements
with software vendors such as BroadVision and will continue to pursue
opportunities to provide our e-Business integration capabilities to additional
software vendors.
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PRODUCTS
Our e*Xchange business integration suite provides the following key
capabilities:
- Enterprise Integration. Integration capabilities are the core of all
e*Xchange offerings. Whether at the application, network or system level,
e*Xchange provides a robust, scalable and reliable integration platform.
Business applications or systems are connected to a network via pre-built
adapters that we call e*Way Intelligent Adapters, enabling them to work
together. As opposed to solutions based upon "hub and spoke"
architectures, e*Xchange's distributed architecture delivers scalability
through its ability to deploy run-time components anywhere on the
network, thus making maximum use of enterprise computing capacity.
e*Xchange's reliability is a result of its flexible deployment options
for load balancing and reliable communication across unreliable channels,
its ability to change business processes dynamically without stopping the
system, its ability to recover from hardware failures without risk of
data loss or duplication and its support of transactional integrity.
- Business Process Management. Using graphical business modeling tools,
business users can quickly define physical business processes and easily
modify those processes in response to dynamic changes. The technical
details of each business process are exposed in a hierarchy of graphical
views that span all levels of integration down to the most detailed data
manipulation and networking aspects. Graphical monitoring of business
processes allows business users to observe the status of individual
events and processes, to detect and correct abnormal conditions in real-
time, and to audit and analyze process history for further optimization.
Real-time alerts or process exceptions can trigger faxes, pages, e-mails
or messages to system management tools based on any business or system
event.
- B2B Management. e*Xchange supports a wide range of inter- and
intra-business processes. e*Xchange can incorporate information and
events external to the enterprise, including XML-based exchanges over the
Internet, either directly or through trading exchanges, traditional EDI
over value added networks or new Internet-based EDI protocols, as well as
other methods of communication, such as faxes, e-mail and messages over
dedicated and dial-up connections. Business processes may also include
transactions via electronic funds transfer networks such as S.W.I.F.T.,
direct bank deposits, and credit, securities, and other financial
transactions. e*Xchange also provides trading partner management to
simplify the setup and configuration of partner and customer profiles.
Additionally, pattern matching and cross-indexing capabilities allow
customers and trading partners to be identified uniquely and
automatically from various data-stores within and among enterprises.
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LOGO
[Graphical depiction of STC's e*Xchange e-Business Integration product
suite, showing various architectural layers of the product alongside sample
depictions of computer screens that show the user interfaces for those layers.]
A customer typically licenses e*Gate as a core technology engine, together
with a combination of specialized product offerings that meet specific
integration needs. Our specialized product offerings are as follows:
- e*Way Intelligent Adapters (e*Ways) provide specialized application
connectivity and support for robust data processing. e*Gate's open
architecture combined with e*Way adapters enable seamless
interoperability with a wide variety of packaged applications, message
standards, operating systems, databases, networks and communication
protocols. We currently offer over 500 e*Way intelligent adapters,
including adapters for direct database access, Web server access,
packaged applications (such as SAP, PeopleSoft, Siebel, Clarify, Vantive,
Oracle and BroadVision), communication protocols and legacy applications
and data stores. An e*Way Extension Kit is available for rapid
development of custom e*Ways.
- Intelligent Bridges are out-of-the-box solutions that bundle all the
components, including e*Ways, business logic and application extensions,
necessary to automate specific business processes among popular
applications. Intelligent Bridges provide customers with a fast and
predictable time-to-market advantage. Examples of Intelligent Bridges
include the PeopleSoft-to-SAP Intelligent Bridge and the Siebel-to-SAP
Intelligent Bridge.
- e*Xchange Integrator is a secure system for managing trading partner
relationships and facilitating the exchange of business information
outside a corporate firewall via both traditional EDI and
state-of-the-art XML technology. Seamless integration with e*Gate enables
the use of these transactions or messages by other enterprise
applications and systems.
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- e*Index (Global Identifier) is an intelligent system that uniquely
identifies persons, organizations or other entities and cross-indexes how
they are identified by all systems that communicate with e*Xchange.
e*Index allows companies to access their customers, partners and other
entities from a single view and to automatically resolve exact or near
duplicate entries.
We are continually enhancing the e*Xchange product suite. In particular, we
are focused on enhancing the functionality of e*Xchange with additional trading
partner and business process management capabilities, extended B2B functionality
and broader platform support. In addition, we are developing reporting and
analysis capabilities that will leverage historical process data stored in the
business process warehouse within e*Xchange and facilitate process optimization
activities. We will continue to develop new e*Ways for emerging packaged
applications, Web technologies and data formats to provide even greater
application and system connectivity as well as develop new Intelligent Bridges,
such as BroadVision-to-SAP.
PROFESSIONAL SERVICES
Our customers typically purchase consulting services from us to support
their implementation activities. We offer professional services with the initial
deployment of our product, as well as on an ongoing basis to address the
continuing needs of our customers. Our consulting services range from
architectural planning to complete development and deployment of our products.
In each case, our services are tailored to meet our customers' needs. Our
professional services organization also provides comprehensive education at our
state-of-the-art training facility, as well as on-site courses. As of December
31, 1999, our professional services organization consisted of 116 experienced
professionals. Many of our professional services employees have advanced degrees
or substantial industry experience in systems architecture and design. We expect
that the number of service professionals and the scope of the services that we
offer will increase as we continue to address the expanding enterprise
infrastructure needs of large organizations.
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CUSTOMERS
We have directly or indirectly licensed our products to over 1,200
customers internationally. The following is a representative list of our
customers by industry:
<TABLE>
<S> <C> <C>
FINANCIAL SERVICES/INSURANCE Dominion Dental Care RETAIL/E-COMMERCE/SERVICES
Fairview Health System
ABN Amro Bank Kaleida Health Ames Dept Stores
Banque Nationale de Paris McLaren Health Corp. Andersen Consulting
Continental Casualty Company Medicalogic Barnes & Noble.com
CNA Insurance Mid-Michigan Medical Center Enterprise Rent-a-car
Credit Agricole Luxembourg New York and Presbyterian IAMA
Fidelity Management Hospital MedicaLogic
HypoVereinsbank Northwest Med Info/Whatcom Neoforma.com
ING Barings Skagit Onyx Software
J.P. Morgan Oral Health PeopleSoft
Lloyds Financial Systems PacifiCare Dental & Vision PETsMART, Inc.
Nationwide Insurance Renal Care Group
NGH Luxembourg University of Pennsylvania TELECOMMUNICATIONS/UTILITIES
Northern Trust Healthsystem
Ord Minett Wentworth Area Health Chevron
Thomas Weisel Partners Service Fluor Corporation
UBS A.G. National Power
Westpac Banking Corp. MANUFACTURING Portland Gas & Electric
WestLB Racal Telecom
Agilent Scottish and Southern
GOVERNMENT Amdahl Corporation Energy plc.
Amgen Schlumberger
U.S. Veterans Administration Australian Co-operative Tesion GmbH
U.S. Department of Defense Foods Limited
Bausch & Lomb
HEALTHCARE Hewlett-Packard Company
Maersk/AP Moller
Caregroup Nike Inc.
Caritas Christi Hospital O.C. Tanner
Cedars-Sinai Hospital Raytheon
Denticare of California Warner Lambert
Digital Equipment Corp.
</TABLE>
In 1997, one customer accounted for 11% of our revenues. In 1998 and 1999,
no single customer accounted for more than 10% of our revenues. Revenues from
the sale of our products and services outside the United States accounted for
$4.0 million, or 14.9% of our total revenues in 1997, $7.6 million, or 20% of
our total revenues in 1998 and $15.1 million, or 27% of our total revenues in
1999. Revenues from the sale of our products and services in the United Kingdom
as a percent of total revenues were 8.9% in 1997, 9.9% in 1998 and 9.7% in 1999,
while revenues from the sale of our products and services in Germany as a
percent of total revenues were 2.7% in 1997, 5.6% in 1998 and 10.6% in 1999. We
believe that revenues from sales outside the United States will continue to
account for a material portion of our total revenues for the foreseeable future.
Long-lived assets located outside the United States, principally in Europe, were
$358,000 at December 31, 1997, $933,000 at December 31, 1998, and $1.4 million
at December 31, 1999.
The following examples illustrate how some of our customers have deployed
our products:
BARNES & NOBLE.COM
Opportunity: Since launching its online business in May 1997, Barnes &
Noble.com has become one of the world's largest Web sites and the fourth largest
e-Commerce site, according to Media Metrix. With access to Barnes & Noble's more
than 750,000 in-stock titles, Barnes & Noble.com has the largest
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standing inventory of any online bookseller ready for immediate delivery. One of
the challenges facing Barnes & Noble.com was the need to reliably collect and
distribute the high volume of information about the titles and the sales process
to and from many sources and systems to support the rapid business process
required by a business-to-consumer and B2B e-Commerce company.
Solution: Barnes & Noble.com entered into a multi-year software and support
agreement with STC to use e*Xchange to enable and manage the information flow
among their multiple systems and the Web. The e*Xchange integration platform
allows Barnes & Noble.com to eliminate duplication of effort in information
flows, improve the accuracy and consistency of data across participating
systems, and ultimately provide its customers a higher quality experience when
buying from Barnes & Noble.com. While customers receive a satisfying experience
when shopping on the Web site, Barnes & Noble.com achieves a seamless supply
chain integration in the back-office among SAP systems, data warehousing systems
and the systems of multiple suppliers and partners.
HEWLETT-PACKARD COMPANY
Opportunity: Hewlett-Packard Company, or HP, is a leading global business
provider of computing and imaging solutions and services for business and home.
In order for HP to provide integrated services to its customers, HP needed its
internal systems to be able to share critical information with each other and
along the extended supply chain.
Solution: e*Xchange was a comprehensive solution to meet HP's requirements
and is currently being used within HP to integrate a major ERP system with
existing systems and business partners across the Internet.
NEWYORK-PRESBYTERIAN HEALTHCARE NETWORK
Opportunity: NewYork-Presbyterian Healthcare Network presented a complex
integration challenge across its network of 15 sponsored hospitals and 13
affiliated hospitals, as well as three specialty institutions, six long term
care facilities, 11 home health agencies, 62 satellite primary care centers, 12
physician groups and four managed case entities. Rapid and accurate translation
and routing of information from one system to another is vital to the hospitals'
success. The applications were originally linked through traditional
point-to-point, system-to-system, integration technologies. However, as systems
were added, the time, cost and effort to link patient data became prohibitive.
Solution: e*Xchange was implemented by the hospital network to provide an
intelligent application integration solution that allows multiple information
systems to communicate and exchange information, despite platform differences
and data format disparities. More than 70 mission-critical applications on the
hospital network have already been integrated using e*Xchange with hundreds more
to follow. Applications sharing information through e*Xchange range from
critical mainframe-based financial and patient registration applications to a
host of clinical systems.
WESTLB
Opportunity: WestLB is one of the largest credit institutions in Germany
and has a presence in leading financial markets worldwide. WestLB launched its
Electronic Banking Services unit to establish worldwide banking solutions which
will offer automatic, quick and inexpensive transactions to clients. The
Electronic Banking Services unit needed a solution to provide the enterprise
integration platform behind its services for an integrated electronic banking
environment. The bank had legacy environments that needed to be integrated with
all of its transaction-based systems, including trading, dealing and cash
management. Because of the high volume of transactions and data, the bank also
had a number of formats and processes to manage. In order for WestLB Electronic
Banking Services to provide a competitive offering and establish market
leadership, it needed a robust and flexible solution that could cope with the
highly complex requirements of its dynamic business.
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<PAGE> 41
Solution: WestLB Electronic Banking Services implemented e*Xchange to
create a fully integrated electronic banking environment. e*Xchange is designed
to provide synchronized real-time processing required in the banking industry,
enabling WestLB to improve operating efficiencies and the integrity of the data
transferred. e*Xchange can handle electronic data transfers in any format,
enabling centralized treasury functions and conversion of payment orders into
international formats, sending them directly into the clearing systems of those
countries for processing. e*Xchange has enabled WestLB to enhance cash and
treasury management services, establish an extranet platform for Internet
applications and services and handle electronic data transfers in any format
between WestLB and its business partners, customers or third party banks.
SALES AND MARKETING
We license our products and sell our services primarily through our direct
sales organization, complemented by the selling and support efforts of our
systems integrators and through our relationships with independent software
vendors. As of December 31, 1999, our sales and marketing organization consisted
of 118 professionals. We have sales offices in the greater metropolitan areas of
San Francisco and Los Angeles and in Australia, Belgium, France, Germany, Japan
and the United Kingdom. Our direct sales force works closely with our
professional services organization, which provides pre-sales support to
potential customers on product information and deployment capabilities. We plan
to significantly expand the size of our direct sales organization and are hiring
specialized sales personnel with expertise in vertical markets such as financial
services, telecommunications and utilities. We also plan to establish additional
sales offices domestically and internationally.
Our sales process requires that we work closely with targeted customers to
identify short term technical needs and long term goals. Our sales team, which
includes both sales and technical professionals, then works with the customer to
develop a proposal to address these needs. The length of our sales cycle
generally depends on the customer's industry.
Through our global software partner program, we license our technology to
leading independent software vendors so that they can embed our e*Xchange
technology into their product on a limited basis for seamless integration with
specific applications. These relationships enable these companies to resell our
products to their customers worldwide and provide our sales force further
opportunities to sell our products to these same customers. We have OEM and
reseller arrangements with a number of software vendors, including BroadVision.
We focus our marketing efforts on creating awareness of our products and
their applications, identifying and educating potential customers and generating
new sales opportunities. We have not historically made large investments in
promoting our brand or our products. However, we intend to significantly
increase our marketing expenses to increase awareness of e*Xchange as a
comprehensive solution for e-Business application integration. Our marketing
activities include advertising, direct mail, seminars, tradeshows and industry
conferences. We also have a public relations program focused on the trade and
business press as well as industry analysts.
Our marketing organization works closely with our systems integrator
partners and independent software vendors to jointly develop targeted marketing
programs to leverage the solutions offered by our partners. We plan to establish
additional programs to educate systems integrators and independent software
vendors on the benefits of e*Xchange.
STRATEGIC ALLIANCES WITH LEADING SYSTEMS INTEGRATORS
To promote additional market penetration of our products, we have
established strategic relationships with three of the largest independent
systems integrators, Andersen Consulting, CSC and EDS. Our relationships with
these systems integrators position us as a preferred e-Business integration
technology. We believe these relationships will enable us to increase market
awareness of our products
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<PAGE> 42
and increase sales. As we work with these firms, we intend to better utilize our
professional services organization and more effectively implement our products
with our customers. We have incentivized each of these integrators by issuing
warrants to purchase shares of our common stock, with the vesting of such
warrants conditioned upon achievement of agreed upon milestones relating to the
generation of qualified customer introductions or revenues for STC. In addition,
Andersen Consulting purchased a total of $1.0 million of our stock in September
1998 and March 1999, and EDS will buy shares of our common stock concurrently
with this offering at the public offering price. In addition to these strategic
relationships, we have relationships with other systems integrators including
Arthur Andersen, Deloitte & Touche, KPMG and PricewaterhouseCoopers.
PRODUCT DEVELOPMENT
Our core software product was commercially introduced in 1991, and in
November 1999, we released the 4.0 version of e*Gate. We are continually
enhancing our e*Xchange product suite. In particular, we are focusing on
enhancing the functionality of e*Gate with additional trading partner and
business process management capabilities, extended B2B functionality and broader
platform support. We will continue to develop new e*Ways for emerging packaged
applications, Web technologies and data formats to provide even greater
application and system connectivity as well as develop new Intelligent Bridges.
As of December 31, 1999, our product development organization included 78
employees. In 1999, our research and development expenses were $12.0 million, as
compared to $8.5 million in 1998 and $4.2 million in 1997. Our product
development organization includes the following departments:
Product Management. This group is the primary interface between the product
development team and the rest of our organization. Product management collects
input from marketing, sales, services, support, pilot programs, partners and
users to define product requirements. Product management defines product
strategies and works with technical staff to assess implementation effort.
Architecture and Research. This group is tasked with innovating new
technology in our core areas of expertise, including distributed architecture,
security, scalability and performance. This group also performs advance
prototyping and technical specification of new products.
Development. Our development team is responsible for building specified
products. This team receives functional input from our product management group
and technical input from our architecture and research group. Our development
team works very closely with our documentation group to ensure that all releases
are accurately described in user manuals and help systems. The development team
releases its work to the quality assurance team, which verifies stability
against defined acceptance criteria.
CUSTOMER SERVICE AND SUPPORT
We provide support for all of our products on a global basis 24 hours a
day, seven days a week. Our support centers are located in California and the
United Kingdom. Each of these support centers tracks support incidents on one
global system, providing a consistent level of service everywhere. Customers
have the option to log, track and update service and support inquiries
electronically, via the Web, telephone, or a combination of both. Our customer
service group handles incoming calls, shipping requests, call logging,
maintaining customer information and responding to basic product questions. Our
technical support engineering group is responsible for all technical cases until
the issue is resolved and is responsible for meeting targeted response times and
providing regular updates. Our technical support engineering group interfaces
with our research and development group for product maintenance and bug fixing.
As of December 31, 1999, our support organization included 27 employees.
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<PAGE> 43
COMPETITION
The market for our products is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenues and increase operating losses.
Our current competitors include:
EAI vendors. We face competition from vendors offering EAI software
products. These vendors include Active Software, CrossWorlds Software and New
Era of Networks, also known as NEON. A number of other companies are offering
products that address different aspects of our solution, including BEA Systems,
IBM, Tibco Software and Vitria Technology. In the future, some of these
companies may expand their products to enhance their functionality to provide a
solution more similar to ours.
B2B integration vendors. We face competition from vendors offering EDI
software solutions. These vendors include Sterling Commerce and Harbinger. These
solutions may be entrenched in particular functions of a potential customer's
organization for its data exchange with third parties. We also face competition
from a number of emerging software vendors focused on aspects of B2B
integration, such as webMethods.
Other software vendors. We may in the future also encounter competition
from major enterprise software developers including Oracle, PeopleSoft and SAP.
In addition, Microsoft has announced its intention to introduce products which
could compete with some aspects of our products. These companies have
significantly greater resources than we have.
Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that provide for some
of the functionality of our e*Xchange product suite. In particular, it can be
difficult to sell our product to a potential customer whose internal development
group has already made large investments in and progress towards completion of
systems that our product is intended to replace.
Many of our existing and potential competitors have more resources, broader
customer relationships and better-established brands than we do. In addition,
many of these competitors have extensive knowledge of our industry. Some of our
competitors have established or may establish cooperative relationships among
themselves or with third parties to offer a single solution and increase the
ability of their products to address customer needs.
We believe that the principal competitive factors affecting the market for
our products and services include product functionality and features, product
price and performance, ease of implementation, market awareness, quality of
professional services offerings, acceptance of product or vendor by leading
system integrators, quality of customer support services, quality of training
and documentation and vendor and product reputation. Although we believe that
our solutions generally compete favorably with respect to these factors, our
market is evolving rapidly. We may not be able to maintain our competitive
position against current and potential competitors, especially those with
significantly greater resources.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success is dependent upon the technological and creative skills of our
personnel in developing and enhancing our software products, as well as our
ability to protect the related proprietary technology and intellectual
proprietary rights. We rely primarily on a combination of contractual
provisions, confidentiality procedures, trade secrets, copyright and trademark
laws to accomplish these goals. We do not currently hold any patents. We have
filed one provisional patent application in the United States and may file
additional patent applications in the future. We cannot assure you that a patent
will be issued from any patent application we submit. Moreover, we cannot assure
you that we will develop proprietary products or technologies that are
patentable, that any patent issued to us will provide us with any competitive
advantages, or that the patents of others will not seriously harm our ability to
do business.
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<PAGE> 44
We license our products pursuant to license agreements that prohibit
reverse engineering or decompilation of our software, impose restrictions on the
licensee's ability to utilize the software and provide for specific remedies in
the event of a breach of these restrictions. In addition, we take measures to
avoid disclosure of our trade secrets, including but not limited to requiring
employees, customers and others with access to our proprietary information to
execute confidentiality agreements with us which define the unauthorized uses
and disclosures of our trade secrets and other proprietary materials and
information. Additionally, we restrict access to our source code.
We assert copyright in software, documentation and other works of
authorship and periodically file for and are granted copyright from the U.S.
Copyright Office in and to qualifying works of authorship. We assert trademark
rights in and to our name, product names, logos and other markings that are
designed to permit consumers to identify our goods and services. We routinely
file for and have been granted trademark protection from the U.S. Patent and
Trademark Office for qualifying marks.
Despite our efforts to protect our proprietary rights, existing laws,
contractual provisions and remedies afford only limited protection. In addition,
effective copyright and trade secret protection may be unavailable or limited in
some foreign countries. Attempts may be made to copy or reverse engineer aspects
of our product or to obtain and use information that we regard as proprietary.
Accordingly, we cannot assure you that we will be able to protect our
proprietary rights against unauthorized third-party copying or use. Use by
others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
Although we do not believe our products infringe the proprietary rights of
third parties and are not aware of any currently pending claims that our
products, trademarks or other proprietary rights infringe upon the proprietary
rights of third parties, it is possible that third parties will claim that we
have infringed their current or future products. Any claims, with or without
merit, could be time-consuming, result in costly litigation, prevent product
shipment, cause delays or require us to enter into royalty or licensing
agreements, any of which could harm our business. Patent litigation in
particular has complex technical issues and inherent uncertainties. Parties
making claims against us could secure substantial damages, as well as injunctive
or other equitable relief which could effectively block our ability to license
our products in the United States or abroad. Such a judgment could seriously
harm our business. In the event an infringement claim against us were successful
and we could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, our business would be harmed.
EMPLOYEES
As of December 31, 1999, we had a total of 400 employees, including 78 in
research and development, 118 in sales and marketing, 27 in customer support,
116 in professional services and training, and 61 in operations, administration
and finance. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.
FACILITIES
Our principal executive and corporate offices are located in Monrovia,
California, where we lease a total of approximately 68,000 square feet under a
lease that expires in August 2003. We lease approximately 17,000 square feet in
Redwood Shores, California for our sales and marketing offices under a lease
that expires in September 2004. We also have sales and marketing offices in
Australia, Belgium, France, Germany, Japan and the United Kingdom under leases
that cover from 200 to 9,600 square feet and that expire from December 2001 to
January 2009. We believe that these facilities are adequate for our current
operations and that additional space can be obtained on commercially reasonable
terms if needed.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information with respect to our executive
officers, directors and key employees as of February 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
James T. Demetriades.............. 37 Chairman of the Board, President and Chief Executive
Officer
Paul J. Hoffman................... 49 President, Americas
Kathleen M. Mitchell.............. 47 Senior Vice President, Marketing and Business
Development
Barry J. Plaga.................... 38 Senior Vice President, Finance, Chief Financial
Officer and Assistant Secretary
Rangaswamy Srihari................ 43 Vice President, Engineering and Chief Technology
Officer
Paul J. Celuch.................... 45 Vice President, Human Resources
Alex Demetriades.................. 31 Vice President, Products
Harry R. Gould.................... 40 Vice President, Global Alliances
Lionel Laurin..................... 56 Vice President, Professional Services
Scott West........................ 45 Vice President, International
Sterge T. Demetriades............. 71 Director
Richard L. deNey.................. 50 Director
Salah M. Hassanein(1)............. 78 Director
Raymond J. Lane(1)................ 53 Director
Steven A. Ledger(1)............... 40 Director
Jerry F. Murdock(2)............... 41 Director
George J. Still(1)(2)............. 41 Director
Jack L. Wilson(2)................. 52 Director
</TABLE>
- -------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
EXECUTIVE OFFICERS AND DIRECTORS
James T. Demetriades has served as our Chairman of the Board, President and
Chief Executive Officer since he founded STC in 1989. Prior to founding STC, Mr.
Demetriades was employed by Information Concepts, Inc. where he managed
development of software for use in the insurance industry. Mr. Demetriades then
worked for a division of American Medical International designing and building
custom interfaces between software systems. Mr. Demetriades is a founding member
of the ANSI standards group HL7 and a Cal Tech Fellow. Mr. Demetriades holds a
B.S. degree in computer science and economics from Loyola Marymount University,
Los Angeles.
Paul J. Hoffman has served as our President, Americas since April 1999.
From September 1996 to April 1999, Mr. Hoffman served as Vice President,
Worldwide Sales for Documentum, a document management software company. From
September 1994 to September 1996, Mr. Hoffman served as Vice President,
Worldwide Operations for Oracle Corporation. Mr. Hoffman holds a B.S. degree in
finance from Fairfield University.
Kathleen M. Mitchell has served as our Senior Vice President, Marketing and
Business Development since April 1999. From June 1997 to December 1998, Ms.
Mitchell was President and Chief Executive Officer of Live Picture, Inc., an
Internet imaging company which filed for bankruptcy protection in 1999. From
January 1995 to January 1997, Ms. Mitchell was employed with Ceridian
Corporation, an information services company, as President of the Employer
Services division.
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<PAGE> 46
Ms. Mitchell holds a B.A. degree in economics from Newton College (later merged
with Boston College).
Barry J. Plaga has served as our Senior Vice President, Finance and Chief
Financial Officer since November 1999. From June 1999 to November 1999, Mr.
Plaga served as Executive Vice President and Chief Financial Officer for
Activision, Inc., a publisher and developer of interactive software and video
games. From June 1997 to June 1999, Mr. Plaga served as Senior Vice President
and Chief Financial Officer for Activision. From January 1992 to June 1997, Mr.
Plaga served as Senior Vice President, Finance and Chief Administrative Officer
of Activision. Mr. Plaga received his B.S. in accounting and his master of
accounting degree from the University of Southern California.
Rangaswamy Srihari has served as our Vice President, Engineering and Chief
Technology Officer since April 1998. Mr. Srihari served as our Vice President,
Technology and Services from July 1997 to March 1998, and as our Vice President,
Commercial Markets from January 1997 to June 1997. From November 1994 to
December 1996, Mr. Srihari was employed with Delphi Info Systems as Vice
President, Development and Chief Technical Officer. Mr. Srihari holds a B.S.
degree in chemical engineering from the University of Madras (India), and an
M.S. in electrical engineering from the Illinois Institute of Technology.
Sterge T. Demetriades has served as a member of the Board of STC since
1989. From 1964 to 1995, Mr. Demetriades was Chief Executive Officer of several
privately-held research and development companies in the aerospace, energy and
large system simulation environments, most recently at STD Research Corporation,
a scientific research company. He has published numerous technical articles, and
is an invited contributor to technical handbooks and encyclopedias. Since 1995,
Mr. Demetriades has continued to serve as a consultant on technology issues for
various governmental agencies. Mr. Demetriades holds an A.B. degree in physics,
math and chemistry from Bowdoin College, an M.S. degree in chemical engineering
from the Massachusetts Institute of Technology, and a Mech. Eng. degree from the
California Institute of Technology.
Richard L. deNey has served as a member of the Board of STC since February
2000. Since August 1999, Mr. deNey has been Senior Vice President of EDS,
responsible for strategic planning and business development. From 1994 until
August 1999, Mr. deNey served as Executive Vice President of Corporate Strategy
and Development at Borden, Inc. Prior to that, Mr. deNey served as a Managing
Director at Bankers Trust and at Bear, Stearns & Co. Inc. He also serves as a
director of Unigraphics Solutions Inc., a mechanical engineering software and
services company. Mr. deNey holds a B.S. degree in electrical engineering from
The Johns Hopkins University and an M.B.A. from The University of Chicago.
Salah M. Hassanein has served as a member of the Board of STC since July
1996. From July 1996 to the present, Mr. Hassanein has served as President and
Chief Executive Officer of the Todd-AO Corporation, a motion picture and
television post-production company. From July 1994 to July 1996, Mr. Hassanein
served as President and Chief Operating Officer of the Todd-AO Corporation. Mr.
Hassanein also serves as a director of the Todd-AO Corporation.
Raymond J. Lane has served as a member of the Board of STC since May 1998.
Mr. Lane has served as President and Chief Operating Officer of Oracle
Corporation since July 1996. From October 1993 to June 1996, Mr. Lane served as
Executive Vice President and President of Worldwide Operations at Oracle. From
June 1992 to September 1993, Mr. Lane served as a Senior Vice President at
Oracle and as President of Oracle USA. Prior to joining Oracle, Mr. Lane was a
Senior Vice President and Managing Partner of the Worldwide Information
Technology Group at Booz-Allen & Hamilton from July 1986 to May 1992. He served
on the Booz-Allen & Hamilton Executive Committee and its Board of Directors from
April 1987 to May 1992. Mr. Lane is also a member of the Board of Trustees of
Carnegie-Mellon University and serves on the Board of Directors of Special
Olympics International.
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<PAGE> 47
Mr. Lane is a director of Marimba Inc., a computer software company, and
C-bridge Internet Solutions, Inc.
Steven A. Ledger has served as a member of the Board of STC since June
1996. Mr. Ledger has been Managing Partner of eCompanies Venture Management,
LLC, a venture capital firm, since July 1999. Since November 1993, he has served
as Managing Partner of Storie Advisors, Inc., a venture capital firm that
invests in emerging growth companies, and Managing Partner of San Francisco
Sentry Investment Group, an investment firm. Mr. Ledger also serves as a
director of BigStar Entertainment, Inc. and ValueStar Corp., a customer
satisfaction rating company. Mr. Ledger holds a B.A. degree in economics from
the University of Connecticut.
Jerry F. Murdock has served as a member of the Board of STC since May 1998.
Since 1995, Mr. Murdock has been employed by InSight Capital Partners, an
investment firm which he co-founded in that year. From 1987 to 1995, Mr. Murdock
was President of Aspen Technology Group, a consulting firm which he founded in
1987. Mr. Murdock also serves as a director of Quest Software, Inc. Mr. Murdock
holds a B.A. degree in political science from San Diego State University.
George J. Still has served as a member of the Board of STC since May 1998.
Mr. Still has been employed with Norwest Venture Partners, a venture capital
firm, since October 1989 and is Managing Partner of several Norwest Venture
Capital Partnerships. Mr. Still also serves as a director of PeopleSoft, Inc.,
an enterprise software and services company, and also serves as a director of
the National Venture Capital Association. Mr. Still holds a B.S. degree from
Pennsylvania State University and an M.B.A. from the Amos Tuck School at
Dartmouth College.
Jack L. Wilson has served as a member of the Board of STC since February
2000. Mr. Wilson has been Managing General Partner of AC Ventures, a unit of
Andersen Consulting, since December 1999. From 1983 until December 1999, Mr.
Wilson served as a partner of Andersen Consulting, and had various management
roles, including Managing Partner of Global Markets and Managing Partner of
Industry Markets and Packaged Knowledge. Mr. Wilson has served as a member of
the Executive Committee, Global Operations Committee and Global Management
Council of Andersen Consulting. Mr. Wilson also serves as a director of Security
First Technologies, Inc., a company providing Internet-based financial services
solutions. Mr. Wilson holds a B.S. in economics from the University of Arizona
and an M.B.A. from the University of Southern California.
KEY EMPLOYEES
Paul J. Celuch has served as our Vice President, Human Resources since
March 1998. From January 1988 to March 1998, Mr. Celuch was employed with
Citicorp as Vice President, responsible for human resources. Mr. Celuch holds a
B.S. degree from Slippery Rock University and an M.S. from Southern Illinois
University.
Alex Demetriades has served as our Vice President, Products since January
2000. From January 1995 to January 2000, Mr. Demetriades was employed in various
other positions at STC, most recently as Director of Product Management,
Architecture and Research. Mr. Demetriades holds B.S. degrees in cognitive
science and biophysics, and a B.A. degree in psychology, each from the
University of California at San Diego.
Harry R. Gould has served as our Vice President, Global Alliances since
June 1999. Prior to joining STC, from August 1998 to June 1999, Mr. Gould served
as Vice President of Sales for SDT, Inc. an enterprise software testing company.
From January 1997 to January 1998, Mr. Gould served as Vice President of Sales
for Chordiant Software, Inc., an Internet software applications company. From
June 1987 to December 1996, Mr. Gould was employed as Vice President, Alliances
for Oracle Corporation. Mr. Gould holds a B.A. degree in communications from
University of California, Los Angeles.
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<PAGE> 48
Lionel Laurin has served as our Vice President, Professional Services since
July 1999. From November 1994 to July 1999, Mr. Laurin was employed at Oracle
Corporation, as a Regional Vice President of Industrial Consulting. From June
1992 to November 1994, Mr. Laurin served as Director of Professional Services
for Marcam Corporation, a process enterprise resource planning software and
services vendor. Mr. Laurin holds a B.A. degree from California State
University, Fullerton.
Scott West has served as our Vice President, International since November
1999. From March 1999 to November 1999, Mr. West served as our Vice President,
Applications Development, Global Corporate Operations and Pacific Rim Sales.
From 1994 to March 1999, Mr. West held various positions with us including Vice
President, International Sales. Mr. West attended Southern Oregon State
University.
Sterge Demetriades is the father of James T. Demetriades and Alex
Demetriades. There are no other family relationships between any of our
executive officers, directors and key employees. Our executive officers are
appointed by our board of directors and serve at the discretion of the board.
BOARD COMPOSITION
We currently have authorized nine directors. Our restated articles of
incorporation will provide that, effective upon the closing of this offering,
the terms of office of the members of the board of directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
shareholders to be held in 2001, Class II, whose term will expire at the annual
meeting of shareholders to be held in 2002, and Class III, whose term will
expire at the annual meeting of shareholders to be held in 2003. The Class I
directors are Messrs. Ledger, Murdock and Still, the Class II directors are
Messrs. Sterge Demetriades, deNey and Hassanein, and the Class III directors are
Messrs. James Demetriades, Lane and Wilson. At each annual meeting of
shareholders after the initial classification, the successors to directors whose
term will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control or management of STC.
Messrs. Murdock and Still are currently serving on the board as
representatives of the holders of our Series A preferred stock and Series B
preferred stock. The holders of our Series A preferred stock and Series B
preferred stock are entitled to elect these directors pursuant to the terms of
the preferred stock as set forth in our restated articles of incorporation. Upon
the closing of this offering, the outstanding shares of preferred stock will
convert into shares of common stock and the holders of the preferred stock will
no longer have the right to appoint any directors. Messrs. Murdock and Still are
expected to continue to serve as directors following the closing of this
offering.
BOARD COMMITTEES
The audit committee of the board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The audit committee currently consists of Messrs.
Murdock, Still and Wilson.
The compensation committee of the board of directors reviews and recommends
to the board the compensation and benefits of all of our executive officers,
administers our stock option plan and employee stock purchase plan and
establishes and reviews general policies relating to compensation and benefits
of our employees. The compensation committee currently consists of Messrs. Lane,
Ledger, Hassanein and Still.
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<PAGE> 49
DIRECTOR COMPENSATION
Our directors do not receive cash for services they provide as directors.
In July 1998, Mr. Lane was granted an option to purchase 202,500 shares of
common stock, Messrs. Murdock and Still were each granted an option to purchase
67,500 shares of common stock, and Messrs. Sterge Demetriades, Hassanein and
Ledger were each granted an option to purchase 16,875 shares of common stock.
Each of these options is fully vested and was granted at an exercise price of
$1.37 per share. In December 1998, each of these directors was granted an option
to purchase 45,000 shares of common stock at an exercise price of $1.37 per
share. These options are fully vested and exercisable. In June 1997, Messrs.
Demetriades, Hassanein and Ledger were each granted an option to purchase 90,000
shares of common stock. Each of these options is fully vested and was granted at
an exercise price of $1.15 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of STC serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of STC's board of directors. None of the members of our
compensation committee is an officer or employee of STC.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by STC
during the fiscal year ended December 31, 1999 to our Chief Executive Officer
and four other most highly compensated executive officers whose salary and bonus
exceeds $100,000 for services rendered in all capacities to STC. We refer to
these officers elsewhere in this prospectus as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
OTHER ANNUAL AWARDS OF ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) STOCK OPTIONS COMPENSATION(2)
- --------------------------- -------- -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
James T. Demetriades..... $300,000 $184,500 $ -- --(3) $3,200
Chairman, President and
Chief Executive Officer
Paul J. Hoffman.......... 212,500 100,000 -- 1,350,000 --
President, Americas(4)
Rangaswamy Srihari....... 187,500 58,500 202,436(5) 90,000 --
Vice President,
Engineering and Chief
Technology Officer
Kathleen M. Mitchell..... 158,045 37,500 -- 1,170,000 --
Senior Vice President,
Marketing and Business
Development(6)
Stephen Edwards(7)....... 161,550 72,000 -- -- --
Vice President, Europe,
Middle East and Africa
</TABLE>
- -------------------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the named executive
officer for such year.
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<PAGE> 50
(2) Represents 401(k) plan matching.
(3) In February 2000, Mr. Demetriades was granted an option to purchase
1,000,000 shares of common stock at the public offering price, vesting in
four equal annual installments beginning in February 2001.
(4) Mr. Hoffman joined us in March 1999, and has an annual salary of $300,000.
(5) Represents reimbursement for relocation expenses.
(6) Ms. Mitchell joined us in April 1999, and has an annual salary of $250,000.
(7) Mr. Edwards ceased to be an employee of STC in December 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information for the fiscal year ended
December 31, 1999 with respect to each grant of stock options to the Named
Executive Officers.
All options were granted at an exercise price equal to the fair value of
the common stock on the date of grant. Potential realizable values are computed
by (a) multiplying the number of shares of common stock subject to a given
option by the exercise price per share, (b) assuming that the aggregate stock
value derived from that calculation compounds at the annual 5% or 10% rates
shown in the table for the entire ten year term of the option and (c)
subtracting from that result the aggregate option exercise price. The 5% and 10%
assumed annual rates of stock price appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent our estimate or
projection of future common stock prices.
Each of these options was granted pursuant to the 1998 Stock Plan and is
subject to the terms of such plan. These options were granted at an exercise
price equal to the fair market value of our common stock as determined by the
board of directors on the date of grant and, as long as the optionee maintains
continuous employment with us.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED 1999(1) SHARE DATE 5% 10%
---- --------- ------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James T.
Demetriades(2)......... -- --% $ -- -- $ -- $ --
Paul J. Hoffman(3)....... 1,350,000 19.6 1.67 5/14/09 1,417,843 3,593,092
Rangaswamy Srihari....... 45,000 0.7 1.67 5/14/09 47,261 119,770
45,000 0.7 1.49 1/26/09 42,167 108,860
Kathleen M.
Mitchell(4)............ 1,170,000 17.0 1.67 5/14/09 1,228,797 3,114,013
Stephen Edwards(5)....... 45,000 0.7 1.49 1/26/09 42,167 106,860
</TABLE>
- -------------------------
(1) In 1999, we granted employees and consultants options to purchase an
aggregate of 6,901,088 shares of common stock.
(2) In February 2000, Mr. Demetriades was granted an option to purchase
1,000,000 shares of common stock at the public offering price, vesting in
four equal annual installments beginning in February 2001.
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<PAGE> 51
(3) The option granted to Mr. Hoffman vests and is exercisable as follows:
vested with respect to 225,000 shares on April 1, 1999, with the remainder
vesting in four equal annual installments beginning on the first anniversary
thereafter.
(4) The option granted to Ms. Mitchell vests and is exercisable as follows:
vested with respect to 45,000 shares on April 15, 1999, with the remainder
vesting in four equal annual installments beginning on the first anniversary
thereafter.
(5) The option granted to Mr. Edwards vests in four equal annual installments
beginning on the first anniversary of the date of grant. Mr. Edwards ceased
to be an employee of STC in December 1999, at which time his option expired
unexercised.
1999 YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options held by each of our Named Executive Officers as of
December 31, 1999. None of the Named Executive Officers exercised options to
purchase common stock during the year ended December 31, 1999. The value of
in-the-money options is based on the assumed initial public offering price of
$17.00 per share and is net of the option exercise price.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James T. Demetriades...................... 450,000 -- $7,077,000 $ --
Paul J. Hoffman........................... 225,000 1,125,000 3,450,000 17,250,000
Rangaswamy Srihari........................ 157,500 202,500 2,491,050 3,156,450
Kathleen M. Mitchell...................... 45,000 1,125,000 690,000 17,250,000
Stephen Edwards........................... 45,000 -- 664,650 --
</TABLE>
COMPENSATION PLANS
1998 STOCK PLAN
Our Stock Plan was approved by the board of directors and our shareholders
in July 1998, and amended by the board of directors in February 2000. The Stock
Plan provides for the grant to employees of STC, including officers and employee
directors, of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for the grant of nonstatutory
stock options to employees, directors and consultants of STC. The Stock Plan is
currently administered by the board of directors which selects the optionees,
determines the number of shares to be subject to each option and determines the
exercise price of each option. The Stock Plan currently authorizes the issuance
of an aggregate of up to 13,725,903 shares of common stock, and provides for
automatic annual increases on January 1 of each year beginning January 1, 2001
equal to the lesser of:
- 6,000,000 shares;
- 5.0% of the outstanding shares on such date; or
- an amount determined by our board of directors.
As of January 31, 2000, options to purchase an aggregate of 5,098,238
shares of common stock were outstanding under the Stock Plan, and an aggregate
of 8,504,853 shares of common stock remained available for future grants.
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<PAGE> 52
The exercise price of all incentive stock options granted under the Stock
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of all nonstatutory stock options granted
under the Stock Plan shall be determined by the administrator, but in no event
may be less than 85% of the fair market value 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 stock of STC, the exercise price of any incentive or
nonstatutory option granted must equal at least 110% of the fair market value on
the grant date and the maximum term of any such option must not exceed five
years. The term of all other options granted under the Stock Plan may not exceed
ten years.
In the event a participant in the Stock Plan ceases to be an employee,
director or consultant of STC, other than upon the participant's death or
disability, the participant may exercise his or her vested options for a period
of three months following such termination, unless a different exercise period
is specified in his or her option agreement.
In the event of a merger of STC with or into another corporation or a sale
of substantially all of our assets, the Stock Plan requires that each
outstanding option be assumed or an equivalent option substituted by the
successor corporation; provided, however, that in the event the successor
corporation refuses to assume or substitute for the outstanding options, such
options will become fully vested and exercisable for a period of fifteen days
after notice from the administrator. Unless terminated sooner, the Stock Plan
will terminate ten years from its effective date. The board has authority to
amend or terminate the Stock Plan, provided that no such action may impair the
rights of the holder of any outstanding options without the written consent of
that holder.
1997 STOCK PLAN
Our 1997 Stock Plan provides for the grant to our employees, including
officers and employee directors, of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, and for the
grant of nonstatutory stock options to employees, directors and consultants of
STC. To date, we have granted options to purchase an aggregate of 7,449,810
shares of common stock under the 1997 Plan with a weighted average exercise
price of $1.79 per share. From and after the completion of this offering, no
further options will be granted under the 1997 Plan.
In the event of a merger of STC with or into another corporation or a sale
of substantially all of our assets, the 1997 Plan requires that each outstanding
option be assumed or an equivalent option substituted by the successor
corporation; provided, however, that in the event the successor corporation
refuses to assume or substitute for the outstanding options, such options will
become fully vested and exercisable for a period of fifteen days after notice
from the administrator. Unless terminated sooner, the 1997 Plan will terminate
ten years from its effective date. The board of directors has authority to amend
or terminate the 1997 Plan, provided that no such action may impair the rights
of the holder of any outstanding options without the written consent of that
holder.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan provides our employees with an
opportunity to purchase our common stock through accumulated payroll deductions.
This plan will become effective upon the date of this prospectus. A total of
2,250,000 shares of common stock have been reserved for issuance under the
Purchase Plan, none of which have been issued. The number of shares reserved for
issuance under the Purchase Plan will be subject to an annual increase on
January 1 of each year beginning January 1, 2001 equal to the lesser of:
- the number of shares issued under the Purchase Plan in the prior year; or
- an amount determined by the Board.
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<PAGE> 53
The Purchase Plan will be administered by the board of directors or by a
committee appointed by the board. The Purchase Plan permits eligible employees
to purchase common stock through payroll deductions up to a maximum of $25,000
for all purchases ending within the same calendar year and up to a maximum of
1,500 shares per year. Employees are eligible to participate if they are
employed by us for at least 20 hours per week and more than five months in any
calendar year. The Purchase Plan contains successive 24 month offering periods.
The offering periods generally start on the first trading day on or after May 16
and November 16 of each year, except for the first such offering period, which
we expect will commence on the date of this prospectus and end on or about
November 15. In the event we are acquired, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
option, the offering period then in progress will be shortened by setting a new
exercise date. The price at which common stock will be purchased under the
Purchase Plan is equal to 85% of the fair market value of the common stock on
the first or last day of the applicable offering period, whichever is lower.
Employees may end their participation in the offering period at any time, and
participation automatically ends on termination of employment. Generally, the
board of directors may amend, modify or terminate the Purchase Plan at any time
as long as such amendment, modification or termination does not impair the
rights of plan participants. The Purchase Plan will terminate at 2010, unless
terminated earlier in accordance with its provisions.
401(k) PLAN
We adopted a retirement savings plan, or 401(k) Plan, that covers all of
our employees. An employee may elect to defer, in the form of contributions to
the 401(k) Plan, up to 15% of the total annual compensation that would otherwise
be paid to the employee, subject to statutory limitations. Employee
contributions are invested in selected mutual funds or money market funds
according to the directions of the employee. We make matching contributions as a
percentage of employee contributions, subject to established limits. The
employees' contributions are fully vested and nonforfeitable at all times.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated articles of incorporation limit the liability of directors to
the maximum extent permitted by California law. As a result, our directors will
not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except liability as required by California law for:
- acts or omissions which involve intentional misconduct or a knowing and
culpable violation of law;
- acts or omissions that the director believes to be contrary to the best
interests of the corporation or its shareholders or that involve an
absence of good faith;
- any transaction from which the director derived any improper personal
benefit;
- acts or omissions that show a reckless disregard for the director's duty
to the corporation or its shareholders;
- acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation
or its shareholders;
- any transaction between the corporation and interested directors or
affiliated corporations not properly approved under California law; and
- any unlawful distribution, loan or guaranty.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
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<PAGE> 54
Our restated articles of incorporation and bylaws provide that we shall
indemnify our directors and executive officers and may indemnify other officers
and employees and our agents to the fullest extent permitted by law. We believe
that these indemnification provisions cover 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 that capacity, regardless of
whether the bylaws would permit indemnification. We have director and officer
liability insurance that covers matters, including matters arising under the
Securities Act.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for judgments, fines, settlement amounts and expenses,
including attorneys' fees, incurred by any of these persons in any action or
proceeding, including any action by or in the right of STC, arising out of that
person's services as a director or executive officer 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.
We have agreed to indemnify one of our executive officers and another
employee with respect to expenses and damages arising out of lawsuits filed
against such individuals by their former employer following their employment by
us. There is no other pending litigation or proceeding involving any director,
officer, employee or agent of STC where indemnification will be required or
permitted. We are not aware of any other pending or threatened litigation or
proceeding that might result in a claim for such indemnification. We currently
have liability insurance for our directors and officers that covers public
securities matters.
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<PAGE> 55
RELATED PARTY TRANSACTIONS
SALES OF STOCK TO INSIDERS
In May, June and September 1998, we issued an aggregate of 2,864,583 shares
of Series A preferred stock at a per share purchase price of $3.84 to investors.
On February 23, 1999, we issued an aggregate of 2,703,675 shares of common stock
at a per share price of $1.49 to investors. In March 1999, we issued an
aggregate of 2,588,215 shares of Series B preferred stock at a per share price
of $4.25 to investors. Immediately prior to the closing of this offering, each
share of Series A preferred stock will convert into 2.84463 shares of our common
stock, and each share of Series B preferred stock will convert into 2.25 shares
of our common stock. Each of these financing transactions involved the issuance
and sale of securities to certain of our directors, principal shareholders or
affiliated entities, as detailed in the following table:
<TABLE>
<CAPTION>
SERIES A SERIES B TOTAL SHARES
PREFERRED COMMON PREFERRED AS TOTAL
INVESTOR STOCK STOCK STOCK CONVERTED AMOUNT PAID
-------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Salah M. Hassanein and Todd-AO
Corporation....................... -- 336,825 -- 336,825 $ 499,998
Raymond J. Lane..................... 65,104 58,823 317,549 499,997
Funds affiliated with InSight
Capital Partners.................. 474,332 -- 428,572 2,313,586 3,642,867
Norwest Venture Partners VI,
L.P. ............................. 1,261,503 -- 1,139,805 6,153,071 9,688,343
Storie Partners, L.P................ -- 2,020,958 -- 2,020,958 2,999,998
</TABLE>
Mr. Hassanein, a director of STC, is affiliated with Todd-AO Corporation, a
shareholder of STC. Mr. Lane is a director of STC. Mr. Jerry F. Murdock, a
director of STC, is a partner in InSight Capital Partners. The investing funds
affiliated with InSight Capital Partners include InSight Capital Partners II,
L.P. and InSight Capital Partners (Cayman) II, L.P. Mr. George J. Still, a
director of STC, is a partner in Norwest Venture Partners and Mr. Steven A.
Ledger, a director of STC, is a partner in Storie Partners, L.P. See "Principal
Shareholders" for more detail on shares held by these investors.
We have also granted options to our executive officers. See
"Management -- Option Grants."
OTHER AGREEMENTS WITH INSIDERS
We are a party to a lease for a building in Arcadia, California half of
which is owned by the Demetriades Family Trust dated December 20, 1983, a
majority interest of which is owned by Sterge Demetriades, one of our directors,
and his wife. The other half of the building is owned by another trust, The 150
E. Foothill Trust dated December 20, 1983, of which James T. Demetriades, our
Chairman, President and Chief Executive Officer is one of the beneficiaries.
During the previous three fiscal years, we have paid rent in the aggregate
amount of $262,000 under this lease. The lease expires in December 2002.
We have paid the premiums on certain life insurance policies for the
benefit of James T. Demetriades. Total premiums paid as of January 31, 2000 were
$256,384. This amount is classified as a related party receivable on our
consolidated balance sheet. STC has been named as a beneficiary on such policies
up to the amount of the cash value of the policy, which was approximately
$297,000 as of January 31, 2000.
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<PAGE> 56
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31, 2000 with respect to:
- each person or group of affiliated persons known by us to own
beneficially more than 5% of the outstanding shares of common stock;
- each of our directors;
- each of our Named Executive Officers; and
- all directors and executive officers as a group.
The address for each listed director and officer is c/o STC, 404 East
Huntington Avenue, Monrovia, California 91016. Except as otherwise indicated in
the footnotes to the table, each of the shareholders has sole voting and
investment power with respect to the shares beneficially owned by such
shareholders, subject to community property laws where applicable.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. The number of shares of common stock outstanding after
this offering includes shares of common stock being offered in this offering and
in the concurrent private placement to EDS and does not include the shares that
are subject to the underwriters' over-allotment option. The percentage of common
stock outstanding as of January 31, 2000 is based on 60,764,745 shares of common
stock outstanding on that date.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------ ------------ -------- --------
<S> <C> <C> <C>
James T. Demetriades(1)..................................... 30,416,979 49.7% 44.4%
Norwest Venture Partners VI, L.P.(2)........................ 7,272,446 12.0 10.7
George J. Still
245 Lytton Avenue, Suite 250
Palo Alto, California 94301
Storie Partners, L.P.(3).................................... 5,239,007 8.6 7.7
Steven A. Ledger
100 Pine Street, Suite 2700
San Francisco, California 94111
InSight Capital Partners(4)................................. 2,397,961 3.9 3.5
Jerry F. Murdock
122 E. 42nd Street, Suite 2300
New York, New York 10168
Sterge T. Demetriades(5).................................... 1,192,986 2.0 1.7
Andersen Consulting LLP(6).................................. 1,044,597 1.7 1.5
Jack L. Wilson
1661 Page Mill Road
Palo Alto, CA 94304
Salah M. Hassanein(7)....................................... 937,143 1.5 1.4
Raymond J. Lane(8).......................................... 686,924 1.1 1.0
Paul J. Hoffman(9).......................................... 225,000 * *
Rangaswamy Srihari(10)...................................... 157,500 * *
Kathleen M. Mitchell(11).................................... 45,000 * *
Stephen Edwards(12)......................................... 45,000 * *
All directors and officers as a group (13 persons).......... 49,615,543 79.0 70.7
</TABLE>
- -------------------------
* less than 1% of the outstanding shares of common stock.
54
<PAGE> 57
(1) Includes 450,000 shares issuable upon exercise of options which are
exercisable within 60 days of January 31, 2000. Also represents 29,966,979
shares held by the James T. Demetriades Family Trust UTD dated March 15,
1996, of which Mr. James T. Demetriades is trustee and over which he has
voting and dispositive power.
(2) Includes 84,375 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000. Also represents 7,188,071
shares held by Norwest Venture Partners VI, L.P. over which Mr. Still
shares voting and disposition power. Mr. Still disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(3) Includes 123,750 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000. Also represents 5,115,257
shares held by Storie Partners, L.P. over which Mr. Ledger shares voting
and disposition power. Mr. Ledger disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(4) Includes 84,375 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000. Also represents 2,313,586
shares held by InSight Capital Partners over which Mr. Murdock shares
voting and disposition power. Mr. Murdock disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein.
(5) Includes 123,750 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000. Also represents 1,069,236
shares held by the Demetriades Family Trust UTD dated December 20, 1930, of
which Mr. Sterge T. Demetriades is trustee and over which he has voting and
dispositive power.
(6) Includes 409,500 shares held by Andersen Consulting, LLP issuable upon the
exercise of warrants which are exercisable within 60 days of January 31,
2000, over which Mr. Wilson has shared voting or dispositive power. Mr.
Wilson disclaims beneficial ownership of such shares except for his
pecuniary interest therein. Also represents 635,097 shares held by AC
Ventures, B.V., over which Mr. Wilson has no voting or dispositive power.
(7) Includes 123,750 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000. Also represents 338,634
shares held by Mr. Hassanein, and 474,761 shares held by the Todd-AO
Corporation, of which Mr. Hassanein is President and Chief Executive
Officer.
(8) Includes 219,375 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000.
(9) Includes 225,000 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000.
(10) Includes 157,500 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000.
(11) Includes 45,000 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000.
(12) Includes 45,000 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 2000.
55
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Our restated articles of incorporation, which will be filed prior to the
closing of this offering, authorize the issuance of up to 200,000,000 shares of
common stock and 10,000,000 shares of undesignated preferred stock, the rights
and preferences of which may be established by our board of directors. As of
January 31, 2000, after giving effect to the conversion of all outstanding
shares of Series A and B preferred stock prior to the closing of this offering
and the concurrent private placement, 60,764,745 shares of common stock were
issued and outstanding and held by approximately 200 shareholders.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record upon such matters and in such manner as may be provided by law. Subject
to preferences applicable to any outstanding shares of preferred stock, the
holders of common stock are entitled to receive ratably dividends, if any, as
may be declared by the board of directors out of funds legally available for
dividend payments. In the event we liquidate, dissolve or wind up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
the preferred stock. Holders of common stock have no preemptive rights or rights
to convert their common stock into any other securities. There are no redemption
or sinking fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, absent any limitations prescribed by law, without shareholder
approval, to issue up to an aggregate of 10,000,000 shares of preferred stock,
in one or more series, each of the series to have 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 preferred stock that may
be issued in the future. An 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 have no present plans to
issue any shares of preferred stock.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of the holders of
our Series A preferred stock and Series B preferred stock:
Demand Registrations. At any time on or after six months following the
closing date of the initial public offering of our common stock, the holders of
registration rights may request us to register shares of common stock having a
gross offering price of at least $15.0 million subject to our right, upon advice
of our underwriters, to reduce the number of shares proposed to be registered.
We will be obligated to effect only two registrations pursuant to such a request
by holders of registration rights. If shares requested to be included in a
registration must be excluded due to limitations on the number of shares to be
registered on behalf of the selling shareholders pursuant to the underwriters'
advice, the shares registered on behalf of the selling shareholders will be
allocated among all holders of shares with rights to be included in the
registration on the basis of the number of shares with such rights held by such
shareholders.
Piggyback Registration Rights. The holders who have registration rights
have unlimited rights to request that shares be included in any
company-initiated registration of common stock other than registrations of
employee benefit plans or business combinations subject to Rule 145 under the
Securities
56
<PAGE> 59
Act. In our registration subsequent to this offering, the underwriters may, for
marketing reasons, limit the shares requested to be registered on behalf of all
shareholders having the right to request inclusion in such registration.
Form S-3 Registrations. After we have qualified for registration on Form
S-3 which will not be available until at least 12 months after we become a
publicly reporting company, holders of registration rights may request in
writing that we effect an unlimited number of registrations of such shares on
Form S-3 provided that the gross offering price of the shares to be so
registered in each such registration exceeds $5.0 million. If such registration
is to be an underwritten public offering, the underwriters may reduce for
marketing reasons the number of shares to be registered on behalf of all
shareholders having the right to request inclusion in such registration. We are
not obligated to effect a registration on Form S-3 prior to expiration of twelve
months following effectiveness of the most recent registration requested by the
holders.
Future Grants of Registration Rights. We cannot grant further piggyback
registration rights without the prior written consent of current shareholders
owning at least a majority of the then outstanding registrable securities,
including grants to any holder or prospective holder of any registration rights
which would be on equal or more favorable terms than the existing piggyback
registration rights.
Transferability. The registration rights are transferable upon notice by
the holder to us of the transfer, provided that the transferee or assignee is
not deemed by the board of directors to be a competitor of ours and assumes the
rights and obligations of the transferor for such shares.
Termination. The registration rights will terminate on the first to occur
of five years after the date of our initial public offering or the date on which
the holder may sell the shares pursuant to Rule 144, provided that the aggregate
of the shares held by the holder represent less than 1% of our then outstanding
equity securities.
WARRANTS
In connection with a loan and security agreement with Greyrock Capital, we
issued to Greyrock a warrant to purchase up to 262,500 shares of common stock at
an exercise price of $1.89 per share. The warrant expires in October 2004 and is
fully exercisable.
In connection with our alliance with Andersen Consulting, we issued to
Andersen Consulting a warrant to purchase up to 1,200,000 shares of common stock
at an exercise price of $5.33 per share. The warrant expires in November 2003
and became exercisable as to 409,500 shares as of January 31, 2000. The warrant
generally vests and becomes exercisable as to the remaining shares as new
customer generation and other milestones are completed by Andersen Consulting.
The warrant contains a significant economic disincentive for nonperformance.
In connection with our alliance with EDS, we issued to EDS a warrant to
purchase up to 1,200,000 shares of common stock at an exercise price of $6.67
per share. The warrant expires in July 2002 and is not yet exercisable. The
warrant generally vests and becomes exercisable as to the shares as EDS
completes new customer generation milestones that result in a signed license
between STC and the new customer within an agreed upon schedule. The warrant
contains a significant economic disincentive for nonperformance.
In connection with our alliance with CSC, we issued to CSC a warrant to
purchase up to 1,200,000 shares of common stock at an exercise price equal to
the greater of $14.00 or the per share price of the common stock in this
offering. The warrant expires in September 2002 and is not yet exercisable. The
warrant generally vests and becomes exercisable as CSC completes various
milestones, including new customer generation milestones that result in a signed
license between STC and the new customer within an agreed upon schedule. The
warrant contains a significant economic disincentive for nonperformance.
57
<PAGE> 60
All of the outstanding warrants may be net exercised by applying the value
of a portion of the warrant, which is equal to the number of shares issuable
under the warrant being exercised multiplied by the fair market value of the
security receivable upon exercise of the warrant, less the per share exercise
price, in lieu of payment of the exercise price per share.
ANTI-TAKEOVER PROVISIONS
Provisions of California law and our restated articles of incorporation and
bylaws could make more difficult our acquisition by a third party and the
removal of our incumbent officers and directors. These provisions, summarized
below, are expected to discourage coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of us to first
negotiate with us. We believe that the benefits of increased protection of our
ability to negotiate with the proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation could result in an improvement of their
terms.
Our restated articles of incorporation and bylaws:
- do not provide for the right of shareholders to act by written consent
without a meeting;
- do not provide for cumulative voting in the election of directors;
- permit the board of directors to issue preferred stock with voting or
other rights without further shareholder action; and
- permit the board of directors to fill any vacancy on the board of
directors, including vacancies caused by removal.
These provisions, which require the vote of shareholders holding at least a
majority of the outstanding common stock to amend, may have the effect of
deterring hostile takeovers or delaying changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C. The transfer agent's address and telephone number
is 235 Montgomery Street, 23rd Floor, San Francisco, California 94104 and (415)
743-1423.
58
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse or are
released could adversely affect the prevailing market price and impair our
ability to raise equity capital in the future.
Upon completion of this offering and the concurrent private placement, we
will have 68,064,745 outstanding shares of common stock. Of these shares, the
6,100,000 shares sold in the offering, plus any shares issued upon exercise of
the underwriters' over-allotment option, will be freely tradable without
restriction under the Securities Act, unless purchased by our "affiliates" as
that term is defined in Rule 144 under the Securities Act. In general,
affiliates include officers, directors or 10% shareholders.
The remaining 61,964,745 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
Our directors, officers and substantially all our shareholders have entered
into lock-up agreements in connection with this offering generally providing
that they will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of our common stock or any securities exercisable for or
convertible into our common stock without the prior written consent of Morgan
Stanley & Co. Incorporated for a period of 180 days after the date of this
prospectus. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
will not be salable until such agreements expire or are waived by Morgan Stanley
& Co. Incorporated. Taking into account the lock-up agreements, and assuming
Morgan Stanley & Co. Incorporated does not release shareholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
- beginning on the date of this prospectus, the shares sold in the offering
and 1.1 million additional shares will be immediately available for sale
in the public market.
- beginning 180 days after the date of this prospectus, an additional 7.4
million shares will be freely tradeable pursuant to Rule 144(k), and an
additional 46.5 million shares will be eligible for sale subject to
volume limitations, as explained below, pursuant to Rules 144 and 701.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding
which will equal approximately 680,648 shares immediately after the
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice, and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate and
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
59
<PAGE> 62
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written compensatory
plan or contract to resell such shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144. Any shares sold under Rule 701 may
only be sold on or following the date that is 90 days after the date of this
prospectus.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act within 90 days following the date of this prospectus to
register shares to be issued pursuant to our employee benefit plans. As a
result, any options or rights exercised under the 1998 Stock Plan, the 1997
Stock Plan, the 2000 Employee Stock Purchase Plan or any other benefit plan
after the effectiveness of the registration statement will also be freely
tradable in the public market. However, such shares held by affiliates will
still be subject to the volume limitation, manner of sale, notice and public
information requirements of Rule 144 unless otherwise resalable under Rule 701.
As of January 31, 2000, there were outstanding options for the purchase of
approximately 12.2 million shares of common stock, of which options to purchase
approximately 4.5 million shares were vested and exercisable.
60
<PAGE> 63
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation and are acting as representatives, have
severally agreed to purchase, and we have agreed to sell to them, severally, the
number of shares indicated below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Donaldson, Lufkin & Jenrette Securities Corporation.........
---------
Total..................................................... 6,100,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of common stock offered by this prospectus are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered by this prospectus, other than those covered by the
over-allotment option described below, if any of the shares are taken. Morgan
Stanley Dean Witter Online, an affiliate of Morgan Stanley & Co. Incorporated,
is acting as a selected dealer in connection with the offering and will be the
sole distributor of shares of common stock over the Internet to its eligible
account holders.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 915,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent the option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase about the same percentage of the additional shares of common stock as
the number located next to that underwriter's name in the preceding table bears
to the total number of shares of common stock set forth next to the names of all
underwriters in the preceding table. If the underwriters' option is exercised in
full, the total price to public would be $ , the total underwriters'
discounts and commissions would be $ , and the total proceeds to us
would be $ .
At our request, the underwriters expect to reserve for sale at the initial
public offering price up to shares offered in this prospectus for
our directors, officers, employees and business associates and related persons.
The number of shares of common stock available for sale to the general public
will be reduced to the extent these persons purchase the reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered in this
prospectus.
61
<PAGE> 64
We, the directors, officers and substantially all of our other
shareholders, and substantially all individuals holding options to acquire
shares of our common stock that will be vested within the 180-day period after
the date of this prospectus, have each agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we
will not, during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, whether
the shares or any of those securities are then owned by that person or
are later acquired directly from us; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock, whether any transaction described above is to be settled by
delivery of common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of shares to the underwriters under the underwriting agreement;
- the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares;
- gifts and transfers by will or intestacy, provided that the transferee
agrees in writing to be bound by the restrictions described above;
- transfers to members, partners, affiliates or immediate family or
transfers to a trust for the benefit of the transferor or the
transferor's immediate family, provided the transferee agrees in writing
to be bound by the restrictions described above; and
- issuances of shares of common stock or options to purchase shares of
common stock under our employee benefit plans as in existence on the date
of the prospectus and consistent with past practices.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "STCS."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously distributed
common stock in transactions to cover syndicate short positions, in stabilizing
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
62
<PAGE> 65
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between us and the representatives. Among the factors to be considered in
determining the initial public offering price will be our record of operations,
our current financial position and future prospects, the experience of our
management, sales, earnings and certain of our other financial and operating
information in recent periods, the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to ours. The estimated initial public
offering price range set forth on the cover page of this preliminary prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Cooley Godward LLP, Palo Alto, California, will pass upon
certain legal matters in connection with this offering for the underwriters. As
of the date of this prospectus, members of Wilson Sonsini Goodrich & Rosati,
P.C. and an investment partnership composed of current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, P.C. beneficially
owned an aggregate of 128,264 shares of common stock. Jeffrey D. Saper, a member
of Wilson Sonsini Goodrich & Rosati, P.C., serves as the Secretary of STC.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, as set forth in their
reports. We have included our financial statements and schedule in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedule thereto. For further information with respect to STC and the common
stock offered in this offering, we refer you to the registration statement and
to the attached exhibits and schedules. Statements made in this prospectus
concerning the contents of any document referred to in this prospectus are not
necessarily complete. With respect to each such document filed as an exhibit to
the registration statement, we refer you to the exhibit for a more complete
description of the matter involved.
The reports and other information we file with the SEC can be inspected and
copied at the public reference facilities that the SEC maintains at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the SEC at the principal offices of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information
regarding the operation of the public reference room by calling 1-800-SEC-0330.
The SEC also maintains a web site (http://www.sec.gov) that makes available the
reports and other information we have filed with the SEC.
63
<PAGE> 66
SOFTWARE TECHNOLOGIES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 67
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Software Technologies Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Software
Technologies Corporation and subsidiaries as of December 31, 1998 and 1999, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Software
Technologies Corporation and subsidiaries as of December 31, 1998 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
February 11, 2000, except for Note 10,
as to which the date is March 23, 2000
F-2
<PAGE> 68
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SHAREHOLDERS'
------------------------ EQUITY (DEFICIT)
1998 1999 DECEMBER 31, 1999
---------- ---------- -------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents...................... $ 3,255 $ 1,572
Accounts receivable, net of allowances of $391
and $1,055 at December 31, 1998 and 1999,
respectively................................. 13,473 18,522
Prepaid expenses and other current assets...... 456 1,581
-------- --------
Total current assets...................... 17,184 21,675
Property and equipment, net....................... 4,794 7,206
Related party receivable.......................... 214 256
Other assets...................................... 665 715
-------- --------
Total assets.............................. $ 22,857 $ 29,852
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Bank line of credit............................ $ 3,235 $ 3,361
Accounts payable............................... 3,742 4,994
Compensation and related expenses.............. 2,714 3,781
Other accrued expenses......................... 2,567 1,102
Deferred revenue............................... 6,122 10,354
-------- --------
Total current liabilities................. 18,380 23,592
Note payable and other obligation................. 367 10,000
Commitments and contingencies
Redeemable convertible preferred stock, no par
value -- 10,000,000 shares authorized;
2,864,583 and 5,452,798 shares issued and
outstanding as of December 31, 1998 and 1999
respectively; aggregate liquidation preference
of $22,000 at December 31, 1999, pro
forma -- no shares issued and outstanding...... 11,445 24,681 $ --
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value -- 10,000,000
shares authorized; no shares issued and
outstanding as of December 31, 1998 and 1999;
pro forma -- no shares issued and
outstanding.................................. -- -- --
Common stock, no par value -- 200,000,000
shares authorized; 43,754,765 and 46,531,377
issued and outstanding as of December 31,
1998 and 1999, respectively; pro
forma -- 60,503,539 shares issued and
outstanding.................................. 6,766 19,519 44,200
Deferred stock compensation.................... -- (5,379) (5,379)
Accumulated other comprehensive loss........... (52) (237) (237)
Accumulated deficit............................ (14,049) (42,324) (42,324)
-------- -------- --------
Total shareholders' equity (deficit)...... (7,335) (28,421) $ (3,740)
-------- -------- ========
Total liabilities, redeemable convertible
preferred stock and shareholders' equity
(deficit)............................... $ 22,857 $ 29,852
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 69
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
License............................................... $10,911 $ 18,142 $ 24,051
Services.............................................. 10,149 10,853 20,268
Maintenance........................................... 2,919 5,142 9,055
Other................................................. 2,720 3,324 1,797
------- -------- --------
Total revenues................................ 26,699 37,461 55,171
Cost of revenues:
License............................................... 229 959 690
Services (exclusive of stock-based compensation
expense of $0 in 1997 and 1998 and $157 in 1999)... 6,727 11,269 20,904
Maintenance........................................... 366 587 2,368
Other................................................. 2,200 1,907 1,219
------- -------- --------
Total cost of revenues........................ 9,522 14,722 25,181
------- -------- --------
Gross profit.......................................... 17,177 22,739 29,990
------- -------- --------
Operating expenses:
Research and development (exclusive of stock-based
compensation expense of $0 in 1997 and 1998 and
$112 in 1999)...................................... 4,242 8,496 11,990
Sales and marketing (exclusive of stock-based
compensation expense of $0 in 1997 and 1998 and
$1,390 in 1999).................................... 6,849 16,273 28,652
General and administrative (exclusive of stock-based
compensation expense of $0 in 1997 and 1998 and $49
in 1999)........................................... 5,307 9,229 12,176
Amortization of alliance warrants..................... -- -- 814
Amortization of stock-based compensation.............. -- -- 1,708
------- -------- --------
Total operating expenses...................... 16,398 33,998 55,340
------- -------- --------
Income (loss) from operations........................... 779 (11,259) (25,350)
Interest and other income............................... 14 217 165
Interest expense........................................ (277) (201) (680)
------- -------- --------
Income (loss) before provision for income taxes......... 516 (11,243) (25,865)
Provision for income taxes.............................. 10 -- --
------- -------- --------
Net income (loss)....................................... 506 (11,243) (25,865)
------- -------- --------
Accretion on preferred stock............................ -- 686 2,410
------- -------- --------
Net income (loss) available to common shareholders...... $ 506 $(11,929) $(28,275)
======= ======== ========
Basic and diluted net income (loss) per share........... $ 0.01 $ (0.27) $ (0.62)
======= ======== ========
Number of shares used in computing basic and diluted net
income (loss) per share............................... 42,801 43,748 45,954
======= ======== ========
Pro forma basic and diluted net loss per share
(unaudited)........................................... $ (0.44)
========
Pro forma basic and diluted weighted average shares
(unaudited)........................................... 58,470
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 70
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK DEFERRED COMPREHENSIVE TOTAL
---------------- STOCK INCOME ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT COMPENSATION (LOSS) DEFICIT EQUITY(DEFICIT)
------ ------- ------------ ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997.............. 42,179 $7,699 $ -- $ -- $ (2,626) $ 5,073
Components of comprehensive income
Net income............................. -- -- -- -- 506 506
Foreign currency translation
adjustment........................... -- -- -- (104) -- (104)
--------
Total comprehensive income......... 402
Issuance of common stock................. 3,087 1,647 -- -- 1,647
Repurchase of common stock............... (1,539) (2,702) -- -- -- (2,702)
Issuance of common stock pursuant to
employee stock option plan............. 15 3 -- -- -- 3
Issuance of stock options................ -- 35 -- -- -- 35
------ ------- ------- ----- -------- --------
Balance as of December 31, 1997............ 43,742 6,682 -- (104) (2,120) 4,458
Components of comprehensive loss
Net loss............................... -- -- -- -- (11,243) (11,243)
Foreign currency translation
adjustment........................... -- -- -- 52 -- 52
--------
Total comprehensive loss........... (11,191)
Accretion on preferred stock............. -- -- -- -- (686) (686)
Issuance of common stock pursuant to
employee stock option plan............. 13 16 -- -- -- 16
Issuance of stock options................ -- 68 -- -- -- 68
------ ------- ------- ----- -------- --------
Balance as of December 31, 1998............ 43,755 6,766 -- (52) (14,049) (7,335)
Components of comprehensive loss
Net loss............................... -- -- -- -- (25,865) (25,865)
Foreign currency translation
adjustment........................... -- -- -- (185) -- (185)
--------
Total comprehensive loss........... (26,050)
Issuance of common stock................. 2,703 4,074 -- -- -- 4,074
Issuance of common stock warrants........ -- 3,944 (3,256) -- -- 688
Amortization of common stock warrants.... -- -- 814 -- -- 814
Deferred stock compensation related to
stock options.......................... -- 4,645 (4,645) -- -- --
Amortization of deferred stock
compensation........................... -- -- 1,708 -- -- 1,708
Accretion on preferred stock............. -- -- -- -- (2,410) (2,410)
Issuance of common stock pursuant to
employee stock option plan............. 73 90 -- -- -- 90
------ ------- ------- ----- -------- --------
Balance as of December 31, 1999............ 46,531 $19,519 $(5,379) $(237) $(42,324) $(28,421)
====== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 71
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 506 $(11,243) $(25,865)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 921 1,121 1,863
Provision for doubtful accounts receivable............. 221 416 685
Amortization of alliance warrants...................... -- -- 814
Amortization of stock based compensation............... -- -- 1,708
Changes in assets and liabilities:
Accounts receivable.................................... (4,403) (2,747) (5,734)
Prepaid expenses and other current assets.............. 417 (292) (437)
Accounts payable....................................... (133) 2,038 1,252
Other accrued expenses................................. 768 3,017 (398)
Deferred revenue....................................... 1,684 1,707 4,232
------- -------- --------
Net cash used in operating activities....................... (19) (5,983) (21,880)
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,683) (2,991) (4,275)
Other..................................................... (233) (340) (92)
------- -------- --------
Net cash used in investing activities....................... (1,916) (3,331) (4,367)
------- -------- --------
Cash flows from financing activities:
Net borrowings under bank line of credit.................. 36 1,535 126
Proceeds from issuance of redeemable convertible preferred
stock, net............................................. -- 10,759 10,826
Proceeds from issuance of common stock, net............... 1,647 -- 4,074
Proceeds from issuance of common stock pursuant to stock
option plan............................................ 38 84 90
Repurchase of common stock................................ (2,702) -- --
Proceeds from notes payable, net.......................... 767 -- 9,781
Payments on notes payable and other obligations........... (584) (611) (148)
------- -------- --------
Net cash provided by (used in) financing activities......... (798) 11,767 24,749
Effect of exchange rate changes on cash and cash
equivalents............................................... (104) 52 (185)
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (2,837) 2,505 (1,683)
Cash and cash equivalents at beginning of year.............. 3,587 750 3,255
------- -------- --------
Cash and cash equivalents at end of year.................... $ 750 $ 3,255 $ 1,572
======= ======== ========
Supplemental cash flow disclosure:
Income taxes paid......................................... $ -- $ 30 $ --
Interest paid............................................. $ 277 $ 201 $ 530
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 72
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Software Technologies Corporation ("STC" or the "Company") provides a
comprehensive solution for e-Business application integration, enabling the
seamless flow of information across all systems, applications and enterprises on
a global basis. The Company provides this solution to its customers primarily by
license of its software and also by offering software implementation and
consulting services. The Company was founded in 1989 and sold its first product
and services in 1991. In November 1999, the Company launched the fourth
generation of its product, e*Gate 4.0, and concurrently renamed its product
line, previously called DataGate, to e*Gate.
The Company's operations are subject to certain risks and uncertainties,
including rapid technological changes, success of the Company's product
marketing and product distribution strategies, the need to manage growth, the
need to retain key personnel and protect intellectual property, and the
availability of additional capital financing on terms acceptable to the Company.
Liquidity and Financing Considerations
The Company incurred operating losses for the years ended December 31, 1998
and 1999, and as of December 31, 1999, the Company had an accumulated deficit of
$42.3 million and its current liabilities exceeded its current assets by
approximately $1.9 million. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to establish
profitable operations or to obtain additional funding through public or private
debt or equity financing. The Company is currently preparing for an initial
public offering of its common stock. In the opinion of management, alternative
financing from new or existing investors will be available to the Company if the
initial public offering is delayed or cancelled. However, there is no assurance
the Company will be able to obtain future financing on terms acceptable to the
Company, or at all. Management believes that they can delay anticipated
increases in the Company's operating costs such that available cash resources
would be sufficient to fund ongoing operations for the next year if additional
financing could not be obtained.
Basis of Presentation
The consolidated financial statements include the accounts of STC and its
wholly owned subsidiaries. All material intercompany transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
1997 and 1998 information to conform to the 1999 presentation.
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 periods. Actual results could differ from those estimates. Significant
estimates made in preparing the consolidated financial statements include the
allowance for doubtful accounts, certain accrued liabilities and estimates of
future cash flows developed to determine whether conditions of impairment are
present.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-7
<PAGE> 73
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk consist primarily of temporary cash investments and accounts
receivable. The Company places its temporary cash investments with financial
institutions. The Company's accounts receivable are derived from revenues earned
from customers located primarily in the United States, Europe, Australia and
Japan. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains allowances for potential credit losses. Credit
losses have historically been within management's expectations. The Company
generally does not require collateral or other security from its customers.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried at
cost, which approximates their fair value, due to the relatively short maturity
of these instruments. As of December 31, 1998 and 1999, the Company's short-term
line of credit and long-term debt had variable interest rates and, accordingly,
the Company believes the carrying value of the short-term line of credit and
long-term debt approximates its fair value.
Software Development Costs
Costs related to the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility of the product has been established, at which time
such costs are capitalized, subject to expected recoverability. To date, the
Company has not capitalized any development costs related to its software
products since the time period between technological feasibility and general
release of a product is not significant and related costs incurred during that
time period have not been material.
For software developed for internal use, certain qualifying costs incurred
in the application development stage are capitalized and amortized over a period
of three years.
Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position (SOP) No. 97-2, Software Revenue
Recognition. SOP 97-2, as amended by SOP 98-4 "Deferral of the Effective Date of
a Provision of SOP 97-2", was adopted by the Company as of January 1, 1998. In
December 1998, the AICPA issued SOP 98-9 "Modification of SOP 97-2 , Software
Revenue Recognition, With Respect to Certain Transactions", which requires
recognition of revenue using the "residual method" when (1) there is
vendor-specific objective evidence of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting, (2) vendor-specific objective evidence of fair
value does not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than the
requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied.
The adoption of these statements, as amended, did not have a material
impact on the Company's operating results, financial position or cash flows.
The Company enters into arrangements with end users, which may include the
sale of licenses of software, maintenance and services under the arrangement or
various combinations of each element, including the sale of such elements
separately. For each arrangement, revenues are recognized when an
F-8
<PAGE> 74
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreement has been signed by both parties, the fees are fixed or determinable,
collection of the fees is probable and delivery of the product has occurred and
no other significant obligations remain.
For multi-element arrangements, each element of the arrangement is analyzed
and the Company allocates a portion of the total fee under the arrangement to
the undelivered elements, primarily services and maintenance, using vendor
specific objective evidence of fair value of the element and the remaining
portion of the fee is allocated to the delivered elements (i.e. generally the
software license), regardless of any separate prices stated within the contract
for each element, under the residual method prescribed by SOP 98-9. Vendor
specific objective evidence of fair value is based on the price the customer is
required to pay when the element is sold separately (i.e. hourly rates charged
for consulting services when sold separately from a software license and the
renewal rate for maintenance arrangements). Each license agreement offers
additional maintenance renewal periods at a stated price. If vendor specific
objective evidence of fair value does not exist for the undelivered elements,
all revenue is deferred and recognized ratably over the service period if the
undelivered element is services, or over the period the maintenance is provided
if the undelivered element is maintenance, or until sufficient objective
evidence exists or all elements have been delivered.
License Revenues: Amounts allocated to license revenues under the residual
method are recognized at the time of delivery of the software when vendor
specific objective evidence of fair value exits for the undelivered elements, if
any, and all the other revenue recognition criteria discussed above have been
met.
Services Revenues: Revenues from services are comprised of consulting and
implementation services and, to a limited extent, training. Consulting services
are generally sold on a time-and-materials or fixed fee basis and include a
range of services including installation of off-the-shelf software, data
conversion and building non-complex interfaces to allow the software to operate
in customized environments. Services are generally separable from the other
elements under the arrangement since the performance of the services are not
essential to the functionality (i.e. do not involve significant production,
modification, or customization of the software or building complex interfaces)
of any other element of the transaction and are described in the contract such
that the total price of the arrangement would be expected to vary as the result
of the inclusion or exclusion of the services. Revenues for services are
recognized as the services are performed. Training services are sold on a per
student basis and are recognized as classes are attended.
Maintenance Revenues: Maintenance revenues consist primarily of fees for
providing unspecified software upgrades on a when-and-if-available basis and
technical support over a specified term, which is typically twelve months.
Maintenance revenues are typically paid in advance and are recognized on a
straight-line basis over the term of the contract.
To date, there have been no transactions involving licenses with OEMs and
systems integrators and only a limited number of transactions with resellers.
Revenues on sales made by our resellers are generally recognized upon shipment
of our software to the end user, if all other revenue recognition criteria noted
above are met. Under limited arrangements with certain distributors, all the
revenue recognition criteria have been met upon delivery of the product to the
distributor and, accordingly, revenues are recognized at that time. The Company
does not offer a right of return on its products.
Prior to January 1, 1998, the Company recognized revenue in accordance with
the provisions of AICPA's SOP 91-1, "Software Revenue Recognition."
F-9
<PAGE> 75
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Loss Per Share
Basic and diluted net income (loss) per share has been computed using the
weighted-average number of shares of common stock outstanding during the period.
The Company has excluded all redeemable convertible preferred stock, warrants
and outstanding stock options from the calculation of diluted net income (loss)
per share because all such securities are antidilutive for all periods
presented.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 was
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
redeemable convertible preferred stock into shares of common stock effective
upon the closing of the 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 an increase in the weighted average shares used to compute
basic and diluted net loss per share of 12,516,000 shares for the year ended
December 31, 1999. The pro forma effects of these transactions are unaudited and
have been reflected in the pro forma loss per share information in the
accompanying Statement of Operations for the year ended December 31, 1999.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to financial statements carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. The measurement of deferred tax assets and liabilities is
based on provisions of applicable tax law. The measurement of deferred tax
assets is reduced, if necessary, by a valuation allowance based on the amount of
tax benefits that, based on available evidence, is not expected to be realized.
Long-lived Assets
The Company reviews for impairment long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The recoverability test is performed at the lowest level at
which undiscounted net cash flows can be attributable to long-lived assets.
Comprehensive Income (Loss)
The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined
therein, refers to revenues, expenses, gains and losses that are not included in
net income (loss) but rather are recorded directly in shareholders' equity
(deficit).
Foreign Currency Translation
The functional currency for the Company's foreign operations is the local
currency. Foreign currency financial statements are converted into United States
dollars by translating asset and liability accounts at the current exchange rate
at year-end and statement of operations accounts at the average exchange rate
for the year, with the resulting translation adjustment reflected in accumulated
other comprehensive income (loss) in shareholders' equity (deficit).
F-10
<PAGE> 76
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-based Compensation
The Company accounts for its stock-based compensation arrangements in
accordance with the provisions of SFAS No. 123 "Accounting for Stock Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of the grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income (loss) and pro forma
earnings (loss) per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Pro Forma Shareholders Equity (Deficit) (unaudited)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of the Company's Redeemable Convertible Preferred Stock will
automatically convert into approximately 13,972,162 shares of Common Stock. The
pro forma effects of this conversion are unaudited and have been reflected in
the accompanying pro forma shareholders' equity (deficit) section of the
accompanying balance sheet as of December 31, 1999.
Recently Issued Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. In July
1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" was
issued. We will be required to adopt SFAS No. 133 in 2000.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Property and equipment
purchased under capital leases are recorded at cost (based on the present value
of minimum lease payments discounted at the contractual interest rate).
Depreciation is computed using the straight-line method over the shorter of the
estimated useful lives or the lease term of the assets: computer equipment,
three years; office furniture and equipment, five years; leasehold improvements,
through the lesser of useful life or life of the lease. Property and equipment,
stated at cost, was as follows (amounts in thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Computer equipment (hardware and software).................. $ 6,869 $ 8,530
Office furniture and equipment.............................. 623 1,785
Leasehold improvements...................................... 689 846
------- -------
Total cost of property and equipment........................ 8,181 11,161
Less accumulated depreciation and amortization.............. (3,387) (3,955)
------- -------
Property and equipment, net................................. $ 4,794 $ 7,206
======= =======
</TABLE>
F-11
<PAGE> 77
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation and amortization expense for the years ended December 31,
1997, 1998 and 1999 was $921,000, $1,121,000 and $1,863,000, respectively.
NOTE 3. OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREA
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company's chief
operating decision maker is considered to be the Company's Chief Executive
Officer ("CEO"). The CEO reviews financial information presented on a
consolidated basis similar to the consolidated financial statements. Therefore,
the Company has concluded that it operates primarily in one industry segment
and, accordingly, has provided enterprise-wide disclosures.
The Company maintains operations in North America and six international
territories in Europe and the Pacific Rim: United Kingdom, Germany, France,
Belgium, Australia and Japan. Information about the Company's operations in
North America and international territories for the years ended December 31,
1997, 1998 and 1999 is presented below.
Revenues and long-lived assets by geographic area were as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
North America................................... $22,700 $29,858 $40,223
Europe.......................................... 3,084 6,613 12,406
Pacific Rim..................................... 915 990 2,542
------- ------- -------
Total revenues.......................... $26,699 $37,461 $55,171
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Long-lived assets:
North America...................................... $3,106 $4,740 $6,806
Europe............................................. 328 896 1,234
Pacific Rim........................................ 30 37 137
------ ------ ------
Total long-lived assets.................... $3,464 $5,673 $8,177
====== ====== ======
</TABLE>
No single customer accounted for more than 10% of the Company's revenues
during the years ended December 31, 1998 and 1999. One customer accounted for
11.3% of the Company's revenues for the year ended December 31, 1997. Included
in revenues from operations in Europe are $2,365,000, $3,726,000 and $5,350,000
of revenues from the Company's operations in the United Kingdom and $719,000,
$2,102,000 and $5,845,000 of revenues from the Company's operations in Germany,
for the years ended December 31, 1997, 1998 and 1999, respectively.
F-12
<PAGE> 78
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. COMPUTATION OF NET INCOME (LOSS) PER SHARE
The following table sets forth the computations of basic and diluted net
income (loss) per share for the years indicated (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss)............................. $ 506 $(11,243) $(25,865)
Accretion on preferred stock............... -- 686 2,410
------- -------- --------
Net income (loss) available to common
stockholders............................. $ 506 $(11,929) $(28,275)
======= ======== ========
Denominator:
Denominator for basic and diluted net income
(loss) per share -- weighted average shares
outstanding................................ 42,801 43,748 45,954
------- -------- --------
Basic and diluted net income (loss) per
share...................................... $ 0.01 $ (0.27) $ (0.62)
======= ======== ========
</TABLE>
Options to purchase 4,753,166, 7,993,841 and 12,525,921 shares of common
stock were outstanding as of December 31, 1997, 1998 and 1999, respectively, but
were not included in the calculations of diluted net income (loss) per share
because their effect would be antidilutive. Redeemable convertible preferred
stock was not included in the calculations of diluted net loss per share in 1998
and 1999 because its effect would be antidilutive. Common stock warrants were
not included in the calculations of diluted net loss per share because their
effect would be antidilutive.
NOTE 5. INCOME TAXES
The provision for income taxes for the year ended December 31, 1997
consisted of foreign taxes payable. The items accounting for the difference
between income taxes computed at the U.S. federal statutory income tax rate and
the income tax provisions for each of the years presented were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... 34% (34)% (34)%
Valuation allowance...................................... (43) 40 39
Other.................................................... 10 (6) (5)
--- --- ---
Income tax provision....................................... 1% --% --%
=== === ===
</TABLE>
F-13
<PAGE> 79
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
at December 31 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............................... $ (180) $ (255)
------- --------
Total deferred tax liabilities................... (180) (255)
Deferred tax assets:
Net operating loss carryforwards (foreign and
domestic)............................................. 4,296 11,784
Accrued liabilities and deferred revenue................. 258 791
Allowance for doubtful accounts.......................... 115 337
Tax credits.............................................. 692 1,423
Miscellaneous............................................ 49 397
------- --------
Total deferred tax assets........................ 5,410 14,732
Valuation allowance........................................ (5,230) (14,477)
------- --------
Net deferred taxes......................................... $ -- $ --
======= ========
</TABLE>
Due to the uncertainty surrounding the realization of its deferred tax
assets as of December 31, 1998 and 1999, the Company has provided a valuation
allowance on its net deferred tax assets of $5,230,000 and $14,477,000,
respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal and state purposes of $24,847,000 and $10,898,000, respectively,
expiring commencing in the year 2018 for federal and 2003 for state. The Company
also had federal and state research and development credit carryforwards of
$971,000 and $689,000, respectively, expiring in years beginning in 2008.
Utilization of net operating loss carryforwards may be subject to substantial
limitations due to ownership change and other limitations provided by the
Internal Revenue Code and similar state provisions. These limitations may result
in the expiration of net operating loss carryforwards before full utilization.
Income (loss) before provision for income taxes of the Company's foreign
operations amounted to $63,000, $(1,194,000) and $(6,388,000), respectively, for
the years ended December 31, 1997, 1998 and 1999.
NOTE 6. COMMITMENTS, CONTINGENCIES AND DEBT
Bank Line of Credit and Notes Payable
As of December 31, 1999, the Company had a $10.0 million senior line of
credit facility (the "Line") with a lending institution that bears interest at
an annual rate of prime plus 2% (payable monthly) and expires on February 1,
2001. As of December 31, 1999, the interest rate was 10.5% and borrowings under
the Line totaled approximately $3.4 million. The Line is secured by accounts
receivable and certain other assets and is subject to certain borrowing base
restrictions. The Line contains no financial covenants, with the exception of
restrictions on related party transactions and restrictions on incurring
additional debt.
The Company also has a $10.0 million long-term note payable with the same
lending institution. The long-term note payable bears interest at an annual rate
of prime plus 2% (10.5% at December 31, 1999), payable monthly, and is due on
February 1, 2001.
F-14
<PAGE> 80
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Lease Obligations
The Company leases office facilities, computers and office equipment under
noncancelable operating lease agreements with third parties expiring through
2005. The Company also leases, from a related party, a 4,000-square-foot office
facility under a noncancelable operating lease agreement expiring in December
2002. The Company also leases certain storage space and computer and office
equipment under month-to-month leases.
Future minimum payments, by year and in the aggregate, on noncancelable
operating leases with initial terms of one year or more, consisted of the
following at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES
---------------------------------------
RELATED NON-RELATED
PARTY PARTY TOTAL
------------- ----------- -------
<S> <C> <C> <C>
Year ended December 31,
2000...................................... $ 51 $ 4,276 $ 4,327
2001...................................... 51 3,875 3,926
2002...................................... -- 2,767 2,767
2003...................................... -- 1,758 1,758
2004...................................... -- 221 221
Thereafter................................ -- 419 419
---- ------- -------
$102 $13,316 $13,418
==== ======= =======
</TABLE>
Total rent expense was $555,000 in 1997, $1,611,000 in 1998 and $4,285,000
in 1999, of which $147,000, $65,000 and $50,000 was paid to related parties in
1997, 1998 and 1999, respectively.
Legal Proceedings
The Company is party to routine claims and suits brought against it in the
ordinary course of business. In the opinion of management, such routine claims
should not have any material adverse effect upon the results of operations, cash
flows or the financial position of the Company.
NOTE 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
As of December 31, 1999, the Company had 10,000,000 shares of preferred
stock authorized. The two classes of preferred stock designated and issued as of
December 31, 1998 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING AS OF
DECEMBER 31,
SHARES ------------------------ CASH CONSIDERATION PER
PAR VALUE DESIGNATED 1998 1999 SHARE RECEIVED ON ISSUANCE
--------- ---------- ---------- ---------- --------------------------
<S> <C> <C> <C> <C> <C>
Series A............. $0.001 2,864,583 2,864,583 2,864,583 $3.84
Series B............. $0.001 2,637,900 -- 2,588,215 $4.25
--------- --------- ---------
5,502,483 2,864,583 5,452,798
========= ========= =========
</TABLE>
In May 1998, the Company issued 2,864,583 shares of Series A preferred
stock. In March 1999, the Company issued 2,588,215 shares of Series B preferred
stock.
F-15
<PAGE> 81
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following are the characteristics of the Company's Series A Preferred
Stock as of December 31, 1998 and 1999 and Series B Preferred Stock as of
December 31, 1999:
(i) To the extent requested by holders of not less than 66% of the
then outstanding shares of preferred stock, the Company shall redeem on or
after the dates below, and in the amounts specified below, any such shares
which were purchased by the shareholders, net of any shares previously
redeemed, plus any accrued and unpaid dividends:
<TABLE>
<CAPTION>
CUMULATIVE
MANDATORY REDEMPTION PERCENTAGE OF SHARES REDEMPTION AMOUNT
-------------------- -------------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Series A:
April 2003............................... 33.3% $ 5,903
April 2004............................... 50.0 9,735
April 2005............................... 100.0 21,450
Series B:
March 2004............................... 33.3% $ 5,903
March 2005............................... 50.0 9,735
March 2006............................... 100.0 21,450
</TABLE>
The redemption price for the shares of preferred stock to be redeemed on
the fifth, sixth and seventh anniversaries of the original issue date for such
Preferred Stock shall equal the original issue price for such series of
Preferred Stock multiplied by 1.61, 1.77 and 1.95, respectively. For any shares
redeemed after the seventh anniversary of the original issue date, the
redemption price shall equal the original issue price for such series of
preferred stock multiplied by 1.95. The pro rata portion of the redemption price
has been accreted to the carrying value of preferred stock through December 31,
1999 using the effective interest method.
(ii) The Series A and Series B Preferred Stock have a liquidation
preference value equal to the original issue price of such stock plus
accrued (i.e. dividends declared by the Board of Directors) and unpaid
dividends and are senior to all classes of common stock. Each share of
Preferred Stock has a number of votes equal to the number of shares of
common stock issuable upon conversion. The holders of each series of
preferred stock are entitled to receive, when and if declared by the Board
of Directors of the Company, noncumulative dividends equal to 6% of the
original issue price.
(iii) At the option of the holder, each share of Series A and B
Preferred Stock may be converted into 2.84463 and 2.25 shares of common
stock, respectively.
(iv) Each share of preferred stock shall automatically be converted
into shares of common stock at the effective conversion rate for such
series of preferred stock upon the closing of an initial public offering
with a price at least equal to the automatic conversion price, as defined,
and in which the aggregate gross proceeds received by the Company equal or
exceed $20,000,000.
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
In February 1999, the Company issued 2,703,675 shares of common stock for
net proceeds of approximately $4,074,000. In February 2000, the Company
increased its authorized shares of common stock to 200,000,000.
F-16
<PAGE> 82
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Option Plans
In July 1998, the Board of Directors of the Company adopted the 1998 Stock
Option Plan (the "Plan"), which replaced the 1997 Stock Option Plan (the "1997
Plan") as to future grants. Under the Plan, the maximum aggregate number of
shares of common stock available for the grant of options is 13,875,903 shares,
which includes any unused shares reserved for issuance under the 1997 Plan that
were not covered by grants prior to the termination of the 1997 Plan. In
addition, any forfeited shares pursuant to terms and conditions of the 1997 Plan
will also be available under the Plan. Under the Plan, stock options may be
granted to employees, directors and consultants of the Company. At December 31,
1999, there were options to purchase 1,247,642 shares of common stock that were
available for grant under the Plan.
The exercise price of options granted under the Plan may not be less than
the fair market value of the common stock at the time of grant with respect to
incentive stock options and not less than 85% of the fair market value with
respect to nonstatutory options. Options granted under the Plan carry a maximum
term of 10 years from the date of grant and typically vest and become
exercisable at the rate of at least 25% per year from the date of grant.
Activity of the Plan for the last three years was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Balance as of January 1, 1997.......................... 78,300 $ .03
Granted.............................................. 4,895,969 1.16
Cancelled............................................ (205,200) 1.16
Exercised............................................ (15,903) .22
----------
Outstanding as of December 31, 1997.................... 4,753,166 1.15
Granted.............................................. 4,654,350 1.36
Cancelled............................................ (1,400,175) 1.33
Exercised............................................ (13,500) 1.16
----------
Balance as of December 31, 1998........................ 7,993,841 1.24
Granted.............................................. 6,901,088 2.59
Cancelled............................................ (2,296,070) 1.29
Exercised............................................ (72,938) 1.24
----------
Outstanding as of December 31, 1999.................... 12,525,921 1.98
==========
</TABLE>
F-17
<PAGE> 83
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information regarding stock options outstanding as of December 31, 1999 was
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OF SHARES REMAINING AVERAGE EXERCISE OF SHARES AVERAGE
PRICE RANGE (IN THOUSANDS) CONTRACTUAL LIFE PRICE (IN THOUSANDS) EXERCISE PRICE
- ------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.03 78 7.44 $0.03 78 $0.03
$1.15 - $1.37 5,867 7.79 $1.27 3,617 $1.23
$1.49 - $1.67 3,656 9.24 $1.65 338 $1.64
$2.67 - $3.33 1,004 9.60 $2.77 -- --
$4.00 1,266 9.80 $4.00 34 $4.00
$5.33 657 9.95 $5.33 30 $5.33
</TABLE>
As of December 31, 1997, 1998 and 1999, respectively, 1,363,000, 2,355,000
and 4,096,500 options were exercisable under the Plan.
In February 2000, the Board of Directors authorized an increase in the
number of shares of common stock available for issuance under the Plan of
7,500,000 shares.
Reserved for Future Issuance
As of December 31, 1999, the Company had reserved the following shares of
authorized but unissued common stock for future issuance:
<TABLE>
<S> <C>
Preferred stock conversion.................................. 13,972,163
Stock option plan........................................... 13,773,562
Common stock warrants....................................... 1,462,500
----------
29,208,225
==========
</TABLE>
Fair Value Disclosure
The weighted average exercise prices and fair market value of stock options
granted using the minimum value option valuation model were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------------- ----------------- -----------------
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
VALUE PRICE VALUE PRICE VALUE PRICE
----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equals market
value of stock at date of
grant.......................... $0.29 $1.14 $0.36 $1.36 $0.74 $3.22
Exercise price exceeds market
value of stock at date of
grant.......................... $0.21 $1.27 -- -- -- --
Exercise price was less than
market value of stock at date
of grant....................... $0.99 $0.22 $ -- $ -- $1.10 $2.36
</TABLE>
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS No. 123. Had compensation expense for the years ended
December 31, 1997, 1998 and 1999 been determined based on the fair value at the
grant dates as prescribed by SFAS No. 123, the Company's net income (loss) and
net income (loss) per share would have increased or decreased to the pro forma
amounts indicated below (amounts in thousands, except for net income (loss) per
share).
F-18
<PAGE> 84
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
---- -------- --------
<S> <C> <C> <C>
Net income (loss), as reported............................ $506 $(11,243) $(25,865)
Pro forma net income (loss)............................... $ 95 $(11,508) $(27,151)
Pro forma net income (loss) available to common
shareholders............................................ $ 95 $(12,194) $(29,561)
Pro forma basic and diluted net (income) loss per share... $ -- $ (0.28) $ (0.51)
</TABLE>
The Company estimated the fair value of options granted in the years ended
December 31, 1997, 1998 and 1999 using the minimum value method, which utilizes
a near-zero volatility factor. The following weighted average assumptions were
used:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected life (in years)................................... 5 5 5
Risk-free interest rate.................................... 6.0% 6.0% 5.3%
Dividend yield............................................. 0% 0% 0%
</TABLE>
The determination of fair value of options granted after such time as the
Company becomes a public entity would include an expected volatility factor, in
addition to the factors described above. As a result, the effects on pro forma
disclosures of applying SFAS No. 123 may not be representative of the effects on
pro forma disclosures in future years.
Alliance Warrant
On November 15, 1999, the Company issued a warrant to a strategic alliance
partner (the "1999 Alliance Warrant") to purchase 1,200,000 shares of common
stock at $5.33 per share. The 1999 Alliance Warrant vests contingently upon the
achievement of various milestones, which include the creation of e*Xchange
market offerings and new customer introductions. The 1999 Alliance Warrant
expires on November 15, 2003, and as of December 31, 1999, was vested as to
409,500 shares. The 1999 Alliance Warrant contains a significant economic
disincentive for non-performance, and accordingly, the fair value of the 1999
Alliance Warrant was measured at the date of grant in accordance with Emerging
Issues Task Force No. 96-18. The 1999 Alliance Warrant was recorded at its fair
value of $3,256,000, which was determined using the Black-Scholes pricing model,
assuming a risk free rate of 5.3%, a volatility factor of 0.60 and an estimated
fair value at the time of grant of $5.33 per common share. Amortization for the
1999 Alliance Warrant was approximately $814,000 for the year ended December 31,
1999.
Other Warrant
In October 1999, the Company issued a warrant to a lending institution (the
"Lender Warrant") to purchase 262,500 shares of common stock at $1.89 per share.
The Lender Warrant vested immediately on the date of the grant and expires in
October 2004. The Lender Warrant was recorded at its fair value of $688,000,
which was determined using the Black-Scholes pricing model, assuming a risk free
interest rate of 5.3%, a volatility factor of 0.60 and an estimated fair value
at the time of grant of $4.00 per common share. Amortization of the Lender
Warrant is being recorded ratably, over the term of the associated debt of
fifteen months as a charge to interest expense. Amortization expense was
approximately $92,000 for the year ended December 31, 1999.
F-19
<PAGE> 85
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred Stock-based Compensation
When the exercise price of an employee stock option is less than the
estimated fair value of the underlying stock on the date of grant, deferred
compensation is recognized and amortized to expense in accordance with the
aggregation methodology prescribed by the Financial Accounting Standards Board
Interpretation No. 28 over the vesting period of the individual option grants
which is generally four years.
During the year ended December 31, 1999, in connection with the grant of
certain stock options, the Company recorded deferred stock compensation of
approximately $4,645,000, representing the difference between the exercise price
of the option and the estimated fair value of the Company's common stock on the
date of grant. Amortization of deferred stock compensation was approximately
$1,708,000 for the year ended December 31, 1999.
NOTE 9. 401(K) PLAN
The Company has a 401(K) plan covering substantially all of its eligible
employees. Under this plan, employees may defer up to 15% of their pre-tax
salary, subject to statutory limits. The Company contributes an amount equal to
50% of each participant's elective contribution, up to 4% of compensation. On
January 1, 2000, the Company modified the Plan to provide for company matching
contributions equal to 50% of each participant's elective contribution, up to 8%
of compensation. The Company's matching contributions to the plan were $53,000,
$168,000 and $257,000 during the years ended December 1997, 1998 and 1999,
respectively.
NOTE 10. SUBSEQUENT EVENTS
In February 2000, the Company's board of directors approved, subject to
shareholder approval, the increase in authorized shares of common stock to
200,000,000 shares and the creation of newly undesignated preferred stock
totaling 10,000,000 shares. In addition, the Company's board of directors
approval of three-for-two stock split, subject to shareholder approval, to be
effective upon the filing of the Company's restated articles of incorporation.
All references to common share and per common share data in the accompanying
financial statements have been retroactively restated to reflect the effects of
this stock split.
Warrant Grants
In January 2000, the Company issued a warrant (the "January 2000 Alliance
Warrant") to a second strategic alliance partner to purchase up to 1,200,000
shares of common stock at $6.67 per share. The January 2000 Alliance Warrant
vests contingently upon the achievement of certain milestones, primarily the
generation of license revenue for the Company, and expires on July 31, 2002. In
March 2000, the Company issued a warrant (the "March 2000 Alliance Warrant") to
a third strategic alliance partner to purchase up to 1,200,000 shares of common
stock at the greater of a $14.00 price per share or the initial public offering
price per share. The March 2000 Alliance Warrant vests contingently upon the
achievement of certain milestones, primarily the creation of e*Gate market
offerings and the generation of license revenue for the Company, and expires on
September 22, 2002. Both the January 2000 Alliance Warrant and the March 2000
Alliance Warrant (the "2000 Alliance Warrants") contain a significant economic
disincentive for non-performance, and, accordingly, the fair value of the 2000
Alliance Warrants will be measured at the date of grant in accordance with
Emerging Issues Task Force No. 96-18. The fair value of the January 2000
Alliance Warrant will be determined using the Black-Scholes pricing model,
assuming a risk free interest rate of 5.3%, a volatility factor of 0.60 and an
estimated fair value at the time of grant of $9.60 per common share. The fair
value of the March 2000
F-20
<PAGE> 86
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Alliance Warrant will be determined using the Black-Scholes pricing model,
assuming a risk free interest rate of 5.3%, a volatility factor of 0.60 and an
estimated fair value at the time of grant of the greater of $14.00 or the
initial public offering price per common share.
Employee Stock Purchase Plan
In February 2000, the Board of Directors approved the Company's 2000
Employee Stock Purchase Plan (the "ESPP"). The ESPP will become effective upon
the completion of the Offering. A total of 2,250,000 shares of common stock are
initially available for issuance under the ESPP. The number of shares of common
stock available for issuance under the ESPP will be increased on the first day
of each calendar year during the term of the ESPP to 2,250,000 shares of common
stock.
The ESPP, which is intended to qualify under Section 423 of the IRS Code,
will be implemented by a series of overlapping offering periods of 24 months'
duration, with new offering periods, other than the first offering period,
commencing on or about May 16 and November 16 of each year. Each offering period
will consist of four consecutive purchase periods of approximately six months'
duration, and at the end of each offering period, an automatic purchase will be
made for participants. The initial offering period is expected to commence on
the date of the offering and end on May 15, 2002; the initial purchase period is
expected to begin on the date of the offering and end on November 15, 2002.
Participants generally may not purchase more than 1,500 shares in any calendar
year or stock having a value measured at the beginning of the offering period
greater than $25,000 in any calendar year.
The purchase price per share will be 85% of the lower of (1) the fair
market value of our common stock on the purchase date or (2) the fair market
value of a share of our common stock on the last trading day before the offering
date, or, in the case of the first offering period under the plan, the price at
which one share of our common stock is offered to the public in our initial
public offering.
Initial Public Offering and Unaudited Pro Forma Shareholders' Equity
(Deficit)
In February 2000, the Board of Directors authorized the filing of a
Registration Statement with the Securities and Exchange Commission which would
permit the Company to sell shares of the Company's common stock in connection
with a proposed initial public offering. If the offering is consummated under
the terms currently anticipated, all of the outstanding shares of the Company's
redeemable convertible preferred stock will automatically convert into shares of
common stock upon closing of the proposed offering. The conversion of the
redeemable convertible preferred stock has been reflected in the unaudited pro
forma shareholders' equity (deficit) on the accompanying consolidated balance
sheet.
Concurrent Offering
Concurrent with its initial public offering, the Company plans to sell an
additional 1,200,000 shares of common stock in a private transaction at a price
per share equal to the initial public offering price, subject to reduction if
the aggregate purchase price for the shares would exceed $24.0 million.
F-21
<PAGE> 87
[STC Logo]
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 33,336
NASD Filing Fee............................................. 10,500
Nasdaq National Market Listing Fee.......................... 95,000
Printing Costs.............................................. 200,000
Legal Fees and Expenses..................................... 600,000
Accounting Fees and Expenses................................ 350,000
Blue Sky Fees and Expenses.................................. 15,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous............................................... 86,164
----------
Total............................................. $1,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the General Corporation Law of the State of California
authorizes a corporation to grant indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933. Our Restated Articles of Incorporation and Bylaws
provide for indemnification of our directors, officers, employees and other
agents to the maximum extent permitted by California law. In addition, we have
entered into Indemnification Agreements with our officers and directors. The
Underwriting Agreement also provides for cross-indemnification among STC and the
Underwriters with respect to certain matters, including matters arising under
the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 1997, we have sold and issued the following securities:
1. In May, June and September 1998, we issued an aggregate of
2,864,583 shares of Series A preferred stock to 27 investors for an
aggregate cash consideration of $11.0 million. Among the investors were
Raymond J. Lane, funds affiliated with InSight Capital Partners and Norwest
Venture Partners VI, L.P. Mr. Lane is a director of the Registrant. Jerry
F. Murdock, a director of the Registrant, is a partner in InSight Capital
Partners. George J. Still, a director of the Registrant, is a partner in
Norwest Venture Partners.
2. In February 1999, we issued an aggregate of 2,703,675 shares of
common stock to 12 investors for an aggregate cash consideration of $4.0
million. Among the investors were Salah Hassanein, Todd-AO Corporation and
Storie Partners, L.P. Mr. Hassanein, a director of the Registrant, is
affiliated with Todd-AO Corporation. Steven A. Ledger, a director of the
Registrant, is a partner in Storie Partners, L.P.
3. In March 1999, we issued an aggregate of 2,588,215 shares of Series
B preferred stock to 28 investors for an aggregate cash consideration of
$11.0 million. Among the investors were Raymond J. Lane, funds affiliated
with InSight Capital Partners and Norwest Venture Partners VI, L.P.
II-1
<PAGE> 89
4. In October 1999, we issued a warrant to purchase 262,500 shares of
our common stock with an exercise price of $1.89 per share to a third party
in connection with a loan facility.
5. In November 1999, we issued a warrant to purchase 1,200,000 shares
of our common stock with an exercise price of $5.33 per share to Andersen
Consulting.
6. In January 2000, we issued a warrant to purchase 1,200,000 shares
of our common stock, with an exercise price of $6.67 per share to EDS.
7. From February 1997 to February 2000, we issued an aggregate of
16,919,931 shares of common stock to employees, non-employee directors and
consultants pursuant to our 1997 Stock Plan and 1998 Stock Plan with an
aggregate exercise price of $32,417,728.
8. In March 2000, we issued a warrant to purchase 1,200,000 shares of
our common stock to CSC, with an exercise price equal to the greater of
$14.00 or the initial public offering price per share.
The issuances of the securities in paragraphs 1, 2, 3, 4, 5, 6 and 8 above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) or Regulation D as transactions by an issuer not involving any
public offering. In addition, certain issuances described in paragraph 7 above
were deemed exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated under the Securities Act. The recipients of securities in
each of the above transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients either
received adequate information about STC or had adequate access, through their
relationships with STC, to information about us.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Registrant.
3.2 Restated Articles of Incorporation to be filed following the
closing of the offering.
3.3 Bylaws of the Registrant.
4.1 Specimen common stock certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2+ 1997 Stock Plan.
10.3+ 1998 Stock Plan, as amended.
10.4 2000 Employee Stock Purchase Plan and form of agreements
thereunder.
10.5+ Warrant dated November 16, 1999 issued to Andersen
Consulting.
10.6+ Warrant dated January 31, 2000 issued to EDS.
10.7+ Loan and Security Agreement, dated October 29, 1999, between
the Registrant and Greyrock Capital.
10.8+ Registration Rights Agreement, dated May 8, 1998, as
amended.
10.9+ Lease Agreement dated June 6, 1997 between the Registrant
and Boone/Fetter/Occidental I for premises in Monrovia,
California.
10.10+ Lease Agreement dated June 10, 1999 between the Registrant
and Franklin Select Realty Trust for premises in Redwood
Shores, California.
10.11 Lease Agreement dated December 30, 1991 between the
Registrant and the Demetriades Family Trust (dated December
20, 1983) for premises in Arcadia, California.
10.12 Warrant dated March 23, 2000 issued to Computer Sciences
Corporation.
10.13 Warrant purchase agreement dated November 16, 1999 between
the Registrant and Andersen Consulting.
10.14 Warrant purchase agreement dated January 31, 2000 between
the Registrant and EDS.
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.15 Warrant purchase agreement dated March 23, 2000 between the
Registrant and Computer Sciences Corporation.
21.1+ List of subsidiaries of the Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
24.1+ Powers of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- -------------------------
+ Previously filed.
(b) Financial Statement Schedules.
Report of Independent Auditors, Ernst & Young LLP
Schedule II
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Monrovia,
State of California on March 24, 2000.
SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ JAMES T. DEMETRIADES*
---------------------------------------
Name: James T. Demetriades
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on March 24, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JAMES T. DEMETRIADES* Chairman of the Board, President and Chief
- -------------------------------------------------------- Executive Officer (Principal Executive
James T. Demetriades Officer)
/s/ BARRY J. PLAGA Chief Financial Officer (Principal
- -------------------------------------------------------- Financial and Accounting Officer)
Barry J. Plaga
/s/ STERGE T. DEMETRIADES* Director
- --------------------------------------------------------
Sterge T. Demetriades
/s/ SALAH M. HASSANEIN* Director
- --------------------------------------------------------
Salah M. Hassanein
/s/ RAYMOND J. LANE* Director
- --------------------------------------------------------
Raymond J. Lane
/s/ STEVEN A. LEDGER* Director
- --------------------------------------------------------
Steven A. Ledger
/s/ JERRY F. MURDOCK* Director
- --------------------------------------------------------
Jerry F. Murdock
/s/ GEORGE J. STILL* Director
- --------------------------------------------------------
George J. Still
/s/ JACK L. WILSON* Director
- --------------------------------------------------------
Jack L. Wilson
/s/ RICHARD L. DENEY* Director
- --------------------------------------------------------
Richard L. deNey
* /s/ BARRY J. PLAGA Attorney-in-fact
-------------------------------------------------------
Barry J. Plaga
</TABLE>
II-4
<PAGE> 92
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Software
Technologies Corporation and subsidiaries as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, and have
issued our report thereon dated February 11, 2000 (except for Note 10, as to
which the date is March 23, 2000) (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Woodland Hills, California
February 11, 2000
S-1
<PAGE> 93
SCHEDULE II
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF DEDUCTIONS END OF
DESCRIPTION YEAR ADDITIONS (DESCRIBE)(A) YEAR
- ------------------------------------- ------------ --------- ------------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for doubtful accounts.... $328 $221 $200 $ 349
Year Ended December 31, 1998
Allowance for doubtful accounts.... $349 $416 $374 $ 391
Year Ended December 31, 1999
Allowance for doubtful accounts.... $391 $685 $ 21 $1,055
</TABLE>
(A) Actual write-offs of uncollectible accounts receivable.
S-2
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Registrant.
3.2 Restated Articles of Incorporation to be filed following the
closing of the offering.
3.3 Bylaws of the Registrant.
4.1 Specimen common stock certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2+ 1997 Stock Plan.
10.3+ 1998 Stock Plan, as amended.
10.4 2000 Employee Stock Purchase Plan and form of agreements
thereunder.
10.5+ Warrant dated November 16, 1999 issued to Andersen
Consulting.
10.6+ Warrant dated January 31, 2000 issued to EDS.
10.7+ Loan and Security Agreement, dated October 29, 1999, between
the Registrant and Greyrock Capital.
10.8+ Registration Rights Agreement, dated May 8, 1998, as
amended.
10.9+ Lease Agreement dated June 6, 1997 between the Registrant
and Boone/Fetter/Occidental I for premises in Monrovia,
California.
10.10+ Lease Agreement dated June 10, 1999 between the Registrant
and Franklin Select Realty Trust for premises in Redwood
Shores, California.
10.11 Lease Agreement dated December 30, 1991 between the
Registrant and the Demetriades Family Trust (dated December
20, 1983) for premises in Arcadia, California.
10.12 Warrant dated March 23, 2000 issued to Computer Sciences
Corporation.
10.13 Warrant purchase agreement dated November 16, 1999 between
the Registrant and Andersen Consulting.
10.14 Warrant purchase agreement dated January 31, 2000 between
the Registrant and EDS.
10.15 Warrant purchase agreement dated March 23, 2000 between the
Registrant and Computer Sciences Corporation.
21.1+ List of subsidiaries of the Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
24.1+ Powers of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- -------------------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
_______________ SHARES
SOFTWARE TECHNOLOGIES CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
__________, 2000
<PAGE> 2
_____________, 2000
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Software Technologies Corporation, a California corporation (the
"COMPANY"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "UNDERWRITERS") _______________ shares of its Common
Stock (the "FIRM SHARES"). The Company also proposes to issue and sell to the
several Underwriters not more than an additional ______________ shares of its
Common Stock (the "ADDITIONAL SHARES") if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES." The shares of Common Stock
(par value $0.001 per share) of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK."
The Company has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement, including a prospectus, relating to
the Shares. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
Morgan Stanley & Co. Incorporated ("MORGAN STANLEY") has agreed
to reserve a portion of the Shares to be purchased by it under this Agreement
for sale to the Company's directors, officers, employees and business associates
and other parties related to the Company (collectively, "PARTICIPANTS"), as set
forth in the Prospectus under the heading "Underwriters" (the "DIRECTED SHARE
PROGRAM"). The Shares to be sold by Morgan Stanley and its affiliates pursuant
to the Directed Share Program are referred to hereinafter as the "DIRECTED
SHARES." Any Directed Shares not orally confirmed for purchase by any
Participants by the end of the business day on which this Agreement is executed
will be offered to the public by the Underwriters as set forth in the
Prospectus.
2
<PAGE> 3
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and, to the Company's knowledge, no proceedings for such purpose
are pending before or threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
California, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
3
<PAGE> 4
(f) On the Closing Date (as defined below), the authorized
capital stock of the Company will conform as to legal matters to the
description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the articles of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares or as may be required
by the rules and regulations of the National Association of Securities
Dealers, Inc. (the "NASD").
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not so described
or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that are not
described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not
4
<PAGE> 5
be required to register as an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except such as have been validly waived or as
have otherwise been described in the Prospectus.
(q) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company
and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (ii) other than
repurchases of shares of stock pursuant to the Company's 1998 Stock Plan
and 1997 Stock Plan, the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any
material change in the capital stock, short-term debt or long-term debt
of the Company and its subsidiaries, except in each case as described in
the Prospectus.
(s) The Company and its subsidiaries have good and marketable
title to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except
5
<PAGE> 6
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries, in
each case except as described in the Prospectus.
(t) Except as described in the Prospectus, Company and its
subsidiaries own or possess, or can acquire on reasonable terms, all
material patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them,
and neither the Company nor any of its subsidiaries has received any
notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have
a material adverse affect on the Company and its subsidiaries, taken as
a whole.
(u) No material labor dispute with the employees of the Company
or any of its subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that would have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
(v) The Company and its subsidiaries are insured by the insurers
of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company nor any of its subsidiaries has
been refused any insurance coverage sought or applied for; and neither
the Company nor any of its subsidiaries has any reason to believe that
it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, except to the extent that the failure to obtain such
certificates, authorizations and permits would not have a material
adverse effect on the Company, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole, except as
described the Prospectus.
6
<PAGE> 7
(x) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(y) The Registration Statement, the Prospectus and any
preliminary prospectus comply, and any amendments or supplements thereto
will comply, with or any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection
with the Directed Share Program.
(z) No consent, approval, authorization or order of , or
qualification with, any governmental body or agency, other than those
obtained, is required in connection with the offering of the Directed
Shares in any jurisdiction where the Directed Shares are being offered.
(aa) The Company has not offered, or caused Morgan Stanley or its
affiliates to offer, Shares to any person pursuant to the Directed Share
Program with the intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or
type of business with the Company, or (ii) a trade journalist or
publication to write or publish favorable information about the Company
or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "PURCHASE PRICE").
On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, the Company
agrees to sell to the Underwriters the Additional Shares, and the
Underwriters shall have a one-time right to purchase, severally and not
jointly, up to _______________ Additional Shares at the Purchase Price.
If you, on behalf of the Underwriters, elect to exercise such option,
you shall so notify the Company in writing not later than 30 days after
the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the Underwriters and the date on
which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date
nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 4 hereof
solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to
purchase the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same
proportion to the total number of Additional Shares to be
7
<PAGE> 8
purchased as the number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent
of Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof as described in the Prospectus, (C) the grant of
options to purchase Common Stock pursuant to the Company's 1997 Stock Plan and
1998 Stock Plan or (D) the issuance by the Company of shares of Common Stock
pursuant to the Company's 2000 Employee Stock Purchase Plan.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 2000, or at
such other time on the same or such other date, not later than _________, 2000,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than _______, 2000, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be
in definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts
8
<PAGE> 9
of the several Underwriters, with any transfer taxes payable in connection with
the transfer of the Shares to the Underwriters duly paid, against payment of the
Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than _____ (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 5(a)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, P.C., outside counsel for
the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
State of California, has the corporate power and authority to
own its property and to conduct its business as
9
<PAGE> 10
described in the Prospectus and is duly qualified to transact
business and is in good standing in [SPECIFY JURISDICTIONS];
(ii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iii) the Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any
preemptive or similar rights contained in the Company's Articles
of Incorporation and Bylaws, under the California General
Corporation Law or under agreements filed as exhibits to the
Registration Statement, except such as have been waived;
(iv) this Agreement has been duly authorized, executed
and delivered by the Company;
(v) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this
Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Company or, to
such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole,
or, to such counsel's knowledge, any judgment, order or decree of
any governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the
Shares or as may be required by the rules and regulations of the
NASD;
(vi) the statements (A) in the Prospectus under the
captions "________," "_______," "Description of Capital Stock"
and "Underwriters" and (B) in the Registration Statement in Items
14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred
to therein, fairly present the information called for with
respect to such legal matters in all material respects documents
and proceedings and fairly summarize the matters referred to
therein in all material respects;
(vii) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of
the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
10
<PAGE> 11
(VIII) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be
required to register as an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended; and
(ix) such counsel is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included
therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder.
(x) Such counsel shall also have furnished a written
statement addressed to the Underwriters and dated as of the
Closing Date to the effect that such counsel (A) has no reason to
believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the
prospectus included therein at the time the Registration
Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (B) has no reason to believe that (except for
financial statements and schedules and other financial and
statistical data as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Ervin, Cohen & Jessup LLP, special outside counsel for the
Company, dated the Closing Date, to the effect that the shares of Common
Stock outstanding prior to the issuance of the Shares have been duly
authorized and are validly issued, fully paid and non-assessable.
(e) The Underwriters shall have received on the Closing Date an
opinion of Cooley Godward LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(ii),
5(c)(iv), 5(c)(vi) (but only as to the statements in the Prospectus
under "Description of Capital Stock" and "Underwriters") and 5(c)(x)
above.
With respect to Section 5(c)(x) above, Wilson Sonsini Goodrich &
Rosati, P.C. and Cooley Godward LLP may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified.
The opinions of Wilson Sonsini Goodrich & Rosati, P.C. and Ervin,
Cohen & Jessup LLP described in Sections 5(c) and 5 (d) above shall be
rendered to the Underwriters at the request of the Company and shall so
state therein.
11
<PAGE> 12
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City,
without charge, prior to 10:00 a.m. New York City time on the business
day next succeeding the date of this Agreement and during the period
mentioned in Section 6(c) below, as many copies of the Prospectus and
any supplements and amendments thereto or to the Registration Statement
as you may reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such
Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with
sales by an Underwriter or dealer, any event shall occur or condition
exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you
12
<PAGE> 13
will furnish to the Company) to which Shares may have been sold by you
on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending June 30, 2001 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's accountants in
connection with the registration and delivery of the Shares under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated there-with, and the
mailing and delivering of copies thereof to the Underwriters and
dealers, in the quantities hereinabove specified, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon,
(iii) the cost of printing or producing any Blue Sky or Legal Investment
memorandum in connection with the offer and sale of the Shares under
state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities
laws as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky
or Legal Investment memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all
costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the Company,
travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and, if approved by the Company, the
cost of any aircraft chartered in connection with the road show, (ix)
all fees and disbursements of
13
<PAGE> 14
counsel incurred by the Underwriters in connection with the Directed
Share Program and stamp duties, similar taxes or duties or other taxes,
if any, incurred by the Underwriters in connection with the Directed
Share Program, and (x) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Section, Section 7 entitled
"Indemnity and Contribution," Section 8 entitled "Directed Share Program
Indemnification," and the last paragraph of Section 10 below, the
Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on
resale of any of the Shares by them and any advertising expenses
connected with any offers they may make.
(g) To place stop transfer orders on any Directed Shares that
have been sold to Participants subject to the three month restriction on
sale, transfer, assignment, pledge or hypothecation imposed by NASD
Regulation, Inc. under its Interpretative Material 2110-1 on free-riding
and withholding to the extent necessary to ensure compliance with the
three month restrictions, provided that Morgan Stanley shall have
notified the Company as to which Participants will need to be so
restricted.
(h) To comply with all applicable securities and other applicable
laws, rules and regulations in each jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
7. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein;
provided, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any
Underwriter, or any person controlling such Underwriter, from whom the
person asserting any such losses, claims, damages, or liabilities
purchased Shares, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered
at or prior to the written confirmation of the
14
<PAGE> 15
sale of the Shares to such person, and if the Prospectus (as so amended
or supplemented) would have cured the defect giving rise to such loss,
claim damage or liability.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement and each person, if any, who controls
the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto),
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to
information relating to such Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 7(a) or 7(b), such
person (the "INDEMNIFIED PARTY") shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in
respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for all such indemnified parties and that
all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Morgan Stanley, in the case
of parties indemnified pursuant to Section 7(a), and by the Company, in
the case of parties indemnified pursuant to Section 7(b). The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnity could
15
<PAGE> 16
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in Section
7(a) or 7(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other hand from the offering of
the Shares or (ii) if the allocation provided by clause 7(d)(i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 7(d)(i)
above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities,
as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on
the other hand in connection with the offering of the Shares shall be
deemed to be in the same respective proportions as the net proceeds from
the offering of the Shares (before deducting expenses) received by the
Company and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover of
the Prospectus, bear to the aggregate Public Offering Price of the
Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to
in Section 7(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from
16
<PAGE> 17
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of
the Company contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
8. Directed Share Program Indemnification.
(a) The Company agrees to indemnify and hold harmless Morgan
Stanley and its affiliates and each person, if any, who controls Morgan
Stanley or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act ("MORGAN STANLEY
ENTITIES"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged
untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants
in connection with the Directed Share Program, or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; (ii) caused by the failure of any Participant to pay for and
accept delivery of Directed Shares that the Participant has agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program other than losses, claims, damages or liabilities
(or expenses relating thereto) that are finally judicially determined to
have resulted from the bad faith or gross negligence of Morgan Stanley
Entities.
(b) In case any proceeding (including any governmental
investigation) shall be instituted involving any Morgan Stanley Entity
in respect of which indemnity may be sought pursuant to Section 8(a),
the Morgan Stanley Entity seeking indemnity shall promptly notify the
Company in writing and the Company, upon request of the Morgan Stanley
Entity, shall retain counsel reasonably satisfactory to the Morgan
Stanley Entity to represent the Morgan Stanley Entity and any other the
Company may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such Morgan Stanley Entity unless (i) the Company shall have
agreed to the retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the
Company and the Morgan Stanley Entity and representation of both parties
by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Company shall not, in respect of
the legal expenses of the Morgan Stanley Entities in connection with any
proceeding or related proceedings the same jurisdiction, be liable for
the fees and expenses of more than one
17
<PAGE> 18
separate firm (in addition to any local counsel) for all Morgan Stanley
Entities. Any such firm for the Morgan Stanley Entities shall be
designated in writing by Morgan Stanley. The Company shall not be liable
for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Company agrees to indemnify the Morgan
Stanley Entities from and against any loss or liability by reason of
such settlement or judgment. The Company shall not, without the prior
written consent of Morgan Stanley, effect any settlement of any pending
or threatened proceeding in respect of which any Morgan Stanley Entity
is or could have been a party and indemnity could have been sought
hereunder by such Morgan Stanley Entity, unless such settlement includes
an unconditional release of the Morgan Stanley Entities from all
liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section
8(a) is unavailable to a Morgan Stanley Entity or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then the Company, in lieu of indemnifying the Morgan Stanley
Entity thereunder, shall contribute to the amount paid or payable by the
Morgan Stanley Entity as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Morgan
Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 8(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(c)(i)
above but also the relative fault of the Company on the one hand and of
the Morgan Stanley Entities on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and of the
Morgan Stanley Entities on the other hand in connection with the
offering of the Directed Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the
Directed Shares (before deducting expenses) and the total underwriting
discounts and commissions received by the Morgan Stanley Entities for
the Directed Shares, bear to the aggregate Public Offering Price of the
Shares. If the loss, claim, damage or liability is caused by an untrue
or alleged untrue statement of a material fact, the relative fault of
the Company on the one hand and the Morgan Stanley Entities on the other
hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement or the omission or alleged
omission relates to information supplied by the Company or by the Morgan
Stanley Entities and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(d) The Company and the Morgan Stanley Entities agree that it would not
be just or equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Morgan Stanley Entities were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(c). The amount
paid or payable by the Morgan Stanley Entities as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the Morgan Stanley
Entities in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no
18
<PAGE> 19
Morgan Stanley Entity shall be required to contribute any amount in excess of
the amount by which the total price at which the Directed Shares distributed to
the public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. The remedies
provided for in this Section 8 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any Morgan Stanley Entity at law
or in equity.
(e) The indemnity and contribution provisions contained in this Section
8 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares that it has or they have agreed to purchase hereunder on such date, and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 10 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm
19
<PAGE> 20
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
20
<PAGE> 21
13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
Software Technologies Corporation
By:
---------------------------------
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
--------------------------------
Name:
Title:
21
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF
FIRM SHARES
TO BE PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
------------------------------
Total.....................
==============================
</TABLE>
22
<PAGE> 23
EXHIBIT A
[FORM OF LOCK-UP LETTER]
________________, 2000
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("MORGAN STANLEY") proposes to enter into an Underwriting Agreement
(the "UNDERWRITING AGREEMENT") with Software Technologies Corporation, a
Delaware corporation (the "COMPANY") providing for the public offering (the
"PUBLIC OFFERING") by the several Underwriters, including Morgan Stanley (the
"UNDERWRITERS"), of ______________ shares (the "SHARES") of Common Stock ($0.__
par value per share) of the Company (the "COMMON STOCK").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
Common Stock, whether any such transaction described in clause (1) or (2) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering.
Notwithstanding the foregoing (i) gifts and transfers by will or intestacy or
(ii) transfers to (A) the undersigned's members, partners, affiliates or
immediate family or (B) a trust, the beneficiaries of which are the undersigned
and/or members of the undersigned's immediate family, shall not be prohibited by
this agreement; provided that (x) the donee or transferee agrees in writing to
be bound by the foregoing in the same manner as it applies to the undersigned
and (y) if the donor or transferor is a reporting person subject to Section16(a)
of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), any gifts or
transfers made in accordance with this paragraph shall not require such person
to, and such person shall not voluntarily, file a report of such transaction of
Form 4 under the Exchange Act. "IMMEDIATE FAMILY" shall mean spouse, lineal
descendants, father, mother, brother or sister of the transferor and father,
mother, brother or sister of the transferor's spouse. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.
23
<PAGE> 24
Whether or not the Public Offering actually occurs depends on a
number of factors, including market conditions. Any Public Offering will only be
made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
---------------------------------
(Name)
---------------------------------
(Address)
24
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SOFTWARE TECHNOLOGIES CORPORATION
A California corporation
The undersigned, James T. Demetriades and Barry J. Plaga, do hereby
certify:
1. They are the duly elected and acting Chairman, Chief Executive
Officer and President and Assistant Secretary, respectively, of this
corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
ARTICLE I
The name of this corporation is Software Technologies Corporation.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock ("Common Stock") and Preferred Stock
("Preferred Stock"). The total number of shares of Common Stock this corporation
shall have authority to issue is 200,000,000 and the total number of shares of
Preferred Stock this corporation shall have authority to issue is 15,502,483. Of
the shares of Preferred Stock, 2,864,583 are hereby designated as Series A
Preferred Stock (the "Series A Preferred"), 2,637,900 are hereby designated as
Series B Preferred Stock (the "Series B Preferred") and 10,000,000 are
undesignated as to series. Upon the filing of these Amended and Restated
Articles of Incorporation, each two (2) outstanding shares of Common Stock shall
be split into three (3) shares of Common Stock. Any fractional share resulting
from such stock split shall be rounded to the next whole share.
<PAGE> 2
Any Preferred Stock not designated as to series may be issued from time to
time in one or more series pursuant to a resolution or resolutions providing for
such issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board of Directors), and such resolution or
resolutions shall also set forth the voting powers, full or limited or none, of
each such series of Preferred Stock and shall fix the designations, preferences
and relative, participating, optional or other special rights of each such
series of Preferred Stock and the qualifications, limitations or restrictions of
such powers, designations, preferences or rights. The Board of Directors is also
authorized to fix the number of shares of each such series of Preferred Stock.
The Board of Directors is authorized to alter the powers, designation,
preferences, rights, qualifications, limitations and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series of
Preferred Stock, to increase or decrease (but not below the number of shares of
any such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. In case the number of shares
shall be so decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
Except as set forth in Article III, Section 8 and Article III, Section 10
hereof, each share of Preferred Stock issued by the corporation, if reacquired
by the corporation (whether by redemption, repurchase, conversion to Common
Stock or other means), shall upon such reacquisition resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series and
available for designation and issuance by the corporation in accordance with the
immediately preceding paragraph.
The corporation shall from time to time in accordance with the laws of the
State of California increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to
or imposed upon the Preferred Stock and the holders thereof are as set forth
below.
Section 1. Liquidation Rights.
(a) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation (or the deemed occurrence of such event pursuant to subsection (d)
of this Section 1) the holders of each share of Series A Preferred and Series B
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets or property of the corporation to the holders
of the Common Stock by reason of their ownership thereof, an amount equal to the
Series A Original Issue Price (as defined herein) plus any declared but unpaid
dividends for each share of Series A Preferred then held by them (subject to
adjustment of such liquidation preference amount for stock splits and like
events with respect to the Series A Preferred) and an amount equal to the Series
B Original Issue Price (as defined herein) plus any declared but unpaid
dividends for each share of Series B Preferred then held by them (subject to
adjustment of such liquidation preference amount for stock splits and like
events with respect to the Series B Preferred).
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<PAGE> 3
All of the preferential amounts to be paid to the holders of the Series A
Preferred and Series B Preferred under this Section 1(a) shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any assets or property of the corporation to, the
holders of the Common Stock in connection with any such liquidation, dissolution
or winding up. After the payment or the setting apart for payment to the holders
of the Series A Preferred and Series B Preferred of the preferential amounts so
payable to them, the remaining assets of the corporation available for
distribution shall be distributed in accordance with the provisions of Sections
1(b) and 1(c).
If the assets or property to be distributed are insufficient to permit the
payment to holders of the Series A Preferred and Series B Preferred of their
full aforesaid preferential amount, the entire assets and property legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred and Series B Preferred in proportion to the preferential
amount that each such holder is otherwise entitled to receive pursuant to this
Section 1(a).
(b) Distribution after Payment of Initial Liquidation Preference.
After payment has been made to the holders of the Series A Preferred and Series
B Preferred of the full preferential amount set forth in Section 1(a) above, the
entire remaining assets and property of the corporation legally available for
distribution, if any, shall be distributed ratably among the holders of Series A
Preferred, Series B Preferred and Common Stock in a manner such that the amount
distributed to each holder of Common Stock, Series A Preferred and Series B
Preferred shall equal the amount obtained by multiplying the entire remaining
assets and property of the corporation legally available for distribution
pursuant to this Section 1(b) by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock then held by the holder and the
number of shares of Common Stock issuable upon conversion of the shares of
Series A Preferred and Series B Preferred then held by the holder, and the
denominator of which shall be the sum of the total number of shares of Common
Stock then outstanding and the total number of shares of Common Stock issuable
upon conversion of the total number of shares of Series A Preferred and Series B
Preferred then outstanding; provided, however, that at such time as the
distribution of liquidation preferences pursuant to this Section 1(b), together
with the distribution of liquidation preferences pursuant to Section 1(a), shall
equal 2.9 times the Series A Original Issue Price per share of Series A
Preferred, then the entire remaining assets and property of the corporation
legally available for distribution, if any, shall be distributed ratably among
the holders of Series B Preferred and Common Stock in a manner such that the
amount distributed to each holder of Common Stock and Series B Preferred shall
equal the amount obtained by multiplying the entire remaining assets and
property of the corporation legally available for distribution by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
then held by the holder and the number of shares of Common Stock issuable upon
conversion of the shares of Series B Preferred then held by such holder, and the
denominator of which shall be the sum of the total number of shares of Common
Stock then outstanding and the total number of shares of Common Stock issuable
upon conversion of the total number of shares of Series B Preferred then
outstanding; provided, however, that as such time as the distribution of
liquidation preferences pursuant to this Section 1(b), together with the
distribution of liquidation preferences pursuant to Section 1(a) shall equal 2.9
times the Series B Original Issue Price per share of Series B Preferred, any
remaining assets and property legally available for distribution hereunder shall
be distributed to the holders of Common Stock in a manner such that the amount
distributed to each holder of Common Stock shall equal the amount obtained
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<PAGE> 4
by multiplying the entire remaining assets and property of the corporation
legally available for distribution hereunder by a fraction, the numerator of
which shall be the number of shares of Common Stock then held by such holder,
and the denominator of which shall be the total number of shares of Common Stock
then outstanding; provided, however, that at such time as the distribution to
the holders of Common Stock pursuant to this Section 1(b) shall equal the
aggregate liquidation amount per share received by the holders of Series A
Preferred, then the entire remaining assets and property of the corporation
legally available for distribution, if any, shall be distributed ratably among
the holders of Series A Preferred and Common Stock in a manner such that the
amount distributed to each holder of Common Stock and Series A Preferred shall
equal the amount obtained by multiplying the entire remaining assets and
property of the corporation legally available for distribution by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
then held by the holder and the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred then held by such holder, and the
denominator of which shall be the sum of the total number of shares of Common
Stock then outstanding and the total number of shares of Common Stock issuable
upon conversion of the total number of shares of Series A Preferred then
outstanding; provided, further, however, that at such time as the distribution
to the holders of Common Stock and Series A Preferred pursuant to this Section
1(b) shall equal the aggregate liquidation amount received by the holders of
Series B Preferred, then any remaining assets and property legally available for
distribution hereunder shall be distributed in accordance with the provisions of
Section 1(c) hereof.
(c) Distribution After Payment of Additional Liquidation
Preferences. After payment has been made to the holders of the Series A
Preferred, Series B Preferred and Common Stock of the full amounts set forth in
Sections 1(a) and 1(b) above, the entire remaining assets and property of the
corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Series A Preferred, Series B Preferred and Common
Stock in a manner such that the amount distributed to each holder of Common
Stock, Series A Preferred and Series B Preferred shall equal the amount obtained
by multiplying the entire remaining assets and property of the corporation
legally available for distribution pursuant to this Section 1(c) by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
then held by the holder and the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred and Series B Preferred then held
by the holder, and the denominator of which shall be the sum of the total number
of shares of Common Stock then outstanding and the total number of shares of
Common Stock issuable upon conversion of the total number of shares of Series A
Preferred and Series B Preferred then outstanding.
(d) Deemed Liquidation. For purposes of this Section 1, unless
otherwise agreed to by the holders of more than fifty percent (50%) of the
Preferred Stock then outstanding, the acquisition of this corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) that results in
the transfer of more than fifty percent (50%) of the outstanding voting power of
this corporation, or a sale or other transfer in a single transaction or a
series of related transactions of all or substantially all of the assets of the
corporation, shall be treated as a liquidation, dissolution or winding up.
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<PAGE> 5
(e) Consent. Each holder of an outstanding share of Preferred
Stock shall be deemed to have consented, for purposes of Sections 502, 503 and
506 of the General Corporation Law of California, to distributions made by the
corporation in connection with the repurchase of shares of Common Stock issued
to or held by employees or consultants upon termination of their employment or
services pursuant to agreements between the corporation and such persons
providing for the corporation's right of said repurchase and in connection with
repurchases pursuant to agreements granting a right of first refusal to the
corporation pursuant to repurchase transactions approved by the Board of
Directors.
(f) In connection with Section 1 hereof, if the consideration
received by this corporation in any such transaction is other than cash, its
value will be deemed to be its fair market value. Any securities shall be valued
as follows:
(i) Securities not subject to investment letter or similar
restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing of such transaction;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days prior to
the closing of such transaction; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the Board of
Directors of this corporation (excluding any director(s) then serving on the
Board as representatives of the holders of Preferred Stock) and the holders of
at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined by the Board of Directors of this
corporation (excluding any director(s) then serving on the Board as
representatives of the holders of Preferred Stock) and the holders of at least a
majority of the voting power of all then outstanding shares of Preferred Stock.
(g) In the event the requirements of Sections 1(d) and 1(f) hereof
are not complied with, this corporation shall cause the closing of such
transaction to be postponed or canceled until such requirements have been
complied with. In such event the rights, preferences and privileges of the
Series A Preferred and Series B Preferred shall revert to and be the same as
such rights, preferences and privileges existed immediately prior to the date of
the notice referred to in Section 1(h) hereof.
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<PAGE> 6
(h) This corporation shall give each holder of record of Preferred
Stock written notice of any such transaction not later than ten (10) days prior
to the shareholders' meeting called to approve such transaction, or ten (10)
days prior to the closing of such transaction, whichever is earlier. The
provisions of this Section 1(h) may be waived upon the written consent of the
holders of at least a majority of the then outstanding shares of Preferred
Stock.
Section 2. Conversion Rights. The holders of the Preferred Stock shall
have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined in the case of the Series A Preferred by
dividing the Series A Original Issue Price by the Series A Conversion Price and
in the case of the Series B Preferred by dividing the Series B Original Issue
Price by the Series B Conversion Price, each as determined as hereinafter
provided, and as in effect at the time of conversion. The price at which shares
of Common Stock shall be deliverable upon conversion of Series A Preferred and
Series B Preferred without the payment of any additional consideration by the
holders thereof shall initially be the Series A Original Issue Price per share
of Common Stock in the case of the Series A Preferred (the "Series A Conversion
Price") and the Series B Original Issue Price per share of Common Stock in the
case of the Series B Preferred (the "Series B Conversion Price"). Such initial
Conversion Prices shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which the Preferred Stock is convertible, as
hereinafter provided.
(b) Automatic Conversion.
(i) Initial Public Offering. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price for such series of Preferred Stock upon the closing
("CLOSING") of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the corporation
to the public at an offering price to the public at least equal to the Automatic
Conversion Price (as defined herein) and in which the aggregate gross proceeds
received by the corporation equal or exceed $20,000,000. In the event of such an
offering, the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Preferred Stock shall not be deemed to have converted that
Preferred Stock until immediately prior to the closing of such transaction.
(ii) Shareholder Vote. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price for such series of Preferred Stock upon the affirmative
election of the holders of at least sixty-six percent (66%) of the then
outstanding shares of Preferred Stock. In the event of such an election, the
person(s) entitled to receive the Common Stock issuable upon such conversion of
the Preferred Stock shall not be deemed to have converted that Preferred Stock
until the election (duly approved by at least sixty-six percent (66%) of the
Preferred Stock then outstanding) is received by the corporation.
-6-
<PAGE> 7
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation at its election shall either pay cash equal to such fraction
multiplied by the then effective Conversion Price for such series of Preferred
Stock or issue one whole share for each fraction of a share outstanding, after
aggregating all fractional shares held by each shareholder. Before any holder of
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock pursuant to Section 2(a) hereof, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to the
corporation at such office that he elects to convert the same and shall state
therein his name or the name or names of his nominees in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid,
together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. In the event that a holder elects to
exercise the conversion rights in connection with the initial public offering of
the Common Stock of the corporation (other than an automatic conversion as
contemplated by Section 2(b)(i) hereof), the holder may by written notice to the
corporation at the time the conversion right is exercised, specify that such
conversion shall take place immediately prior to the closing of such initial
public offering.
(d) Adjustments to Conversion Price for Dilutive Issues.
(i) Special Definitions. For purposes of this Section 2(d),
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Convertible Securities" shall mean any evidences
of indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(C) "Additional Shares of Common Stock" with respect
to a series of Preferred Stock shall mean all shares of Common Stock issued (or,
pursuant to Section 2(d)(iii), deemed to be issued) by the corporation after the
Original Issue Date for such series of Preferred Stock, other than shares of
Common Stock issued or issuable:
1) upon conversion of shares of Series A
Preferred or Series B Preferred;
2) as a dividend or distribution on Series A
Preferred or Series B Preferred or any event for which adjustment is made
pursuant to subparagraph (d)(vi) hereof; or
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<PAGE> 8
3) up to 4,000,000 shares on or after the date
hereof (including any shares issued upon the exercise of options outstanding on
the date hereof) to employees, consultants, directors or equipment lessors in
accordance with plans or arrangements approved by the Board of Directors (it
being understood that any such shares or Options that are canceled or otherwise
returned unexercised to the corporation or repurchased by the corporation, shall
not count against such share limit), provided that beginning on the Series B
Original Issue Date such share number shall be increased to 6,000,000 (including
any shares issued upon the exercise of options outstanding on the date hereof)
and, provided further that the number of shares which may be issued pursuant to
this Section 2(d)(i)(C)(3) may be increased by the Board of Directors including
the affirmative vote of each of the directors elected pursuant to the first
sentence of Section 4(b) hereof.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Preferred Stock is convertible
shall be made, by adjustment in the Conversion Price of such series of Preferred
Stock in respect of the issuance of Additional Shares of Common Stock or
otherwise, unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the corporation is less than the
Conversion Price of such series of Preferred Stock in effect on the date of, and
immediately prior to, the issue of such Additional Share of Common Stock.
(iii) Deemed Issuances of Additional Shares of Common Stock.
(A) Options and Convertible Securities. In the event
the corporation at any time or from time to time after the Original Issue Date
for a series of Preferred Stock shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities, the conversion or
exchange of such Convertible Securities, or, in the case of Options for
Convertible Securities, the exercise and conversion or exchange of such Options
for Convertible Securities, shall be deemed to be Additional Shares of Common
Stock (with respect to such series of Preferred Stock) issued as of the time of
such issue or, in the case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued with respect to an adjustment of
the Conversion Price for a series of Preferred Stock unless the consideration
per share (determined pursuant to subsection 2(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
1) no further adjustment in the Conversion
Price for such series of Preferred Stock shall be made upon the subsequent issue
of Convertible Securities or shares of Common Stock upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities;
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<PAGE> 9
2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price for such series of
Preferred Stock computed upon the original issue thereof (or upon the occurrence
of a record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or such Convertible Securities;
3) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price for such series of Preferred
Stock computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto) and any subsequent adjustments based thereon
shall, upon such expiration, be recomputed as if:
a) in the case of Convertible Securities
or Options for Common Stock the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the corporation for the issue of such exercised Options plus the consideration
actually received by the corporation upon such exercise or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the corporation upon such
conversion or exchange, and
b) in the case of Options for Convertible
Securities only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of such exercised Options, plus the consideration
deemed to have been received by the corporation (determined pursuant to Section
2(d)(v)) upon the issue of the Convertible Securities with respect to which such
Options were actually exercised;
4) no readjustment pursuant to clause (2) or
(3) above shall have the effect of increasing the Conversion Price for such
series of Preferred Stock to an amount which exceeds the lower of (i) the
Conversion Price for such series of Preferred Stock on the original adjustment
date, or (ii) the Conversion Price for such series of Preferred Stock that would
have resulted from any issuance of Additional Shares of Common Stock with
respect to such series of Preferred Stock between the original adjustment date
and such readjustment date;
5) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the applicable Conversion Price shall be made until the expiration
or exercise of all such Options issued on the same date, whereupon such
adjustment shall be made in the same manner provided in clause (3) above; and
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<PAGE> 10
6) if such record date shall have been fixed
and such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the applicable Conversion Price
which became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the applicable Conversion Price
shall be adjusted pursuant to this Section 2(d) as of the actual date of their
issuance.
(B) Stock Dividends, Stock Distributions and
Subdivisions. In the event the corporation at any time or from time to time
after the Original Issue Date for a series of Preferred Stock shall declare or
pay any dividend or make any other distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in Common
Stock), then and in any such event, Additional Shares of Common Stock shall be
deemed to have been issued with respect to such series of Preferred Stock:
1) in the case of any such dividend or
distribution, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend or distribution, or
2) in the case of any such subdivision, at the
close of business on the date immediately prior to the date upon which such
corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not have
been paid on the date fixed therefor, the adjustment previously made in the
applicable Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
applicable Conversion Price shall be adjusted pursuant to this Section 2(d) as
of the time of actual payment of such dividend.
(iv) Adjustment of Conversion Prices.
(A) Issuance of Additional Shares of Common. In the
event the corporation shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
2(d)(iii), but excluding Additional Shares of Common Stock issued pursuant to
subsection 2(d)(iii)(B), which event is dealt with in subsection 2(d)(vi)
hereof), without consideration or for a consideration per share less than the
Conversion Price in effect for a series of Preferred Stock on the date of and
immediately prior to such issue, then and in such event, the Conversion Price
for such shares of Preferred Stock shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying the
applicable Conversion Price by a fraction (x) the numerator of which shall be
(1) the number of shares of Common Stock outstanding immediately prior to such
issue, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the corporation for the total number of Additional
Shares of Common Stock so issued would purchase at the Conversion Price for such
series of Preferred Stock, and (y) the denominator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of such Additional Shares of Common Stock so issued,
provided that for the purposes of this subsection (iv), all shares of Common
Stock issuable upon exercise, conversion and/or exchange of
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outstanding Options or Convertible Securities shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to subsection (iii) above, such Additional Shares of Common Stock shall
be deemed to be outstanding, and provided further that the applicable Conversion
Price shall not be so reduced at such time if the amount of such reduction would
be an amount less than $0.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or more.
(B) Adjusted Series A Issue Price. In the event that
the Adjusted Series A Issue Price is less than the Series A Conversion Price,
then the Series A Conversion Price shall be adjusted so that it is equal to the
Adjusted Series A Issue Price and the Series A Conversion Price shall be further
adjusted to reflect any previous adjustments made to the Series A Conversion
Price from and after the Series A Original Issue Date until the date the
Adjusted Series A Issue Price is determined.
(v) Determination of Consideration. For purposes of this
Section 2(d), the consideration received by the corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
1) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
2) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
3) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 2(d)(iii)(A),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the corporation as
consideration for the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the corporation
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities or in the
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case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities.
(vi) Adjustments for Stock Splits or Stock Dividends. In the
event the outstanding shares of Common Stock shall be subdivided (by stock split
or otherwise), into a greater number of shares of Common Stock, or shares of
Common Stock shall have been issued by stock dividend, the Conversion Prices
then in effect shall, concurrently with the effectiveness of such subdivision or
stock dividend, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined or consolidated by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Prices
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustments for Other Distributions. In the event the
corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the corporation which they would have received had their Preferred
Stock been converted into Common Stock at the applicable Conversion Price on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 2 with respect to
the rights of the holders of the Preferred Stock.
(viii) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Prices then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that each series of Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of such series of Preferred Stock immediately before that change.
(ix) Reorganization, Mergers, Consolidations, or Sales of
Assets. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification, or exchange of shares provided for elsewhere in this Section
2) or a merger or consolidation of this corporation with or into another
corporation, or the sale of all or substantially all of this corporation's
properties and assets to any other person (other
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than a merger, consolidation or sale of properties and assets provided for in
Section 1 hereof), then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock, the number of shares of stock or other securities or property
of this corporation, or of the successor corporation resulting from such merger
or consolidation or sale, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of Section 2 with respect to the rights of
the holders of the Preferred Stock after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Section 2
(including adjustment of the Conversion Prices then in effect and the number of
shares purchasable upon conversion of each series of Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of a series of Preferred
Stock pursuant to this Section 2, the corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of such series of Preferred Stock a certificate certified
by the corporation's chief financial officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price in effect at that time, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of such series of Preferred Stock.
(f) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 2 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment. The provisions of this Section
2(f) shall not apply to any action taken by the corporation if such action is
otherwise approved by the holders of more than fifty percent (50%) of the then
outstanding shares of Preferred Stock.
(g) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least ten (10) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
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(h) Notices. Any notice required by the provisions of this Section
2 to be given to the holders of shares of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
(i) Reservation of Stock Issuable Upon Conversion. The corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Preferred Stock, the corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
Section 3. Redemption.
(a) On each of the fifth, sixth and seventh anniversaries of the
Series A Original Issue Date and on each anniversary thereafter so long as any
shares of Series A Preferred remain outstanding, to the extent the shares of
Series A Preferred have not been redeemed or converted prior to such date and to
the extent requested by the holders of not less than sixty-six percent (66%) of
the then outstanding shares of Series A Preferred, the corporation shall redeem
an amount equal to one-third, one-half and all of the issued, outstanding, and
unconverted shares of Series A Preferred on the fifth, sixth and each
anniversary thereafter, respectively, of the Series A Original Issue Date, from
any source of funds legally available therefor. Not less than thirty-five (35)
and not more than sixty (60) days before the fifth, sixth and seventh
anniversaries of the Series A Original Issue Date (and each anniversary
thereafter so long as any shares of Series A Preferred remain unredeemed and
unconverted), the corporation shall send to each holder of Series A Preferred a
notice advising such holders of their rights under this subsection. Each such
holder shall have until each such anniversary date to request redemption of all
(but not less than all) of the shares which may be redeemed. If no funds or
insufficient funds are available to the corporation at any time to meet the
corporation's redemption obligations pursuant to this subsection, then the
corporation's obligations to redeem shares shall be carried over to such time as
funds are legally available to redeem such shares until all shares entitled to
be redeemed pursuant to this subsection have been redeemed. The shares of Series
A Preferred which have not been redeemed shall continue to be entitled to the
dividend, conversion and other rights, preferences, privileges and restrictions
of the Series A Preferred until such shares have been redeemed and the
redemption price has been paid or set aside with respect thereto.
(b) On each of the fifth, sixth and seventh anniversaries of the
Series B Original Issue Date and on each anniversary thereafter so long as any
shares of Series B Preferred remain outstanding, to the extent the shares of
Series B Preferred have not been redeemed or converted prior to such date and to
the extent requested by the holders of not less than sixty-six percent (66%) of
the then outstanding shares of Series B Preferred, the corporation shall redeem
an amount equal to one-third, one-half and all of the issued, outstanding, and
unconverted shares of Series B Preferred on the fifth, sixth and each
anniversary thereafter, respectively, of the Series B Original Issue Date, from
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any source of funds legally available therefor. Not less than thirty-five (35)
and not more than sixth (60) days before the fifth, sixth and seventh
anniversaries of the Series B Original Issue Date (and each anniversary
thereafter so long as any shares of Series B Preferred remain unredeemed and
unconverted), the corporation shall send to each holder of Series B Preferred a
notice advising such holders of their rights under this subsection. Each such
holder shall have until each such anniversary date to request redemption of all
(but not less than all) of the shares which may be redeemed. If no funds or
insufficient funds are available to the corporation at any time to meet the
corporation's redemption obligations pursuant to this subsection, then the
corporation's obligations to redeem shares shall be carried over to such time as
funds are legally available to redeem such shares until all shares entitled to
be redeemed pursuant to this subsection have been redeemed. The shares of Series
B Preferred which have not been redeemed shall continue to be entitled to the
dividend, conversion and other rights, preferences, privileges and restrictions
of the Series B Preferred until such shares have been redeemed and the
redemption price has been paid or set aside with respect thereto.
(c) The redemption price for each share of Series A Preferred to
be redeemed on the fifth, sixth and seventh anniversaries of the Series A
Initial Issue Date shall equal 1.61, 1.77 and 1.95, respectively, and 1.95 for
any shares redeemed thereafter, in each such case multiplied by the Series A
Original Issue Price and in each case less any previously paid dividends on such
share of Series A Preferred. The redemption price for each share of Series B
Preferred to be redeemed on the fifth, sixth and seventh anniversaries of the
Series B Initial Issue Date shall equal 1.61, 1.77 and 1.95, respectively, and
1.95 for any shares redeemed thereafter, in each such case multiplied by the
Series B Original Issue Price and in each case less any previously paid
dividends on such share of Series B Preferred.
(d) In the event insufficient funds are available to redeem all
shares of Series A Preferred entitled to be redeemed pursuant to Section 3(a)
and/or all shares of Series B Preferred entitled to be redeemed pursuant to
Section 3(b), the corporation shall effect each such redemption pro rata among
the holders of (i) the Series A Preferred based upon the number of shares of
Series A Preferred then held by each holder, if only Section 3(a) is applicable,
(ii) the Series B Preferred based upon the number of shares of Series B
Preferred then held by each holder, if only Section 3(b) is applicable, or (iii)
the Series A Preferred and the Series B Preferred together in proportion to the
aggregate redemption price for all shares of Series A Preferred and Series B
Preferred then held by each holder, if Sections 3(a) and 3(b) are applicable. In
the event that at any time thereafter, additional funds become legally available
for the redemption of shares of Preferred Stock, the corporation shall, as soon
as practicable following the end of each fiscal quarter, use such funds to
redeem the balance of the shares of Preferred Stock that the corporation has
become obligated to redeem, but that it is has not so redeemed.
(e) Any redemption notice to be given pursuant to this Section 3
shall be delivered by first class mail, postage prepaid to the holders of record
of the Series A Preferred and/or Series B Preferred, such notice to be addressed
to each holder at the address shown in the corporation's records and which shall
specify the number of shares of Preferred Stock eligible to be redeemed and the
date at which conversion rights as to such shares of Preferred Stock terminate
which date shall be no earlier than five (5) days prior to the date fixed for
redemption. In the event that the corporation receives a written election from
the holders of not less than a majority of the
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then outstanding shares of Series A Preferred and/or Series B Preferred
exercising the redemption right pursuant to Section 3(a) or 3(b) hereof, as
applicable, the corporation shall provide an additional notice to the holders of
the Series A Preferred and/or Series B Preferred which shall specify the date of
redemption which date shall be no later than ten (10) days following the
anniversary date related to such redemption. On or after the date of redemption
as specified in such notice, each holder shall surrender his certificate for the
number of shares to be redeemed as stated in the notice (except that such number
of shares shall be reduced by the number of shares which have been converted
pursuant to Section 2 hereof between the date of notice and the date on which
conversion rights terminate) to this corporation at the place specified in such
notice. Provided such notice is duly given, and provided that on the redemption
date specified there shall be a source of funds legally available for such
redemption, and funds necessary for the redemption shall have been paid or made
available at the place fixed for redemption, then all rights with respect to
such shares shall, after the specified redemption date, terminate whether or not
said certificates have been surrendered, excepting only that in the latter
instance the right of the holder to receive the redemption price thereof,
without interest, upon such surrender will not terminate.
Section 4. Voting Rights.
(a) General. Except as otherwise required by law, each share of
Common Stock issued and outstanding shall have one vote and each share of
Preferred Stock issued and outstanding shall have the number of votes equal to
the number of shares of Common Stock into which such share of Preferred Stock is
convertible as adjusted from time to time pursuant to Section 2 hereof, and the
holders of Preferred Stock shall have full voting rights equal to the voting
rights of the holders of Common Stock, and shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote with the holders of Common Stock with respect to any
matter upon which the holders of Common Stock have the right to vote, except
those required hereunder or by law to be submitted to a class vote.
(b) Voting for Directors. For so long as there are at least
1,500,000 shares (as adjusted for stock splits and like events with respect to
the Series A Preferred) of Series A Preferred outstanding, the holders of the
Series A Preferred shall be entitled to nominate and elect two (2) directors at
each annual election of directors, and for so long as there are at least 910,000
shares but less than 1,500,000 shares (each as adjusted for stock splits and
like events with respect to the Series A Preferred) of Series A Preferred
outstanding, the holders of the Series A Preferred shall be entitled to nominate
and elect one (1) director at each annual election of directors. Any director
elected pursuant to the immediately preceding sentence may only be removed by
the holders of the Series A Preferred. All directors not elected by the Series A
Preferred stockholders as set forth in the preceding sentence shall be elected
in accordance with the provisions of Section 4(a) hereof. Any vacancy on the
Board occurring because of the death, resignation or removal of a director
elected by the Series A Preferred shall be filled by the vote or written consent
of the holders of a majority of the Series A Preferred then outstanding.
Section 5. Dividend Rights.
(a) The holders of outstanding Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors and out of any assets
and funds legally available therefor,
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dividends in an annual amount equal to 6% of the Series A Original Issue Price
(rounded to the nearest cent) per share of Series A Preferred (as adjusted for
any stock splits and like events with respect to the Series A Preferred) and in
an annual amount equal to 6% of the Series B Original Issue Price (rounded to
the nearest cent) per share of Series B Preferred (as adjusted for any stock
splits and like events with respect to the Series B Preferred), and no more,
payable in preference and priority to any declaration or any payment of any
dividend on the Common Stock. The right to such dividends on shares of Series A
Preferred and Series B Preferred shall not be cumulative, and no right shall
accrue to holders of Series A Preferred or Series B Preferred by reason of the
fact that dividends on said shares are not declared or paid in any prior year.
In the event that the corporation shall have declared and unpaid dividends
outstanding immediately prior to, and in the event of, conversion of Series A
Preferred or Series B Preferred, the corporation shall, at its option, pay in
cash to the holder(s) of such shares of Preferred Stock subject to conversion
the full amount of any such dividends or convert such dividends into Common
Stock at the then effective Conversion Price for such series of Preferred Stock
referred to in Section 2 or a combination thereof, together with cash in lieu of
any fractional share of Common Stock. Upon the affirmative vote or written
consent of the holders of more than fifty percent (50%) of the Preferred Stock
then outstanding, the holders of the Preferred Stock can waive the right of the
Preferred Stock to receive any dividend under this Section 4. In the event of
such a waiver, the corporation shall have no obligation at any time thereafter
to pay such waived dividends.
(b) Dividends may be paid on the Common Stock when and as declared
by the Board of Directors, subject to the prior dividend rights of the Preferred
Stock.
Section 6. Covenants. So long as at least 1,000,000 shares (subject to
adjustment for stock splits and like events with respect to the Preferred Stock)
of Preferred Stock shall be outstanding, the corporation shall not, without
first obtaining the affirmative vote or written consent of holders of more than
fifty percent (50%) of such outstanding shares of Preferred Stock voting
together as a class:
(a) amend or repeal any provision of, or add any provision to, the
corporation's Articles of Incorporation or Bylaws if such action would
materially adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of the Preferred Stock;
(b) create or issue or obligate itself to issue any other equity
security (including any other security convertible into or exercisable for any
equity security) or reclassify any Preferred Stock or Common Stock shares, in
any such case, into shares having any preference or priority as to dividends,
liquidation, redemption or voting superior to or on a parity with any such
preference or priority of the Series A Preferred or Series B Preferred;
(c) apply any of its assets to the redemption, retirement,
purchase or other acquisition of any shares of Common Stock except from
employees of, or consultants to, the corporation upon termination of employment
or consultancy or except pursuant to agreements granting a right of first
refusal to the corporation pursuant to repurchase transactions; provided that
any such individual action or series of related actions which results in a
payment by the corporation of more than $50,000 shall be approved or ratified by
the Board of Directors;
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(d) sell, convey or otherwise dispose of all or substantially all
of its assets or property or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the corporation is disposed of;
(e) authorize any dividend or other distribution with respect to
the Common Stock (other than a dividend payable in Common Stock or contemplated
by Section 2 hereof);
(f) increase the number of authorized shares of Series A Preferred
or Series B Preferred;
(g) liquidate or dissolve the corporation;
(h) increase the number of authorized directors to greater than
nine (9); or
(i) issue any shares of Series B Preferred other than as
contemplated by that certain Stock Purchase Agreement dated on or about the
Series A Original Issue Date.
Section 7. Residual Rights. All rights accruing to the outstanding shares
of the corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
Section 8. Status of Converted or Redeemed Stock. In the event any shares
of Series A Preferred or Series B Preferred authorized on the date of filing
hereof shall be converted pursuant to Section 2 hereof or redeemed pursuant to
Section 3 hereof, the shares so converted or redeemed shall be canceled and
shall not be reissuable by the corporation, and the Articles of Incorporation
shall be appropriately amended and restated to effect the corresponding
reduction in the corporation's authorized stock.
Section 9. Partial Conversion or Redemption. In the event that less than
all of a holder's shares of Preferred Stock shall be converted at any time
pursuant to Section 2 hereof or redeemed pursuant to Section 3 hereof, the
corporation shall promptly upon receipt of such holder's certificate for shares
to be converted or redeemed, issue a new certificate to such holder representing
the unconverted or unredeemed shares.
Section 10. Authorized Preferred Stock. In the event that all of the then
outstanding shares of Preferred Stock are converted pursuant to Section 2
hereof, all of the then otherwise authorized shares of Series A Preferred and
Series B Preferred shall be canceled and shall not be reissuable by the
corporation, and the Articles of Incorporation shall be appropriately amended
and restated to effect the corresponding reduction in the corporation's
authorized stock.
Section 11. Certain Definitions. As used in this Article III, the
following terms shall have the following meanings:
"1998 Revenue" shall mean the sum of (i) the revenue of the corporation
for the fiscal year ended December 31, 1998 (or such shorter period as may be
chosen by the corporation) as reported in the corporation's financial statements
(which shall be audited in the case of year-end financial statements and which
shall be reviewed in accordance with Statement of Auditing Standards 71 in
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the case of interim financial statements) for such period prepared in accordance
with GAAP (the "Financial Statements") including license, services and
maintenance revenue and any other component assigned revenue value, (ii) the
deferred portion of revenue in the Financial Statements relating to unrecognized
maintenance for revenue up to a maximum of 12 months maintenance revenue on any
1998 transaction, (iii) the corporation's backlog of license and first year
maintenance revenue not reflected in the Financial Statements that is not
recognizable under GAAP due only to the lack of shipment but only if such
products are released products available for shipment at the corporation's
discretion or the delay by the corporation of the execution of a customer signed
contract for released products available for shipment and (iv) any other revenue
approved by each of the directors serving on the Board pursuant to the first
sentence of Section 4(b) hereof. The corporation shall compute the amount of
1998 Revenue and Commercial Revenue and shall deliver a copy of such computation
in reasonable detail together with the Financial Statements to each holder of
Series A Preferred as soon as practicable and in any event no later than March
31, 1999. In the event that the holders of more than 66% of the outstanding
shares of Series A Preferred object to the computation of 1998 Revenue and/or
Commercial Revenue, such holders must notify the corporation within ten (10)
days following the date the corporation delivers such computation to such
holders of such disagreement in reasonable detail. If the corporation does not
receive such objection notice within such ten (10) day period, the holders of
Series A Preferred shall be deemed to have agreed to the corporation's
computations for all purposes. If the corporation receives such objection notice
within such ten (10) day period and if the corporation disagrees with the
matters set forth in the objection notice, then the determination of the amount
of 1998 Revenue and/or Commercial Revenue shall be submitted to the dispute
resolution procedure set forth in the Purchase Agreement for the Series A
Preferred dated on or about the Series A Original Issue Date.
"Adjusted Series A Issue Price" shall be determined by dividing (i)
$90,000,000 less two times the difference between $20,000,000 and the amount of
Commercial Revenue by (ii) 23,440,562, provided that in no event shall the
Adjusted Series A Issue Price be less than $2.99 per share (as adjusted for
stock splits and like events with respect to the Series A Preferred), and
provided further that in the event that an automatic conversion of the Series A
Preferred is to occur pursuant to Section 2(b)(i) hereof prior to the
determination of the amount of 1998 Revenue or Commercial Revenue, then the
Adjusted Series A Issue Price shall be deemed to equal $3.84 (as adjusted for
stock splits and like events with respect to the Series A Preferred).
"Automatic Conversion Price" shall mean the greater of (i) the product of
2.0 multiplied by the Series A Original Issue Price per share (as adjusted for
stock splits, stock dividends, reclassifications, and like events) and (ii) if
the Series B Original Issue Date has occurred and the 1.5 multiplier set forth
in Section (i)(A) of the definition of such term was used, the product of 1.4
multiplied by the Series B Original Issue Price per share (as adjusted for stock
splits, stock dividends, reclassifications, and like events) and (iii) if the
Series B Original Issue Date has occurred and the 1.75 multiplier set forth in
Section (i)(B) of the definition of such term was used, the product of 1.25
multiplied by the Series B Original Issue Price per share (as adjusted for stock
splits, stock dividends, reclassifications, and like events).
"Commercial Revenue" shall mean all 1998 Revenue except for any such
revenue related to managed care customers and the corporation's historical
health care information systems customers, excluding any insurance industry
customers.
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"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Pre-Money Valuation" shall be determined by multiplying (i) the Adjusted
Series A Issue Price by (ii) the sum of the number of outstanding shares of
Common Stock and the number of shares of Common Stock issuable upon conversion
of the outstanding shares of Series A Preferred and the number of shares of
Common Stock issuable upon the exercise of all options outstanding or reserved
for future issuance (which number of shares issuable upon the exercise of all
options outstanding or reserved for future issuance when added to the number of
shares issued upon the exercise of options since the Series A Original Issue
Date shall in no event be deemed to be less than 4,000,000), each as determined
at the time the Pre-Money Valuation is being calculated.
"Series A Original Issue Date" shall mean the date on which the first
share of Series A Preferred was issued.
"Series B Original Issue Date" shall mean the date on which the first
share of Series B Preferred was issued.
"Series A Original Issue Price" shall mean $3.84 per share.
"Series B Original Issue Price" shall be determined by dividing (i) (A)
1.5 multiplied by the Pre-Money Valuation in the event that 1998 Revenue is less
than $50,000,000 or Commercial Revenue is less than $30,000,000 or in the event
that an automatic conversion of the Series A Preferred is to occur pursuant to
Section 2(b)(i) hereof prior to the determination of the amount of 1998 Revenue
or Commercial Revenue or (B) 1.75 multiplied by the Pre-Money Valuation if 1998
Revenue equals or exceeds $50,000,000 and Commercial Revenue equals or exceeds
$30,000,000, by (ii) the sum of the number of outstanding shares of Common Stock
and the number of shares of Common Stock issuable upon conversion of the
outstanding shares of Series A Preferred and the number of shares of Common
Stock issuable upon the exercise of all options outstanding or reserved for
future issuance (which number of shares issuable upon the exercise of all
options outstanding or reserved for future issuance when added to the number of
shares issued upon the exercise of options since the Series A Original Issue
Date shall in no event be deemed to be less than 6,000,000), each as determined
at the time the Series B Original Issue Price is being calculated.
ARTICLE IV
Section 1. Board of Directors. The Board of Directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the first annual meeting of
shareholders following the effectiveness of this Article IV, Section 1, the term
of office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
shareholders following the effectiveness of this Article IV, Section 1, the term
of office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
shareholders following the effectiveness of this Article IV, Section 1, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three
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<PAGE> 21
years. At each succeeding annual meeting of shareholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose term expire at such annual meeting. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director.
Section 2. No Cumulative Voting. Shareholders of the corporation shall not
be entitled to cumulate votes at any election of directors.
Section 3. Shareholder Consent. Any action required or permitted to be
taken by the shareholders of the corporation must be effected at a duly called
annual or special meeting of shareholders of the corporation and may not be
effected by any consent in writing by the shareholders.
Section 4. Effectiveness. The provisions contained in Section 1, Section 2
and Section 3 of this Article IV shall become effective only when the
corporation becomes a listed corporation within the meaning of Section 301.5 of
the Corporations Code of the State of California, as from time to time amended.
ARTICLE V
The corporation reserves the right at any time and from time to time to
amend, alter, change, or repeal any provisions contained herein, and other
provisions authorized by the laws of the State of California at the time in
force may be added or inserted, in the manner now or hereafter prescribed by
law, and all rights, preferences, and privileges of whatsoever nature conferred
upon shareholders by or pursuant to these Articles of Incorporation in their
present form or as hereafter amended are granted subject to the right reserved
in this Article V.
ARTICLE VI
Section 1. The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
Section 2. To the fullest extent permissible under California law, the
corporation shall indemnify any Agent who is a director or executive officer of
the corporation and who was or is a party or is threatened to be made a party to
any Proceeding. In addition, the corporation shall have authority to adopt a
resolution or bylaw, enter into an agreement, or take other corporate action
pursuant to which the corporation may be permitted or required to indemnify, to
the fullest extent permissible under California law, any other Agent who was or
is a party or is threatened to be made a party to any Proceeding.
Section 3. In serving or continuing to serve the corporation, an Agent is
entitled to rely and shall be presumed to have relied on any rights granted
pursuant to the foregoing provisions of this Article VI, which shall be
enforceable as contract rights and continue when the Agent has ceased to be an
Agent and inure to the benefit of the heirs, executors and administrators of the
Agent.
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<PAGE> 22
Section 4. The Board of Directors is authorized, to the fullest extent
permissible under California law, to cause the corporation to pay expenses
incurred by Agents in defending Proceedings and to purchase and maintain
insurance on their behalf whether or not the corporation would have the power to
indemnify them under the provisions of this Article VI or otherwise.
Section 5. Any right or privilege conferred by or pursuant to this Article
VI shall not be exclusive of any other rights to which any Agent may otherwise
be entitled.
Section 6. As used in this Article VI:
(a) "Agent" has the meaning given to such term by Section 317 of
the Corporations Code.
(b) "Indemnify" means to hold harmless against expenses (including
without limitation attorneys' fees and any expenses of establishing a right to
indemnification), judgments, fines, settlements and other amounts actually and
reasonably incurred by an Agent in connection with a Proceeding; and
(c) "Proceeding" means any threatened, pending or completed
action, whether civil, criminal, administrative or investigative.
Section 7. Any repeal or modification of the foregoing provisions of this
Article VI by the shareholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal of modification.
ARTICLE VII
Except as otherwise provided for or fixed by or pursuant to the provisions
of the second paragraph of Article III hereof in relation to the rights of the
holders of Preferred Stock to elect directors under specified circumstances,
newly-created directorships resulting from any increase in the number of
directors, created in accordance with the Bylaws of the corporation, and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause may be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent, if shareholder action by
written consent is then permitted by these Articles of Incorporation and the
corporation's Bylaws, other than to fill a vacancy created by removal requires
the consent of a majority of the outstanding shares entitled to vote. Any
director elected in accordance with this Article VII shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified, or until such director's
earlier death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors.
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<PAGE> 23
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the Corporations Code. The total number
of outstanding shares of Common Stock of the corporation is 35,518,108. The
total number of outstanding shares of Preferred Stock of the corporation is
5,452,798. The number of shares voting in favor of the Amended and Restated
Articles of Incorporation equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding shares of Common Stock and
more than 50% of the outstanding shares of Preferred Stock, voting separately.
[remainder of page intentionally left blank]
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<PAGE> 24
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing Amended and Restated Articles of Incorporation are true
of their own knowledge.
Executed at Monrovia, California on March 13, 2000.
/s/ JAMES T. DEMETRIADES
-------------------------------------
James T. Demetriades,
Chairman, Chief Executive Officer and
President
Executed at Monrovia, California on March 13, 2000.
/s/ BARRY J. PLAGA
-------------------------------------
Barry J. Plaga,
Assistant Secretary
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SOFTWARE TECHNOLOGIES CORPORATION
A California corporation
The undersigned, James T. Demetriades and Barry J. Plaga, do hereby
certify:
1. They are the duly elected and acting Chairman, Chief Executive
Officer and President and Assistant Secretary, respectively, of this
corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
ARTICLE I
The name of this corporation is Software Technologies Corporation.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock ("Common Stock") and Preferred Stock
("Preferred Stock"). The total number of shares of Common Stock this corporation
shall have authority to issue is 200,000,000 and the total number of shares of
Preferred Stock this corporation shall have authority to issue is 10,000,000.
The Preferred Stock initially shall be undesignated as to series. Any
Preferred Stock not designated as to series may be issued from time to time in
one or more series pursuant to a resolution or resolutions providing for such
issue duly adopted by the Board of Directors (authority to do so being hereby
expressly vested in the Board of Directors), and such resolution or resolutions
shall also set forth the voting powers, full or limited or none, of each such
series of Preferred Stock and shall fix the designations, preferences and
relative, participating, optional or other special rights of each such series of
Preferred Stock and the qualifications, limitations or restrictions of such
powers,
<PAGE> 2
designations, preferences or rights. The Board of Directors is also authorized
to fix the number of shares of each such series of Preferred Stock. The Board of
Directors is authorized to alter the powers, designation, preferences, rights,
qualifications, limitations and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series of Preferred
Stock, to increase or decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. In case the number of shares shall be so
decreased, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
Each share of Preferred Stock issued by the corporation, if reacquired
by the corporation (whether by redemption, repurchase, conversion to Common
Stock or other means), shall upon such reacquisition resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series and
available for designation and issuance by the corporation in accordance with the
immediately preceding paragraph.
The corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
ARTICLE IV
Section 1. Board of Directors. The Board of Directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the first annual meeting of
shareholders following the effectiveness of this Article IV, Section 1, the term
of office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
shareholders following the effectiveness of this Article IV, Section 1, the term
of office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
shareholders following the effectiveness of this Article IV, Section 1, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three years. At each succeeding annual meeting of
shareholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose term expire at such annual meeting. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director.
Section 2. No Cumulative Voting. Shareholders of the corporation shall
not be entitled to cumulate votes at any election of directors.
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<PAGE> 3
Section 3. Shareholder Consent. Any action required or permitted to be
taken by the shareholders of the corporation must be effected at a duly called
annual or special meeting of shareholders of the corporation and may not be
effected by any consent in writing by the shareholders.
ARTICLE V
The corporation reserves the right at any time and from time to time to
amend, alter, change, or repeal any provisions contained herein, and other
provisions authorized by the laws of the State of California at the time in
force may be added or inserted, in the manner now or hereafter prescribed by
law, and all rights, preferences, and privileges of whatsoever nature conferred
upon shareholders by or pursuant to these Articles of Incorporation in its
present form or as hereafter amended are granted subject to the right reserved
in this Article V.
ARTICLE VI
Section 1. The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. To the fullest extent permissible under California law, the
corporation shall indemnify any Agent who is a director or executive officer of
the corporation and who was or is a party or is threatened to be made a party to
any Proceeding. In addition, the corporation shall have authority to adopt a
resolution or bylaw, enter into an agreement, or take other corporate action
pursuant to which the corporation may be permitted or required to indemnify, to
the fullest extent permissible under California law, any other Agent who was or
is a party or is threatened to be made a party to any Proceeding.
Section 3. In serving or continuing to serve the corporation, an Agent
is entitled to rely and shall be presumed to have relied on any rights granted
pursuant to the foregoing provisions of this Article VI, which shall be
enforceable as contract rights and continue when the Agent has ceased to be an
Agent and inure to the benefit of the heirs, executors and administrators of the
Agent.
Section 4. The Board of Directors is authorized, to the fullest extent
permissible under California law, to cause the corporation to pay expenses
incurred by Agents in defending Proceedings and to purchase and maintain
insurance on their behalf whether or not the corporation would have the power to
indemnify them under the provisions of this Article VI or otherwise.
Section 5. Any right or privilege conferred by or pursuant to this
Article VI shall not be exclusive of any other rights to which any Agent may
otherwise be entitled.
Section 6. As used in this Article VI:
(a) "Agent" has the meaning given to such term by Section 317 of the
Corporations Code.
(b) "Indemnify" means to hold harmless against expenses (including
without limitation attorneys' fees and any expenses of establishing a right to
indemnification), judgments,
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<PAGE> 4
fines, settlements and other amounts actually and reasonably incurred by an
Agent in connection with a Proceeding; and
(c) "Proceeding" means any threatened, pending or completed action,
whether civil, criminal, administrative or investigative.
Section 7. Any repeal or modification of the foregoing provisions of
this Article VI by the shareholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal of modification.
ARTICLE VII
Except as otherwise provided for or fixed by or pursuant to the
provisions of the second paragraph of Article III hereof in relation to the
rights of the holders of Preferred Stock to elect directors under specified
circumstances, newly-created directorships resulting from any increase in the
number of directors, created in accordance with the Bylaws of the corporation,
and any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause may be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent, if shareholder action by
written consent is permitted by these Articles of Incorporation and the
corporation's Bylaws, other than to fill a vacancy created by removal requires
the consent of a majority of the outstanding shares entitled to vote. Any
director elected in accordance with this Article VII shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified, or until such director's
earlier death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the Corporations Code. The total number
of outstanding shares of Common Stock of the corporation is __________. The
total number of outstanding shares of Preferred Stock of the corporation is
5,452,798. The number of shares voting in favor of the Restated Articles of
Incorporation equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding
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<PAGE> 5
shares of Common Stock and more than 50% of the outstanding shares of Preferred
Stock, voting separately.
[remainder of page intentionally left blank]
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<PAGE> 6
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing Amended and Restated Articles of Incorporation are true
of their own knowledge.
Executed at Monrovia, California on __________, 2000.
------------------------------------------------
James T. Demetriades,
Chairman, Chief Executive Officer and President
Executed at Monrovia, California on __________, 2000.
------------------------------------------------
Barry J. Plaga,
Assistant Secretary
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
SOFTWARE TECHNOLOGIES CORPORATION
(A CALIFORNIA CORPORATION)
<PAGE> 2
AMENDED AND RESTATED BYLAWS OF
SOFTWARE TECHNOLOGIES CORPORATION
(A CALIFORNIA CORPORATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE I CORPORATE OFFICES..............................................................1
ARTICLE II SHAREHOLDERS' MEETINGS.........................................................1
Section 2.1 PLACE OF MEETINGS...............................................1
Section 2.2 ANNUAL MEETINGS.................................................1
Section 2.3 SPECIAL MEETINGS................................................1
Section 2.4 NOTICE OF MEETINGS..............................................1
Section 2.5 WAIVER BY SHAREHOLDERS..........................................3
Section 2.6 ACTION WITHOUT MEETING..........................................3
Section 2.7 QUORUM..........................................................4
Section 2.8 VOTING RIGHTS - CUMULATIVE VOTING...............................5
Section 2.9 PROXIES.........................................................6
Section 2.10 MANNER OF CONDUCTING MEETINGS...................................6
ARTICLE III DIRECTORS......................................................................7
Section 3.1 POWERS..........................................................7
Section 3.2 AUTHORIZED NUMBER...............................................8
Section 3.3 ELECTION AND TENURE OF OFFICE...................................8
Section 3.4 VACANCIES.......................................................8
Section 3.5 REMOVAL OF DIRECTORS............................................9
Section 3.6 PLACE OF MEETINGS...............................................9
Section 3.7 REGULAR MEETINGS................................................9
Section 3.8 SPECIAL MEETINGS - NOTICES......................................9
Section 3.9 WAIVER OF NOTICE...............................................10
Section 3.10 ACTION AT A MEETING............................................10
Section 3.11 ADJOURNMENT....................................................10
Section 3.12 ACTION WITHOUT MEETING.........................................10
Section 3.13 COMPENSATION...................................................11
Section 3.14 ORGANIZATION OF MEETINGS.......................................11
ARTICLE IV OFFICERS......................................................................11
Section 4.1 OFFICERS.......................................................11
Section 4.2 ELECTION, REMOVAL AND RESIGNATION..............................11
Section 4.3 CHAIRMAN OF THE BOARD..........................................12
Section 4.4 CHIEF EXECUTIVE OFFICER........................................12
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C> <C>
Section 4.5 PRESIDENT......................................................12
Section 4.6 VICE PRESIDENTS................................................12
Section 4.7 SECRETARY AND ASSISTANT SECRETARY..............................12
Section 4.8 CHIEF AND SUBORDINATE FINANCIAL OFFICERS.......................13
Section 4.9 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS......13
Section 4.10 COMPENSATION...................................................13
ARTICLE V COMMITTEES....................................................................14
Section 5.1 AUTHORIZATION..................................................14
Section 5.2 POWERS.........................................................14
Section 5.3 PROCEDURES.....................................................14
ARTICLE VI CORPORATE RECORDS AND REPORTS - INSPECTION....................................15
Section 6.1 RECORDS........................................................15
Section 6.2 INSPECTION OF BOOKS AND RECORDS................................15
Section 6.3 INSPECTION OF BYLAWS...........................................16
Section 6.4 CHECKS, DRAFTS, ETC............................................16
Section 6.5 REPORTS TO SHAREHOLDERS........................................16
ARTICLE VII OTHER AUTHORIZATIONS..........................................................16
Section 7.1 EXECUTION OF CONTRACTS.........................................16
Section 7.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................17
Section 7.3 DIVIDENDS......................................................17
ARTICLE VIII STOCK CERTIFICATES AND TRANSFER OF SHARES.....................................17
Section 8.1 STOCK CERTIFICATES.............................................17
Section 8.2 TRANSFER ON THE BOOKS..........................................18
Section 8.3 LOST OR DESTROYED CERTIFICATES.................................18
Section 8.4 TRANSFER AGENTS AND REGISTRARS.................................18
Section 8.5 FIXING RECORD DATE FOR ACTIONS WITH RESPECT TO SHAREHOLDERS....18
Section 8.6 RECORD OWNERSHIP...............................................19
ARTICLE IX INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS............19
Section 9.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS......................19
Section 9.2 OTHER AGENTS...................................................20
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C> <C>
ARTICLE X INTERPRETATION................................................................20
ARTICLE XI AMENDMENTS TO BYLAWS..........................................................20
Section 11.1 BY SHAREHOLDERS................................................20
Section 11.2 BY DIRECTORS...................................................20
Section 11.3 RECORD OF AMENDMENTS...........................................20
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED BYLAWS OF
SOFTWARE TECHNOLOGIES CORPORATION
(A CALIFORNIA CORPORATION)
ARTICLE I
CORPORATE OFFICES
The principal executive office of the corporation shall be at such place
within or without the State of California as the Board of Directors hereafter
shall designate. The corporation may also have offices at such other place, or
places, as the Board of Directors may from time to time designate.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 2.1 PLACE OF MEETINGS
All meetings of the shareholders shall be held at the principal
executive office of the corporation, or any other place within or without the
State of California as may be designated for that purpose from time to time by
the Board of Directors.
Section 2.2 ANNUAL MEETINGS
The annual meeting of shareholders shall be held on May 1 (but if such
day is a legal holiday, then on the next succeeding business day) at the hour of
10:00 o'clock in the a.m., Pacific Time, or such other day and time as the Board
of Directors may select.
Section 2.3 SPECIAL MEETINGS
Special meetings of shareholders, for any purpose or purposes permitted
under the General Corporation Law of the State of California (the "GCL"
hereinafter) and the Articles of Incorporation of this corporation, may be
called at any time by the Board of Directors, or by the Chairman of the Board,
or by the Chief Executive Officer, or by the President, or by shareholders
entitled to cast not less than 10 percent of the votes at such meeting.
Section 2.4 NOTICE OF MEETINGS
2.4.1 Written notice of each meeting of shareholders, annual or special,
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each shareholder entitled to vote thereat. Any notice of a
shareholders' meeting or report to shareholders shall be deemed to have been
given at the time when delivered personally or deposited in the mail (first
class, postage prepaid) or sent by other means of written communication. An
affidavit of mailing of any notice or
<PAGE> 6
report in accordance with the provisions of the GCL, executed by the Secretary,
assistant secretary or any transfer agent, shall be prima facie evidence of the
giving of the notice or report.
2.4.2 Upon request in writing, delivered to such officers by any persons
entitled to call a meeting of shareholders, it shall be the duty of the Chairman
of the Board, the Chief Executive Officer, the President, a Vice President or
the Secretary, to cause notice to be given to the shareholders entitled to vote
that a meeting will be held at a time requested by the person or persons calling
the meeting, not less than 35 nor more than 60 days after receipt of the
request. If such notice shall not be given within 20 days after the date of
receipt of such request, the person or persons entitled to call the meeting may
give notice of the meeting in the manner provided in Section 2.4.3 of these
Bylaws.
2.4.3 Notice of each annual or special meeting of shareholders shall be
given in writing and shall specify the place, the date, and the hour of the
meeting, and (1) in the case of a special meeting, the general nature of the
business to be transacted at the meeting (and no other business may be
transacted at the meeting), or (2) in the case of the annual meeting, those
matters which the Board of Directors, at the time of the mailing of the notice,
intends to present for action by the shareholders (but, subject to the
provisions of the immediately following sentence, any proper matter may be
presented at the meeting for such action). Each notice of an annual or special
meeting shall also include a statement of (1) the general nature of each
proposal, if any, to take action to approve (a) a contract or other transaction
described in Section 310 of the GCL, (b) amendments to the Articles of
Incorporation pursuant to Section 902 of the GCL, (c) a reorganization pursuant
to Section 1201 of the GCL, (d) a voluntary dissolution pursuant to Section 1900
of the GCL, or (e) a plan of distribution which is not in accordance with the
liquidation rights of preferred shares, if any, pursuant to Section 2007 of the
GCL, and (2), if directors are to be elected at the meeting, the names of
nominees intended at the time of the notice to be presented by management for
election; if the statements required in (1) are not included in such notice,
then any shareholder approval at the meeting, other than unanimous approval of
those entitled to vote, pursuant to the GCL sections set forth in (1) shall be
invalid.
2.4.4 Notice of a shareholders' meeting or any report to the
shareholders shall be given either personally, or by sending a copy thereof by
first-class mail, or by telegram, or by other means of written communication,
charges prepaid, to the shareholder's address appearing on the books of the
corporation, or given by the shareholder to the corporation for the purpose of
notice; or, if no such address appears or is given, notice shall be deemed to
have been given if addressed to the shareholder at the place where the principal
executive office of the corporation is located or if published at least once in
a newspaper having general circulation in the county in which the principal
executive office is located. If any notice or report addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice or report to all other
shareholders.
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<PAGE> 7
2.4.5 When a shareholders' meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than 45 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting. At the adjourned meeting the corporation may transact
any business which might have been transacted at the original meeting.
Section 2.5 WAIVER BY SHAREHOLDERS
In accordance with Section 601, subdivision (e) of the GCL, the
transactions of any meeting of shareholders, however called and noticed, and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the shareholders entitled to
vote designated below signs a written waiver of notice, or a consent to the
holding of such meeting, or an approval of the minutes thereof:
(a) Those not present in person or represented by proxy; and
(b) Those who, although present, either object at the beginning of
the meeting pursuant to Section 601, subdivision (e) of the GCL to the
transaction of any business because the meeting has not been lawfully called or
convened, or expressly object at the meeting to the consideration of matters not
included in the notice which are legally required to be included therein.
All such waivers, consents, or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Unless the
Articles of Incorporation provide otherwise or the written waiver, consent or
approval states otherwise, the written waiver, consent or approval need not
specify the business to be transacted at or the purpose of any regular or
special meeting of shareholders; provided, however, that the written waiver of
notice of an annual or special meeting of shareholders shall include a statement
of the general nature of each proposal, if any, to take action to approve (1) a
contract or other transaction as described in Section 310 of the GCL, (2)
amendments to the Articles of Incorporation pursuant to Section 902 of the GCL,
(3) a reorganization pursuant to Section 1201 of the GCL, (4) a voluntary
dissolution pursuant to Section 1900 of the GCL, or (5) a plan of distribution
which is not in accordance with the liquidation rights of preferred shares, if
any, pursuant to Section 2007 of the GCL; if such statement is not included in
such written waiver of notice, then any shareholder approval at the meeting,
other than unanimous approval of those entitled to vote, pursuant to the GCL
sections set forth above shall be invalid.
Section 2.6 ACTION WITHOUT MEETING
2.6.1 Unless otherwise provided in the Articles of Incorporation of this
corporation, any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, and without prior notice (except as
provided in Section 2.6.2 of these Bylaws), if a consent in writing, setting
forth the action so taken, is signed by the holders of the outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action
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at a meeting at which all shares entitled to vote thereon were present and
voted; provided, however, that directors may not be elected by written consent
except by unanimous written consent of all shares entitled to vote for the
election of directors.
2.6.2 Unless the consents of all the shareholders entitled to vote have
been solicited in writing:
(a) Notice of any shareholder approval of any contract or any
transaction pursuant to Section 310 of the GCL, indemnification of an agent of
the corporation pursuant to Section 317 of the GCL, a reorganization pursuant to
Section 1201 of the GCL, or a plan of distribution which is not in accordance
with the liquidation rights of preferred shares, if any, pursuant to Section
2007 of the GCL, without a meeting by less than unanimous written consent shall
be given at least 10 days before consummation of the action authorized by such
approval; and
(b) Prompt notice shall be given of the taking of any other
corporate action approved by the shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who have not
consented in writing. Such notice shall be given in the manner and shall be
deemed to have been given at the time provided in Section 2.4 of these Bylaws.
2.6.3 Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the Corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the Corporation.
2.6.4 Notwithstanding any other provision of this Section 2.6, unless
otherwise provided in the Articles of Incorporation of this corporation,
effective when the corporation becomes a listed corporation within the meaning
of Section 301.5 of the GCL, any action required or permitted to be taken by the
shareholders of the corporation must be effected at a duly called annual or
special meeting of shareholders of the corporation and may not be effected by
any consent in writing by the shareholders.
Section 2.7 QUORUM
2.7.1 A majority of the shares entitled to vote, represented in person
or by proxy, constitutes a quorum at a meeting of shareholders. If a quorum is
present, the affirmative vote of the majority of shares represented at the
meeting and entitled to vote on any matter shall be the act of shareholders,
unless the vote of a greater number or voting by classes is required by law or
the Articles of Incorporation or these Bylaws and except as provided in Section
2.7.2 of these Bylaws. Whenever under the GCL shares are disqualified from
voting on any matter, they shall not be considered outstanding for the
determination of a quorum at any meeting to act upon that matter.
2.7.2 The shareholders present at a duly called or held meeting at which
a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of
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enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.7.3 In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of the majority of the shares
represented either in person or by proxy, but no other business may be
transacted, except as provided in Section 2.7.2 of these Bylaws.
Section 2.8 VOTING RIGHTS - CUMULATIVE VOTING
2.8.1 Subject to the provisions of Sections 702, 703 and 704 of the GCL
(relating to voting of shares held by Fiduciaries and other designated persons,
held in the name of another corporation, or held in the names of two or more
persons), only persons in whose names shares entitled to vote stand on the stock
records of the corporation on the record date, as determined in accordance with
Section 8.5, Article VIII of these Bylaws, shall be entitled to notice of and to
vote at such meeting, notwithstanding any transfer of any shares on the books of
the corporation after the record date (except as otherwise provided by agreement
or the GCL).
2.8.2 Voting may be by voice or by ballot; provided, however, that all
elections for directors must be by ballot if a shareholder so demands at the
meeting and before the voting begins.
2.8.3 If a quorum is present, the affirmative vote of the majority of
the shares represented and voting at the meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the GCL or the Articles of Incorporation of this
corporation and except as provided in Section 2.7.2 of these Bylaws. Whenever
under the GCL shares are disqualified from voting on any matter, they shall not
be considered outstanding for the determination of the required vote to approve
action upon that matter.
2.8.4 Subject to satisfaction of the requirements set forth in the
immediately following sentence, every shareholder entitled to vote at any
election of directors may cumulate such shareholder's votes, i.e., give any one
or more candidates a total number of votes equal to the number of directors to
be elected multiplied by the number of votes to which the shareholders shares
are entitled, distributed as the shareholder thinks fit. No shareholder shall be
entitled to cast for any candidate a number of votes exceeding the number of the
shareholder's shares, unless such candidate's name has been placed in nomination
prior to the voting and any shareholder has given notice at the meeting prior to
the voting of the shareholder's intention to cumulate the shareholders votes. If
any shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination. At the time the corporation becomes a listed
corporation within the meaning of Section 301.5 of the GCL, the provisions of
this Section 2.8.4 shall be of no further force and effect, and no shareholder
shall be entitled to cumulate such shareholder's votes at any election of
directors.
2.8.5 In any election of directors, the candidates receiving the highest
number of votes of shares entitled to be voted for them, up to the number of
directors to be elected by such shares, are elected.
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2.8.6 Except as otherwise provided hereinabove in this Section 2.8 and
except as may be otherwise provided in the Articles of Incorporation of this
corporation, each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote of shareholders. Any holder of
shares entitled to vote on any matter may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote them against
the proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholders' approving vote is with respect
to all shares such shareholder is entitled to vote.
Section 2.9 PROXIES
2.9.1 Every person entitled to vote or to execute consents may do so
either in person or by a written proxy authorizing another person or persons to
vote with respect to such shares. The proxy shall not be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy.
2.9.2 Every proxy continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto, except as otherwise
provided in this Section 2.9. Such revocation may be effected by a writing
delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or by attendance at the meeting and voting in person by, the
person executing the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the post-marked
dates on the envelopes in which they are mailed. A proxy is not revoked by the
death or incapacity of the maker unless, before the vote is counted, written
notice of such death or incapacity is received by the corporation. A proxy may
be made irrevocable for the period specified therein in accordance with and
subject to the provisions of Section 705, subdivision (e) of the GCL.
2.9.3 A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a transferee of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability appear on the
certificate (in accordance with GCL Section 174) representing such shares.
Section 2.10 MANNER OF CONDUCTING MEETINGS
2.10.1
(a) In advance of any meeting of shareholders the Board may appoint
inspectors of election to act at the meeting and any adjournment thereof. If
inspectors of election are not so appointed, or if any persons so appointed fail
to appear or refuse to act, the chairman of any meeting of shareholders may, and
on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election (or persons to replace those who so fail or refuse) at
the meeting. The number of inspectors shall be either one (1) or three (3). If
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or by proxy shall determine whether
one (1) or three (3) inspectors are to be appointed.
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(b) The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(c) The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical. If there are three (3) inspectors of election, the decision, act
or certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
2.10.2 The Chairman of the Board of Directors shall preside at each
meeting of shareholders. In the absence of the Chairman, the meeting shall be
chaired by an officer of the corporation in accordance with the following order:
Chief Executive Officer, President, Executive Vice President, Senior Vice
President and Vice President. In the absence of all such officers, the meeting
shall be chaired by a person chosen by the vote of a majority in interest of the
shareholders present in person or represented by proxy and entitled to vote
thereat, shall act as chairman. The Secretary or in his or her absence an
Assistant Secretary or in the absence of the Secretary and all Assistant
Secretaries a person whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep a record of the proceedings thereof. The Board
of Directors of the Company shall be entitled to make such rules or regulations
for the conduct of meetings of shareholders as it shall deem necessary,
appropriate or convenient. Subject to such rules and regulations of the Board of
Directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those present,
limitations on participation in such meeting to shareholders of record of the
corporation and their duly authorized and constituted proxies, and such other
persons as the chairman shall permit, restrictions on entry to the meeting after
the time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot,
unless, and to the extent, determined by the Board of Directors or the chairman
of the meeting, meetings of shareholders shall not be required to be held in
accordance with rules of parliamentary procedure.
ARTICLE III
DIRECTORS
Section 3.1 POWERS
Subject to the provisions of the GCL and any limitations in the Articles
of Incorporation relating to action required to be authorized or approved by the
shareholders, the business and affairs
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of the corporation shall be managed and all corporate powers shall be exercised
by or under the direction of the Board of Directors.
Section 3.2 AUTHORIZED NUMBER
3.2.1 The number of directors of this corporation shall be not less than
nine (9) and not more than seventeen (17) until changed by amendment of this
Section 3.2. After the corporation has issued shares, an amendment changing the
maximum or minimum number of directors may be adopted only by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the number of directors to a
number less than five cannot be adopted if the votes cast against its adoption
at a meeting or the shares not consenting in the case of action by written
consent exceed 16-2/3 percent of the outstanding shares entitled to vote.
3.2.2 Until changed as herein provided, the number of directors of this
corporation is hereby fixed at nine (9). The number so fixed may be changed,
within the limits specified in Section 3.2.1, by approval of the Board of
Directors or by vote of a majority of the shares entitled to vote represented at
a duly held meeting at which a quorum is present, or by the written consent of
holders of a majority of the outstanding shares entitled to vote.
Section 3.3 ELECTION AND TENURE OF OFFICE
Directors shall be elected at the annual meeting of the shareholders in
accordance with the Articles of Incorporation. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified.
Section 3.4 VACANCIES
3.4.1 Vacancies in the Board of Directors, including vacancies created
by removal of directors, may be filled by a majority of the remaining directors,
although less than a quorum, or by a sole remaining director.
3.4.2 The shareholders may at any time elect a director or directors to
fill any vacancy or vacancies not filled by the directors. Any such election by
written consent other than to fill a vacancy created by removal shall require
the consent of holders of a majority of the outstanding shares entitled to vote.
3.4.3 A vacancy shall be deemed to exist on the Board of Directors
whenever any authorized position of director is not filled by a duly elected
director, whether caused by death, resignation, removal, change in the
authorized number of directors (by the Board or the shareholders) or otherwise.
3.4.4 Any director may resign effective upon giving written notice to
the Chairman of the Board, the Chief Executive Officer, the President, the
Secretary or the Board of Directors of the
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corporation, unless the notice specifies a later time for effectiveness of such
resignation. If a resignation of a director is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.
3.4.5 No reduction in the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
Section 3.5 REMOVAL OF DIRECTORS
The Board of Directors may declare vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony.
Any or all of the directors may be removed from office without cause in the
manner provided in Section 303(a) of the GCL.
Section 3.6 PLACE OF MEETINGS
Meetings of the Board of Directors may be held at any place within or
without the State of California which has been stated in the notice of the
meeting, or, if not stated in the notice or there is no notice, at the principal
executive office of the corporation or at such other place as may be designated
for directors' meetings from time to time by resolution of the Board of
Directors.
Section 3.7 REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held at such time
and place as may be determined from time to time by the Board. No notice need be
given of such regular meetings, except that notice shall be given to each
director (as for a special meeting) of the resolution establishing a regular
meeting date, which notice shall contain the date of the month, the time and the
place of the regular meetings.
Section 3.8 SPECIAL MEETINGS - NOTICES
3.8.1 Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the Chairman of the Board or the Chief
Executive Officer or the President or any Vice President or the Secretary or any
two directors.
3.8.2 Special meetings of the Board of Directors shall be held upon at
least 4 days' notice by mail or 48 hours' notice delivered personally or by
telephone, telegraph, telex, facsimile, voice messaging system, electronic mail
or other similar means of communication. A notice need not specify the purpose
of any meeting of the Board of Directors. Any such notice shall be addressed or
delivered to each director at such director's address as it is shown upon the
records of the corporation or as may have been given to the corporation by the
director for purposes of notice or, if such address is not shown on such records
or is not readily ascertainable, at the principal executive office of the
corporation.
3.8.3 Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, first class, postage
prepaid. Any other written notice shall be
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deemed to have been given at the time a common carrier for transmission, or
actually transmitted by the person giving the notice by electronic means, to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
Section 3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director who signs a
written waiver of notice or a consent to holding the meeting or an approval of
the minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. No director who so protests shall be considered present
at any such meeting. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 3.10 ACTION AT A MEETING
3.10.1 A majority of the authorized number of directors present in
person constitutes a quorum of the Board of Directors for the transaction of
business at a meeting. Members of the Board of Directors may participate in a
meeting (and so participating shall be considered present in person) through use
of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another.
3.10.2 Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors, unless a greater number or the same number after
disqualifying one or more directors from voting is required by law, by the
Articles of Incorporation or by the Bylaws. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, so long as any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 3.11 ADJOURNMENT
A majority of the directors present at a meeting, whether or not a
quorum is present, may adjourn the meeting to another time and place. If the
meeting is adjourned for more than 24 hours, notice delivered personally or by
telephone, telegraph, telex, facsimile, voice messaging system, electronic mail
or other similar means of communication stating the time and place at which the
meeting will reconvene, shall be given to each director who was not present at
the time of the adjournment. Notice shall be deemed given as provided in Section
3.8.3.
Section 3.12 ACTION WITHOUT MEETING
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all of the members of the Board of Directors
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the
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proceedings of the Board of Directors. Such action by written consent shall have
the same force and effect as a unanimous vote of such directors.
Section 3.13 COMPENSATION
The directors may be paid their expenses of attending each meeting of
the Board of Directors. In addition, the Board of Directors may from time to
time, in its discretion, pay to directors a fixed sum for attendance at each
meeting of the Board of Directors or may pay a stated fee for services as a
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
Section 3.14 ORGANIZATION OF MEETINGS
The Chairman of the Board shall preside at all meetings of the Board of
Directors. In the absence of the Chairman, the meeting shall be chaired by one
of the following directors in the order stated: Chief Executive Officer,
President and Executive Vice President. In the absence of all such directors, a
President Pro Tem chosen by a majority of the directors present shall preside at
the meeting.
ARTICLE IV
OFFICERS
Section 4.1 OFFICERS
The officers of the corporation shall be a Chairman of the Board or a
President or both, a Chief Executive Officer, one or more Vice Presidents, a
Secretary, a Chief Financial Officer and such other officers with such titles as
shall be determined by the Board of Directors and with such duties as shall be
delegated to them by the Board of Directors or any supervisory officer. The
Board of Directors may designate one or more Area Presidents and one or more
Executive Vice Presidents or Senior Vice Presidents. The Board of Directors may
from time to time designate the President or any Vice President as the Chief
Operating Officer of the corporation. Any Vice President, Treasurer or Assistant
Treasurer, or Assistant Secretary respectively may exercise any of the powers of
the Chief Executive Officer or President, the Chief Financial Officer, or the
Secretary, respectively, as directed by the Board of Directors and shall perform
such other duties as are imposed upon such officer by the Bylaws or the Board of
Directors. Any number of offices may be held by the same person.
Section 4.2 ELECTION, REMOVAL AND RESIGNATION
Officers shall be chosen by the Board of Directors and shall serve and
shall be subject to removal, with or without cause, at the pleasure of the Board
of Directors, subject to the rights, if any, of officers under contracts of
employment with the corporation. Any officer may resign at any time
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upon written notice to the corporation without prejudice to the rights, if any,
of the corporation under any contract to which the officer is a party.
Section 4.3 CHAIRMAN OF THE BOARD
The Chairman of the Board, if there be such officer, shall, if present,
preside at all meetings of the Board of Directors and shall exercise and perform
such other powers and duties as may be assigned from time to time to the
Chairman of the Board by the Board of Directors. Whenever there is no Chief
Executive Officer and/or President of the corporation, the Chairman of the Board
shall have the powers and duties of such officer position.
Section 4.4 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board, if there be such an officer, the
Chief Executive Officer shall be subject to the control of the Board of
Directors and have general supervision, direction and control of the business.
He or she shall preside at all meetings of the shareholders and, in the absence
or non-existence of the Chairman of the Board, at all meetings of the Board of
Directors. He or she shall have the general powers and duties of management
usually vested in the office of the chief executive officer of a corporation,
and shall have such other powers and perform such other duties as from time to
time may be prescribed by the Board of Directors or these Bylaws.
Section 4.5 PRESIDENT
In the absence or disability of the Chief Executive Officer, and if
there is no Chairman of the Board, the President shall perform all the duties of
the Chief Executive Officer and when so acting shall have the power of, and be
subject to all the restrictions upon, the Chief Executive Officer. The President
shall have such other powers and perform such other duties as from time to time
may be prescribed for the president by the Board of Directors, these Bylaws, the
Chief Executive Officer or the Chairman of the Board.
Section 4.6 VICE PRESIDENTS
The Vice Presidents shall have such powers and perform such duties as
from time to time may be prescribed for them respectively by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the President
or any other officer supervising such Vice President. In the absence or
disability of the Chief Executive Officer, the President and Chairman of the
Board, a Vice President designated by the Board of Directors shall substitute
for and assume the duties, powers and authority of the Chief Executive Officer.
Section 4.7 SECRETARY AND ASSISTANT SECRETARY
4.7.1 The Secretary shall attend all meetings of the Board of Directors
and all meetings of the shareholders, shall record or cause to be recorded all
votes and minutes thereof, shall give notice of each meeting of the shareholders
and Board of Directors requiring notice and shall perform such
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other duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, or the President. The Secretary shall keep
in safe custody the seal of the corporation, and, when authorized by the Board
of Directors, shall affix the same to any instrument.
4.7.2 The Assistant Secretary shall perform such corporate secretarial
duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or the Secretary, and in the
absence or disability of the Secretary shall substitute for and assume the
duties, powers and authority of the Secretary.
Section 4.8 CHIEF AND SUBORDINATE FINANCIAL OFFICERS
4.8.1 The Chief Financial Officer shall keep and maintain or cause to be
kept and maintained adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital and retained earnings. The books
of account shall be open to inspection by all directors at all reasonable times.
The Chief Financial Officer shall deposit or cause to be deposited all moneys
and other valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. The Chief Financial
Officer shall disburse or cause to be disbursed the funds of the corporation as
may be ordered by the Board of Directors. The Chief Financial Officer shall
supervise the subordinate financial officers.
4.8.2 The subordinate financial officers, which may be a Treasurer, a
Controller and one or more Assistant Treasurers and Assistant Controllers, shall
perform such duties and exercise such powers as shall be delegated to them by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer,
the President, or the Chief Financial Officer.
Section 4.9 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS
In addition to the foregoing powers and duties specifically prescribed
for the respective officers, the Board of Directors may from time to time by
resolution impose or confer upon any of the officers such additional duties and
powers as the Board of Directors may see fit, and/or determine the order of
seniority among the officers. Any such resolution may be final, subject only to
further action by the Board of Directors, or the resolution may grant such
discretion, as the Board of Directors deems appropriate, to the Chairman of the
Board or to the Chief Executive Officer or President (or in their absence the
Vice President serving in such place) to impose or confer additional duties and
powers and to determine the order of seniority among officers. The Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President may designate any officer or officers to substitute for and assume the
duties, powers and authority of any absent officer or officers in any instances
not provided for above.
Section 4.10 COMPENSATION
The officers of this corporation shall receive such compensation as
shall be fixed from time to time by the Board of Directors, except that the
Board of Directors may delegate to any officer or officers the power to fix the
compensation of any other officer or officers. No officer shall be
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prevented from receiving compensation by reason of the fact that the officer is
also a director of the corporation.
ARTICLE V
COMMITTEES
Section 5.1 AUTHORIZATION
By resolution adopted by a majority of the authorized number of
directors, the Board of Directors may designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board of
Directors and may designate one or more directors as alternate members of a
committee, who may replace any absent member at any meeting of the committee.
Section 5.2 POWERS
Subject to the provisions of the GCL and any limitations contained in
the Articles of Incorporation or Bylaws, each such committee shall have such
authority as shall be delegated to it by resolution of the Board of Directors.
The foregoing notwithstanding, no committee or committees, singly or in the
aggregate, shall have any authority with respect to:
(a) the approval of any action for which the GCL or the Articles of
Incorporation also require shareholder approval;
(b) the filling of vacancies on the Board of Directors or on any
committee;
(c) the fixing of compensation of the directors for serving on the
Board of Directors or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) any distribution to the shareholders of the corporation except
at a rate or in a periodic amount or within a price range determined by the
Board of Directors; or
(g) the appointment of other committees of the Board of Directors or
other members thereof.
Section 5.3 PROCEDURES
The provisions of Sections 3.8 through 3.13 of these Bylaws shall apply
to meetings of each committee, substituting the word "committee" wherever the
words "Board of Directors" appear, unless the context requires otherwise.
Subject to the foregoing, the procedures for notice and conduct of meetings of
each committee shall be as prescribed by the Board of Directors, or, in the
absence of prescription by the Board of Directors, as prescribed by the
committee.
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ARTICLE VI
CORPORATE RECORDS AND REPORTS - INSPECTION
Section 6.1 RECORDS
The corporation shall keep (1) adequate and correct books and records of
account, (2) minutes of the proceedings of its shareholders, Board of Directors
and committees of the Board, and (3) a record of its shareholders, at its
principal executive office, or at the office of its transfer agent or registrar,
giving the names and addresses of all shareholders and the number and class of
shares held by each. Minutes shall be kept in written form. All other books
shall be kept either in written form or in any other form capable of being
converted into written form.
Section 6.2 INSPECTION OF BOOKS AND RECORDS
6.2.1 The record of shareholders, the accounting books and records, and
the minutes of proceedings of the shareholders and the Board of Directors and
committees of the Board of this corporation and of each subsidiary of this
corporation shall be open to inspection upon the written demand on the
corporation of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related to
such holder's interest as a shareholder or as the holder of such voting trust
certificate. The right of inspection includes the right to copy. Such inspection
by a shareholder or holder of a voting trust certificate may be made in person
or by agent or attorney.
6.2.2 A shareholder or shareholders holding at least 5% in the aggregate
of the outstanding voting shares of the corporation or who hold at least 1% of
such voting shares and have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of directors of the
corporation shall have an absolute right to do either or both of the following
(either in person or by agent or attorney): (a) inspect and copy the record of
shareholders' names and addresses and shareholdings during the usual business
hours upon 5 business days prior written demand upon the corporation, or (b)
obtain from the transfer agent for the corporation, upon five (5) business days'
prior written demand and upon the tender of its usual charges for such a list
(the amount of which charges shall be stated to the shareholder by the transfer
agent upon request), a list of the shareholders' names and addresses who are
entitled to vote for the election of directors, and their shareholdings, as of
the most recent record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand.
6.2.3 Every director of the corporation shall have the absolute right at
any reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the corporation and any of
its subsidiary corporations. Such inspection by a director may be made in person
or by agent or attorney, and the right of inspection includes the right to copy
and make extracts.
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Section 6.3 INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office in
California, or if its principal executive office is not in California at its
principal business office in California, the original or a copy of these Bylaws
as amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside California and the corporation has no principal business
office in California, the corporation shall upon the written request of any
shareholder furnish to such shareholder a copy of these Bylaws as amended to
date.
Section 6.4 CHECKS, DRAFTS, ETC.
All checks, drafts, or other orders for payment of money, notes, or
other evidences of indebtedness, issued in the name of, or payable to, the
corporation, shall be signed or endorsed by such person or persons, and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
Section 6.5 REPORTS TO SHAREHOLDERS
Except as may otherwise be required by law, the rendition of an annual
report to the shareholders is waived so long as there are less than one hundred
(100) holders of record of the shares of the corporation (determined as provided
in Section 605 of the GCL). At such time or times, if any, that the corporation
has one hundred (100) or more holders of record of its shares, the Board of
Directors shall cause an annual report to be sent to the shareholders not later
than one hundred twenty (120) days after the close of the fiscal year or within
such shorter time period as may be required by applicable law, and such annual
report shall contain such information and be accompanied by such other documents
as may be required by applicable law.
ARTICLE VII
OTHER AUTHORIZATIONS
Section 7.1 EXECUTION OF CONTRACTS
The Board of Directors, except as in these Bylaws otherwise provided,
may authorize any officer or officers or agent or agents to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation. Such authority may be general, or confined to specific instances.
Unless so authorized by the Board of Directors, no officer, agent, or employee
shall, or shall have any power or authority to, bind the corporation by any
contract or engagement, or pledge its credit, or render it liable for any
purpose or in any amount; provided, however, that nothing contained in this
Section 7.1 shall be construed to prevent any officer of the corporation from
performing said officer's regular duties in the ordinary course of business
pursuant to the authority granted to said officer by Article IV of these Bylaws.
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Section 7.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
All shares of any other corporation standing in the name of this
corporation shall be voted, represented, and all rights incidental thereto
exercised as directed by written consent or resolution of the Board of Directors
expressly referring thereto. In general, such rights shall be delegated by the
Board of Directors, under express instructions from time to time as to each
exercise thereof, to the Chief Executive Officer or the President, or any Vice
President, and the Secretary or any Assistant Secretary of this corporation, or
any other person expressly appointed by the Board of Directors. Such authority
may be exercised by the designated officers in person, or by any other person
authorized so to do by proxy, or power of attorney, duly executed by such
officers.
Section 7.3 DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by law and the Articles of Incorporation,
subject to any contractual restrictions to which the corporation is then
subject. If a dividend is declared, the stock transfer books shall not be closed
but a record date shall be set by the Board of Directors on which date the
transfer agent or, where no transfer agent is appointed, the Secretary will take
a record of all shareholders entitled to the dividend without actually closing
the books for transfers of stock.
ARTICLE VIII
STOCK CERTIFICATES AND TRANSFER OF SHARES
Section 8.1 STOCK CERTIFICATES
8.1.1 Certificates representing shares of stock in the corporation shall
be in such form as may be required by law and as may be designated by the Board
of Directors, shall be numbered and registered as they are issued and shall set
forth: The name of the record holder of the shares represented thereby; the
certificate number and its date of issuance; the number of shares for which it
is issued; and any statement, summary or legend authorized by the Board of
Directors or required to or which, in the exercise of sound business judgment,
should be stated thereon pursuant to (a) any agreement to which the corporation
is a party or (b) any provision of law, including but not limited to the federal
securities laws, the California Corporate Securities Law of 1968, as amended,
and Section 417 or Section 418 or any other section of the GCL.
8.1.2 Every stock certificate must be signed in the name of the
corporation by the Chairman of the Board or the Chief Executive Officer or the
President or a Vice President and by the Chief Financial Officer or the
Secretary or any Assistant Secretary. Any or all of the signatures on the
certificate may be by facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation or any
transfer agent with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
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Section 8.2 TRANSFER ON THE BOOKS
Upon (a) the surrender to the Secretary or transfer agent of the
corporation of a certificate representing shares of stock in the corporation,
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, and (b) delivery to the corporation of evidence
sufficient to indicate that the transfer of such shares would not be in
violation of the Articles of Incorporation or Bylaws of the corporation, or any
legend appearing on said certificates, or any applicable law, it shall be the
duty of the corporation to issue or cause to be issued a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
Section 8.3 LOST OR DESTROYED CERTIFICATES
The Board of Directors or any officer designated by the Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate for shares so lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors or such officer, as a condition precedent to the issuance thereof, may
require the person claiming such lost or destroyed certificate or certificates
to give the corporation a bond or other adequate security sufficient to
indemnify it against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 8.4 TRANSFER AGENTS AND REGISTRARS
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, who may be the same person, and may
be the Secretary of the corporation, or an incorporated bank or trust company,
either domestic or foreign, who shall be appointed at such times and places as
the requirements of the corporation may necessitate and the Board of Directors
may designate.
Section 8.5 FIXING RECORD DATE FOR ACTIONS WITH RESPECT TO SHAREHOLDERS
8.5.1 The Board of Directors may fix, in advance, a record date for the
determination of shareholders entitled to notice of and to vote at any meeting
of shareholders, or entitled to give written consent to corporate action without
a meeting, or to receive payment of any dividend or other distribution, or to
receive an allotment of any rights, or to receive any report or statements, or
to exercise any rights in respect to any change, conversion or exchange of
shares, or to exercise any rights in respect of any other lawful action. Said
record date so fixed shall not be more than 60 nor less than 10 days prior to
the date of such meeting or more than 60 days prior to any other action.
8.5.2 If no record date is fixed by the Board of Directors, then:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day
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on which notice is given or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is given.
(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
(d) Shareholders on the record date are entitled to notice and to
vote or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or these Bylaws or by
agreement or applicable law.
Section 8.6 RECORD OWNERSHIP
The corporation shall be entitled to recognize the exclusive right of a
person registered as such on the books of the corporation as the owner of shares
of the corporation's stock to receive notices and reports, to receive dividends
and other distributions, to vote and give written consents as such owner, and to
exercise any rights in respect of any other lawful action, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 9.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation, to the maximum extent permitted by the GCL
(notwithstanding that such indemnification is not specifically authorized by the
GCL), shall indemnify each of its directors and executive officers against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any such person is or was a director or officer of the corporation.
The corporation shall advance to such director or executive officer expenses
incurred in defending any such proceeding, to the maximum extent permitted by
such law. The indemnification provided by this Section 9.1 shall not be
exclusive of any other rights to which such director or executive officer may be
entitled under any agreement, vote of shareholders or disinterested directors,
or otherwise, both as to action in such director's or executive officer's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Section 9.1 shall continue as to
such director or executive officer for any action taken or not taken while
serving in an indemnified capacity even
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though such director or executive officer may have ceased to serve in such
capacity at the time of any covered proceeding. For purposes of this section, a
"director" or "executive officer" of the corporation includes any person who is
or was a director or executive officer of the corporation or is or was serving
at the request of the corporation as a director or executive officer of another
corporation or other enterprise or was a director or executive officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
Section 9.2 OTHER AGENTS
The Board of Directors in its discretion may provide for indemnification
of or advance of expenses to other agents of the corporation and likewise may
refuse to provide for such indemnification or advance of expenses except to the
extent such indemnification is mandatory under the GCL. The corporation shall
have power to purchase and maintain insurance on behalf of any director,
officer, employee or other agent of the corporation against any liability
asserted against or incurred by the agent in that capacity or arising out of the
agent's status as such whether or not the corporation would have the power to
indemnify the agent against that liability under the GCL.
ARTICLE X
INTERPRETATION
Reference in these Bylaws to any provision of the GCL shall be deemed to
include all amendments thereof.
ARTICLE XI
AMENDMENTS TO BYLAWS
Section 11.1 BY SHAREHOLDERS
New Bylaws may be adopted, or these Bylaws may be repealed or amended,
by the affirmative vote or written consent of the holders of a majority of the
outstanding shares entitled to vote, except as otherwise provided by law or by
the Articles of Incorporation.
Section 11.2 BY DIRECTORS
Subject to the right of the shareholders to adopt, amend or repeal
Bylaws, as provided in Section 11.1, and subject to the provisions of Section
3.2, the Board of Directors may amend or repeal these Bylaws or may adopt new
Bylaws.
Section 11.3 RECORD OF AMENDMENTS
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of
repeal, with the date of the meeting at which the repeal was enacted or written
consent was filed, shall be stated in said book.
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EXHIBIT 4.1
NUMBER STC___________ SOFTWARE TECHNOLOGIES CORPORATION ___________ SHARES
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF CALIFORNIA CERTAIN DEFINITIONS
CUSIP 834040 10 7
THIS CERTIFIES THAT ___________________________ is the owner of
___________________________________ fully paid and non-assessable shares of the
Common Stock, no par value, of SOFTWARE TECHNOLGIES CORPORATION transferable on
the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ BARRY PLAGA /s/ JAMES T. DEMETRIADES
- ----------------------------------- -----------------------------------
Chief Financial Officer and Chairman of the Board and
Assistant Secretary Chief Executive Officer
<PAGE> 2
SOFTWARE TECHNOLOGIES CORPORATION
A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares or upon
the holders thereof as established, from time to time, by the Articles of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________Custodian____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with rights under Uniform Gifts to Minors
of survivorship and not as Act _______________________________
tenants in common (State)
UNIF TRF MIN ACT -- _________Custodian (until age ______)
(Cust)
______________ under Uniform Transfers
(Minor)
to Minors Act ______________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
--------------------------------------
THE SIGNATURES MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad 15.
<PAGE> 1
EXHIBIT 5.1
March 23, 2000
Software Technologies Corporation
404 E. Huntington Drive
Monrovia, CA 91016-3633
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the registration statement on Form S-1, as amended,
filed by Software Technologies Corporation, a California corporation (the
"Company"), with the Securities and Exchange Commission in connection with the
registration under the Securities Act of 1933, as amended, of up to 7,015,000
shares of the Company's common stock (including an over-allotment of up to
915,000 shares of the Company's common stock granted to the underwriters) (the
"Shares"). The Shares are to be sold to the underwriters for resale to the
public as described in the registration statement and pursuant to the
underwriting agreement filed as an exhibit thereto. As legal counsel to the
Company, we have examined the proceedings proposed to be taken in connection
with said sale and issuance of the Shares.
Based upon the foregoing, we are of the opinion that the Shares, when
issued in the manner described in the registration statement, will be duly
authorized, validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the registration
statement, and further consent to the use of our name wherever appearing in the
registration statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/Wilson Sonsini Goodrich & Rosati, P.C.
<PAGE> 1
EXHIBIT 10.4
SOFTWARE TECHNOLOGIES CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Software Technologies Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company or
any committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Software Technologies Corporation and
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, bonuses and commissions, but exclusive of payments for overtime, shift
premium, incentive compensation, incentive payments and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
Purchase Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock prior to the date of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 15th and
November 15th of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective (the "IPO Date") and ending on the
last Trading Day on or before November 14, 2002 The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date. The first
Purchase Period of the first Offering Period under the Plan shall commence on
the IPO Date and end on November 14, 2000.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of
a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted by
the Board pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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<PAGE> 3
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15th and November 15th each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
November 14, 2002. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced prior
to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount of the Compensation which he or she
receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than the
lesser of (i) 750 shares or (ii) the number of shares equal to twelve thousand
five hundred dollars ($12,500.00) divided by the Fair Market Value of the Common
Stock on the first day of the Offering Period (subject to any adjustment
pursuant to Section 19), and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. The Board
may, for future Offering Periods,
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<PAGE> 5
increase or decrease, in its absolute discretion, the maximum number of shares
of the Company's Common Stock an Employee may purchase during each Purchase
Period of such Offering Period. Exercise of the option shall occur as provided
in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the
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<PAGE> 6
participant's payroll deductions credited to his or her account shall be paid to
such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two million two hundred and fifty thousand (2,250,000) shares plus an
annual increase to be added on the first day of the Company's fiscal year
beginning in 2001, equal to the lesser of (i) the number of shares issued under
the Plan in the prior fiscal year top off or (ii) an amount determined by the
Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE> 7
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of
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<PAGE> 8
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount
-8-
<PAGE> 9
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE> 10
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE> 11
EXHIBIT A
SOFTWARE TECHNOLOGIES CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Software
Technologies Corporation Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 100%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing within 30
days after the date of any disposition of my shares and I will make
adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the
<PAGE> 12
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
---------------------------------------------------
(First) (Middle) (Last)
--------------------------------- -----------------------------------
Relationship
-----------------------------------
(Address)
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<PAGE> 13
Employee's Social
Security Number:
------------------------------------
Employee's Address:
------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
----------------------- ------------------------------------
Signature of Employee
------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE> 14
EXHIBIT B
SOFTWARE TECHNOLOGIES CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Software
Technologies Corporation Employee Stock Purchase Plan which began on
____________, ______ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date:
-------------------------------
<PAGE> 1
EXHIBIT 10.11
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("Basic Provisions")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, 30
December 1991 is made by and between the Demetriades Family Trust, UAD 20
December 1983 (DFT) ("Lessor") and Software Technologies Corporation, a
California corporation ("Lessee"), (collectively the "Parties," or individually
a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 150 East Foothill Blvd., Arcadia located in the
County of Los Angeles State of California 91006 and generally described as
(describe briefly the nature of the property) one story office bldg. of
approximately 4500 sq. ft. and associated parking ("Premises"). (See Paragraph
2 for further provisions.)
1.3 TERM: 10 (ten) years and -0- months ("Original Term") commencing 1
January 1992 ("Commencement Date") and ending 31 December 2002 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: __________ ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $4050. per month ("Base Rent"), payable on the first
day of each month commencing 1 March 1993. (See Paragraph 4 for further
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ none as Base Rent for the period
________________.
1.7 SECURITY DEPOSIT: $ none ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: General Office. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): none
represents [ ] Lessor exclusively ("Lessor's Broker"); [ ] both Lessor and
Lessee, and none represents [ ] Lessee exclusively ("Lessee's Broker"); [ ] both
Lessee and Lessor. (See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by none ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 51 and Exhibits none all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
and loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee, if the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly offer receipt of
written notice from Lessee selling forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
six (6) months following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Lessor to satisfy itself with respect to the condition of
the Premises [including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the
Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or affect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and Insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
PAGE 1
<PAGE> 2
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder, provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorney's fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with any government authority. Reportable Use shall also
include Lessee's being responsible for the presence in, on or about the Premises
of a Hazardous Substance with respect to which any Applicable Law requires that
a notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring properties
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control, Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy, Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 0.3(n)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), ? (damage and destruction), and 14
(condemnation). Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs
<PAGE> 3
as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the ???? of the foregoing,
all equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke detection
systems and equipment, fire hydrants, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises. Lessee shall
not cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of, the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is in the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion, "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a), Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Leasee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor, Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics'
or materialmen's lien against the Premises or any interest therein, Lessee
shall give Lessor not less than ten (10) days' notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against
the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to one and
one-half times the amount of such contested lien claim or demand, indemnifying
Lessor against liability for the same, as required by law for the holding of
the Premises free from the effect of such lien or claim. In addition, Lessor
may require Lessee to pay Lessor's attorney's fees and costs in participating
in such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, or surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Leasee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessor shall pay for all Insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease form shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions be between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessee shall be
primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance -- Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss
PAGE 3
<PAGE> 4
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than the full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,0000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least U+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the Insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damage (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's properly arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, alarm, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not,
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage -- Insured Loss. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect, if
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
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9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lease shall have the right
within ten (10) days after the receipt of such notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage totally at
Lessee's expense and without reimbursement from Lessor, Lessee shall provide
Lessor with the required funds or satisfactory assurance thereof within thirty
(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such repairs
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds of assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph [Not Legible]
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor, with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
applied in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has given notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving at such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) Investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee of satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.0(a) for a period of not to exceed twelve months.
9.8 Termination--Advance Payments. Upon termination of this lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor, Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment,
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lease
to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Rent Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same becomes due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to promotion as provided in
Paragraph 10.1(a). at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, life, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other Income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion is determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
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10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor, if any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results of will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value. If disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), of one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel or Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessor of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessor for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease; provided
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any other prior Defaults or
Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and effect from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
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(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form if applicable) of (i) compliance with applicable law per Paragraph
6.3, (ii) the inspection, maintenance and service contracts required under
Paragraph 7.1(b), (iii) the recision of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (c) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor, if any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or
Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofor abated, given or paid by Lessor under such Inducement
Provision shall be immediately due and payable by Lessee to Lessor, and
recoverable by Lessor as additional rent due under this Lease, notwithstanding
any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent
or the cure of the Breach which initiated the operation of this Paragraph shall
not be deemed a waiver by Lessor of the provisions of this Paragraph unless
specifically so stated in writing by Lessor of the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in Breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, which first occurs. If more than ten percent )10%) of the floor area
of the Premises, or more than twenty-five percent (25%) of the land area not
occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall
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have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the building located on the premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers for in the event there is no separable written agreement between
Lessor and said Brokers (or in the event there is no separate written agreement
between Lessor and said Brokers, the sum of $0) for brokerage services rendered
by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest or (e)
if Base Rent is increased, whether by agreement or operation of an escalation
clause herein, then as to any of said transactions, Lessor shall pay said
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or lender (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction, Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in use Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this
Lease and as to the nature, quality and character of the Premises. Brokers have
no responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addressee noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all policies required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies of
law or in equity.
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28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof, Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
PAGE 9
<PAGE> 10
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessor's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option. If, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at ARCADIA, LA COUNTY, CA Executed at ARCADIA, CA
------------------------- ----------------------------
on 30 DECEMBER 1991 on December 30, 1991
---------------------------------- -------------------------------------
by LESSOR: by LESSEE:
DEMETRIADES FAMILY TRUST SOFTWARE TECHNOLOGIES CORPORATION,
- ------------------------------------- ----------------------------------------
UAD 20 DEC 1983 A CALIFORNIA CORPORATION
- ------------------------------------- ----------------------------------------
By /s/ S.T. DEMETRIADES By /s/ JAMES T. DEMETRIADES
----------------------------------- --------------------------------------
Name Printed: S.T. Demetriades Name Printed: James T. Demetriades
------------------------ ---------------------------
Title: TRUSTEE, DEMETRIADES FAMILY Title: PRESIDENT
------------------------------- ----------------------------------
TRUST, UAD 20 DEC 1983
By By
----------------------------------- --------------------------------------
Name Printed: Name Printed:
------------------------ ---------------------------
Title: Title:
------------------------------- ----------------------------------
Address: Address:
----------------------------- --------------------------------
- ------------------------------------- ----------------------------------------
Tel. No. ( ) Fax No. ( ) Tel. No. ( ) Fax No. ( )
----------------------------- --------------------------------
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
(213) 687-6777, Fax No. (213) 687-8616.
<PAGE> 11
ADDENDUM
TO
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
Dated: 30 DECEMBER 1991
LESSOR: DEMETRIADES FAMILY TRUST U/A/D 20 DECEMBER 1983
LESSEE: SOFTWARE TECHNOLOGIES CORPORATION
PROPERTY: 150 E. FOOTHILL BLVD., ARCADIA, CA 91006.
49. BASE RENT INCREASES. The Base Rent described in Paragraph 1.5 shall be
increased from time to time during the term of the lease as follows:
49.1 Market Rental Value Adjustments. On 1 January 1997, 1 January 2002,
1 January 2007, 1 January 2012 and 1 January 2017, ("MRV Adjustment Dates") the
Base Rent shall be adjusted to the market rental value ("MRV") of the Premises
as follows:
(a) Four months prior to the next MRV Adjustment Date, Lessor and
Lessee shall meet to establish an agreed upon new MRV as of the Date. If
agreement cannot be reached within thirty (30) days, then:
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the MRV within thirty (30) days,
costs thereof to be split equally between Lessor and Lessee; or,
ii) Both Lessor and Lessee shall each immediately select and
pay the appraiser or broker of their choice to establish a MRV within thirty
(30) days. If both of the appraisals are not completed within thirty (30) days,
then the appraisal which is completed shall be deemed the MRV. If both
appraisals are timely completed and the appraisers cannot agree on a single MRV
after consultation, then they shall immediately select a third appraiser within
thirty (30) days and an MRV approved by a majority of the appraisers shall be
the MRV as of the Date. The costs of the third appraiser will be split equally
between the parties.
(b) If the new MRV is less than the Base Rent then in effect, the
MRV adjustment for that Date shall be zero (0).
49.3 COL Adjustments. Commencing on 1 January 1995, and on each 1 January
thereafter during the lease term except for MRV Adjustment Dates ("COL
Adjustment Dates"), the Base Rent shall be
ADDENDUM - PAGE 1 OF 3
<PAGE> 12
increased by the increase, if any, in the Index from the applicable Base Month
to the month (the "Reference Month") two months prior to the COL Adjustment
Date as follows:
(a) The Base Rent in effect immediately prior to a COL Adjustment Date
("existing Base Rent") shall be multiplied by a fraction, the denominator of
which shall be the Index for the applicable Base Month and the numerator of
which shall be the Index for the Reference Month. The product of this
multiplication, if greater than the existing Base Rent, will become the Base
Rent as of the COL Adjustment Date. If the existing Base Rent is greater than
the product, then the existing Base Rent shall remain the Base Rent on that COL
Adjustment Date.
(b) The applicable Base Month shall be: November 1994 for COL Adjustment
Dates in 1995 & 1996; November 1997 for COL Adjustment Dates from 1998-2001;
November 2002 for COL Adjustment Dates from 2003-2006; November 2007 for COL
Adjustment Dates from 2008-2011; November 2012 for COL Adjustment Dates from
2013-2016; and November 2017 for COL Adjustment Dates from 2018 through 2021.
(c) The "Index" is the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for All Urban Consumers for the Los
Angeles-Long Beach-Anaheim Urban Area. If the compilation or publication of the
Index shall be discontinued or materially modified, then the consumer price
index most nearly the same as the Index shall be used in making this calculation
for future COL Adjustment Dates. If the Lessor and the Lessee cannot agree on a
substitute index, then the disagreement shall be submitted for decision to
binding arbitration in accordance with the commercial arbitration rules then in
effect of the American Arbitration Association. The cost of the arbitrators
shall be paid equally by the Lessor and the Lessee unless the arbitrators
otherwise order.
INITIAL:
- --------------------- ---------------------
LESSOR LESSEE
ADDENDUM - PAGE 2 OF 3
<PAGE> 13
[LOGO]
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated 30 DECEMBER 1991
By and Between DEMETRIADES FAMILY TRUST, LESSOR
AND SOFTWARE TECHNOLOGIES CORPORATION, LESSEE
PREMISES: 150 E. FOOTHILL BLVD., ARCADIA, CALIFORNIA 91006.
50 RIGHT OF FIRST REFUSAL TO PURCHASE
(a) Lessor shall not, at any time prior to the expiration of the term of
this Lease, or any extension thereof, sell the Premises, or any interest
therein, without first giving written notice thereof to Lessee, which notice is
hereinafter referred to as "Notice of Sale".
(b) The Notice of Sale shall include the exact and complete terms of the
proposed sale and shall have attached thereto a photocopy of bona fide offer and
counteroffer, if any, duly executed by both Lessor and the prospective
purchaser.
(c) For a period of ten (10) business days after receipt by Lessee of the
Notice of Sale, Lessee shall have the right to give written notice to Lessor of
Lessee's exercise of Lessee's right to purchase the Premises, or the interest
proposed to be sold, on the same terms, price and conditions as set forth in the
Notice of Sale. In the event that Lessor does not receive written notice of
Lessee's exercise of the right herein granted within said ten (10) day period,
there shall be a conclusive presumption that Lessee has elected not to exercise
Lessee's right hereunder, and Lessor may sell the Premises, or the interest
proposed to be sold, on the same terms set forth in the Notice of Sale.
(d) In the event that Lessee declines to exercise the right of first
refusal after receipt of the Notice of Sale, and, thereafter, Lessor and the
prospective purchaser modify by more than 5%, (i) the sales price, (ii) the
amount of down payment, or (iii) interest charged, or in the event that the sale
is not consummated within 160 days of the date of the Notice of Sale, then
Lessee's right of first refusal shall reapply to said transaction as of the
occurrence of any of the aforementioned events.
<PAGE> 14
[LOGO]
ADDENDUM TO
STANDARD LEASE
Dated 30 DECEMBER 1991
By and Between (Lessor) DEMETRIADES FAMILY TRUST (DFT)
(Lessee) SOFTWARE TECHNOLOGIES CORPORATION (STC)
Property Address: 150 E. FOOTHILL BLVD., ARCADIA, CA 91006
Paragraph 51
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for 4 additional 60 month period(s) commencing when the prior term
expires under each and all of the following terms and conditions:
(i) Lessee gives to Leasor and Lesser ???uality receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least 6 and not more than 12 months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s)
may (if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below: SEE PARAGRAPH 50.
(Check Method(s) to be Used and Fill in Appropriately)
[ ] I. Cost of Living Adjustment(s) (COL)
(a) On (Fill in COL Adjustment Date(s): _____________________________
____________________________________________________________________________ the
monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted by the change, if any, from the Base Month specified below,
in the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and
Clerical Workers) or [ ] CPI U (All Urban Consumers), for (Fill in Urban Area):
_____________________________________________________________________, All items
(1982-1984 = 100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph AI(a) of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the C.P.I. of the calendar month 2 (two) months
prior to the month(s) specified in paragraph A1(a) above during which the
adjustment is to take effect, and the denominator of which shall be the C.P.I.
of the calendar month which is two (2) months prior to (select one): [ ] the
first month of the term of this Lease as set forth in paragraph 1.3 ("Base
Month") or [ ] (Fill in Other "Base Month"):___________________________________.
The sum so calculated shall constitute the new monthly rent hereunder, but in
no event, shall any such new monthly rent be less than the rent payable for the
month immediately proceeding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency
or shall be discontinued, then the index most nearly the same as the C.P.I.
shall be used to make such calculation. In the event that Lessor and Lessee
cannot agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be binding
upon the parties. The cost of said Arbitrators shall be paid equally by Lessor
and Lessee.
[ ] II. Market Rental Value Adjustment(s) (MRV)
(a) On (Fill in MRV Adjustment Date(s): _____________________________
________________________________________________________________________________
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV)
Adjustment Date(s) described above, Lessor and Lessee shall meet to establish
an agreed upon new MRV for the specified term. If agreement cannot be reached,
then:
Initials: _______ Initials: _______
_______ _______
OPTION(S) TO EXTEND
Page 1 of 2
NOTICE: These terms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are ????ing the
most current forms. American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
(213) 687-8777. Fax No. (213) 687-8016.
<PAGE> 15
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next 30
days. Any associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay
the appraiser or broker of their choice to establish a MRV within the next 30
days. If, for any reason, either one of the appraisals is not completed within
the next 30 days, as stipulated, then the appraisal that is completed at that
time shall automatically become the new MRV. If both appraisals are completed
and the two appraisers/brokers cannot agree on a reasonable average MRV then
they shall immediately select a third mutually acceptable appraiser/broker to
establish a third MRV within the next 30 days. The average of the two
appraisals closest in value shall then become the new MRV. The costs of the
third appraisal will be split equally between the parties.
2) In any event, the new MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as described
in paragraph AII:
1) the monthly rental sum so calculated for each term as
specified in paragraph AII(a) will become the new "Base Rent" for the purpose
of calculating any further Cost of Living Adjustments as specified in paragraph
AI(a) above and
2) the first month of each Market Rental Value term as specified
in paragraph AII(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(b).
[ ] III. Fixed Rental Adjustment(s) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
____________________________________ $ ___________________________
____________________________________ $ ___________________________
____________________________________ $ ___________________________
____________________________________ $ ___________________________
B. NOTICE: Unless specified otherwise herein, notice of any escalations
other than Fixed Rental Adjustments shall be made as specified in paragraph 23
of the attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease. NONE.
Initials: Initials:
------------- -------------
------------- -------------
OPTION(S) TO EXTEND
Page 2 of 2
NOTICE: These terms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing
the most current form: American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213)
687-8777, Fax No. (213) 687-8016.
<PAGE> 1
EXHIBIT 10.12
EXHIBIT A
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT.
Void after
September 23, 2002
SOFTWARE TECHNOLOGIES CORPORATION
WARRANT TO PURCHASE 1,200,000 SHARES OF COMMON STOCK
This Warrant is issued to Computer Sciences Corp. ("CSC") by
Software Technologies Corporation, a California corporation (the "Company"), on
March 23, 2000 (the "Warrant Issue Date"). This Warrant is issued pursuant to
the terms of that certain Warrant Purchase Agreement (the "Purchase Agreement")
dated as of March 23, 2000.
1. Purchase of Shares. Subject to the terms and conditions
hereinafter set forth and set forth in the Purchase Agreement, the holder of
this Warrant is entitled, upon surrender of this Warrant at the principal office
of the Company (or at such other place as the Company shall notify the holder
hereof in writing), to purchase from the Company up to 1,200,000 fully paid and
nonassessable shares of the Common Stock of the Company, as more fully described
below. The number of shares of Common Stock issuable pursuant to this Section 1
(the "Shares") shall be subject to adjustment pursuant to Section 8 hereof.
2. Purchase Price. The per share purchase price for the Shares
shall be the greater of (i) $14.00, as adjusted from time to time pursuant to
Section 8 hereof, or (ii) the price at which the Company sells shares to the
public in the initial underwritten public offering of its common stock as
reflected on the front cover page of the final prospectus for such offering (the
"Exercise Price").
3. Exercise Period. This Warrant may be exercised at the sole
discretion of CSC (subject to the conditions set forth herein) after the
earliest to occur (the "Exercise Date") of (i) the date of the filing of a
registration statement under the Securities Act of 1933, as amended, in
connection with the issuance and sale of shares of the Company's Common Stock in
the Company's first underwritten public offering, (ii) the date of an agreement
(A) to sell or transfer all or substantially all of the Company's assets (an
"Asset Sale"), or (B) pursuant to which the Company is to be acquired by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) that results in
the transfer of fifty percent (50%) or more of the outstanding voting power of
the
<PAGE> 2
Company to persons or entities that were not shareholders of the Company prior
to such transaction (a "Merger") or (iii) March 23, 2001; and this Warrant shall
remain so exercisable until the earliest to occur (the "Termination Date") of
(x) September 23, 2002, (y) the date of the closing of the Company's Asset Sale,
or (z) the date of the closing of the Company's Merger.
Starting on the Exercise Date, this Warrant shall be
exercisable for that number of shares of the Company's Common Stock equal to the
amount of such shares that have vested in accordance with the vesting schedule
attached hereto as Schedule I, which is fully incorporated herein. The holder of
this Warrant understands that this Warrant shall only become exercisable at such
times as the milestones set forth in such vesting schedule are achieved. In the
event that this Warrant has not become exercisable as to an aggregate of at
least 1,200,000 shares on or prior to March 23, 2002, then (provided the
Termination Date has not occurred) CSC shall be obligated to make a one-time
payment to the Company equal to $2.2 million. Such payment shall be made by CSC
to the Company by check or wire transfer no later than April 22, 2002. Any such
payment made under this provision by CSC shall have no effect on the
exercisability of any portion of this Warrant that had previously become
exercisable.
To the extent that any shares will have vested under the
Warrant at the time that CSC is required to make a one-time payment specified in
this Section, CSC may utilize the "Net Exercise" provision in Section 5 herein
to exercise that vested portion of the Warrant and, in lieu of receiving shares
equal to the value of the portion of the Warrant being canceled (less the
aggregate exercise price), forfeit the right to receive that number of shares
that would be equivalent to the dollar amount of the one-time payment for which
CSC is then obligated to make, based on the fair market value per share of the
Common Stock as calculated in Section 5 herein.
4. Method of Exercise. While this Warrant remains outstanding
and exercisable in accordance with Section 3 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant (for notice of partial
exercise, if not for the entire 1,200,000 shares), together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
5. Net Exercise. In lieu of cash exercising this Warrant, the
holder of this Warrant may elect to receive shares equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the holder hereof a number of shares of
Common Stock computed using the following formula:
<PAGE> 3
Y (A - B)
---------
X = A
Where
X -- The number of shares of Common Stock to be issued to the
holder of this Warrant.
Y -- The number of shares of Common Stock as to which this
Warrant is being exercised.
A -- The fair market value of one share of the Company's Common
Stock.
B -- The Exercise Price (as adjusted to the date of such
calculations).
For purposes of this Paragraph 5, the fair market value of Common
Stock shall mean the average of the closing bid and asked prices of the Common
Stock quoted in the over-the-counter market in which the Common Stock is traded
or the closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the ten (10) trading days prior to the date of determination of fair
market value (or such shorter period of time during which such stock was traded
over-the-counter or on such exchange). If the Common Stock is not traded on the
over-the-counter market or on an exchange, the fair market value shall be the
price per share as shall be determined in good faith by the Company's Board of
Directors, or if CSC objects to such determination, by nationally recognized
investment bankers mutually acceptable to Company and CSC. Notwithstanding the
foregoing, in the event this Warrant is exercised pursuant to this paragraph
after the date of the final prospectus for the Company's initial public offering
and prior to the closing of such offering, the fair market value of the Common
Stock shall be equal to the public offering price set forth on the cover of the
Company's prospectus.
6. Certificates for Shares. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Shares so purchased shall be issued as soon as practicable thereafter, and in
any event within ten (10) days of the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares,
when issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number
of and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If
the Company shall at any time prior to the expiration of this Warrant subdivide
its Common Stock, by split-up
<PAGE> 4
or otherwise, or combine its Common Stock, or issue additional shares of its
Common Stock or Common Stock as a dividend or distribution with respect to any
shares of its Common Stock, the number of Shares issuable on the exercise of
this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation.
In case of any reclassification, capital reorganization, or change in the Common
Stock of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the holder of this Warrant, so that the holder of this
Warrant shall have the right at any time prior to the expiration of this Warrant
to purchase, at a total price equal to that payable upon the exercise of this
Warrant, the kind and amount of shares of stock and other securities and
property receivable in connection with such reclassification, reorganization, or
change by a holder of the same number of shares of Common Stock as were
purchasable by the holder of this Warrant immediately prior to such
reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the holder
of this Warrant so that the provisions hereof shall thereafter be applicable
with respect to any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate adjustments shall be made to the purchase
price per share payable hereunder, provided the aggregate purchase price shall
remain the same.
(c) Notice of Adjustment. When any adjustment is
required to be made in the number or kind of shares purchasable upon exercise of
the Warrant, or in the Exercise Price, the Company shall promptly notify the
holder of such event and of the number of shares of Common Stock or other
securities or property thereafter purchasable upon exercise of this Warrant.
9. Piggyback Registration Rights
(a) Piggyback Registration. Commencing one year
following the closing date of the Company's IPO, if (but without any obligation
to do so) the Company proposes to register any of its stock or other securities
under the Securities Act of 1933, as amended, (the "Act") in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, a registration pursuant to a Rule 145 transaction, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Warrant Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt
<PAGE> 5
securities which are also being registered), the Company shall prior to the
filing of any such registration, promptly give CSC written notice of such
registration. Upon the written request of CSC given within ten (10) days after
receipt of such notice by the Company, the Company shall, subject to the
provisions of Section 9(b) below, cause to be registered under the Act any of
the Shares that have then vested under the Warrant that CSC has requested to be
registered. If CSC decides not to include all of its shares in any registration
statement filed by the Company, CSC shall nevertheless continue to have the
right to include any Shares that have then vested under the Warrant in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to the offering of its stock or other securities under
the Act, all upon the terms and conditions set forth herein.
(b) Underwriting Requirements. In connection
with any offering involving an underwriting of shares of the Company's capital
stock in which CSC makes a written request pursuant to Section 9(a) hereof, the
Company shall not be required under this Section 9 to include any of CSC's
Shares in such underwriting unless CSC accepts the terms of the underwriting as
agreed upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole reasonable discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including CSC's Shares, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole reasonable discretion is
compatible with the success of the offering, then CSC may be excluded entirely
if the underwriters make the determination described above and no other
shareholder's securities are included, or then the Company shall be required to
include in the offering only that number of such securities, including CSC's
Shares, which the underwriters determine in their sole reasonable discretion
will not jeopardize the success of the offering, but in no event shall the
amount of securities of CSC included in the offering be reduced below ten
percent (10%) of the total amount of securities included in such offering.
Allocation of securities to be sold in any such offering shall be made on a
pro-rata basis among any selling shareholders involved in such offering
according to the total number of securities held by each such selling
shareholder and entitled to inclusion therein on the basis of a registration
rights agreement with the Company.
10. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
11. No Stockholder Rights. Prior to exercise of this Warrant, the
holder shall not be entitled to any rights of a stockholder with respect to the
Shares, including (without limitation) the right to vote such Shares, receive
dividends or other distributions thereon, exercise preemptive rights or be
notified of stockholder meetings, and such holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
12. Successors and Assigns. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and its
<PAGE> 6
successors and assigns. This Warrant cannot be assigned by CSC without the
express written consent of the Company. Notwithstanding the foregoing, this
Warrant may be assigned, sold or otherwise transferred in whole or in part by
CSC to an affiliate (as such term is defined in Rule 405 under the Securities
Act of 1933) or successor of CSC, and such assignment, sale or transfer shall
not require the consent of the Company so long as such assignment, sale or
transfer complies with applicable laws, rules and regulations, and provided that
CSC has provided the Company with prior written notice of any such transfer.
13. Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and CSC. Any waiver or
amendment effected in accordance with this Section shall be binding upon CSC,
each holder of any Shares purchased under this Warrant at the time outstanding
(including securities into which such Shares have been converted), each future
holder of all such Shares, and the Company.
14. Market Stand-off Agreement. The holder of this Warrant agrees
not to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such holder during a period of time
determined by the Company and its underwriters (not to exceed 180 days)
following the effective date of the registration statement of the Company filed
under the Act with respect to the Company's initial public offering. The holder
of this Warrant further agrees to execute any standard lock-up agreement that
the underwriters require in connection with such offering, provided that the
lock-up period does not exceed 180 days. The Company may impose stop-transfer
instructions with respect to the Common Stock (or securities) subject to the
foregoing restriction until the end of said period.
15. Governing Law. This Warrant shall be governed by the laws of
the State of California as applied to agreements among California residents made
and to be performed entirely within the State of California.
16. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the
Company, or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ JAMES DEMETRIADES
-------------------------------------
James Demetriades
Chief Executive Officer
Address: 404 E. Huntington Drive
Monrovia, CA 91016
<PAGE> 7
SUBSCRIPTION
Software Technologies Corporation
Attention: Corporate Secretary
The undersigned hereby elects to purchase, pursuant to the
provisions of the Warrant to Purchase Shares of Common Stock issued by Software
Technologies Corporation and held by the undersigned, ___________ shares of
Common Stock of Software Technologies Corporation.
Payment of the exercise price per share required under such
Warrant accompanies this Subscription.
WARRANTHOLDER:
COMPUTER SCIENCES CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address:
Date:
---------------------
Name in which shares should be registered:
----------------------------------
<PAGE> 8
SOFTWARE TECHNOLOGIES CORPORATION
404 E. HUNTINGTON DRIVE
MONROVIA, CA 91016
March 23, 2000
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, CA 90245
Re: WARRANT TO PURCHASE SHARES OF COMMON STOCK
Ladies and Gentlemen:
This is to confirm that the shares of Common Stock of Software
Technologies Corporation, a California corporation (the "Company") that may be
purchased upon exercise of that certain Warrant to Purchase Shares of Common
Stock dated as of March 23, 2000 (the "Warrant") issued by the Company to
Computer Sciences Corporation shall become exercisable in accordance with the
Warrant Exercise Schedule attached hereto. This letter and the attached schedule
are being provided pursuant to Section 3 of the Warrant.
Sincerely,
SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ JAMES DEMETRIADES
------------------------------------
Title: Chief Executive Officer
---------------------------------
Agreed to:
COMPUTER SCIENCES CORPORATION
By: /s/ LEON J. LEVEL
-----------------------------------------------
Title: Vice President and Chief Financial Officer
--------------------------------------------
<PAGE> 9
STC WARRANT ISSUED TO COMPUTER SCIENCES CORPORATION
WARRANT EXERCISE SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category Activity Vesting Event Number of Shares
Vesting
- --------------------------------------------------------------------------------------------------------
Market Offering Market Offering #1 (#) CSC will create a 100,000
Market Offering to be
determined at a later
date which is mutually
agreeable to CSC and
STC.
- --------------------------------------------------------------------------------------------------------
Market Offering Market Offering #2 (#)CSC will create a 100,000
Market Offering to be
determined at a later
date which is mutually
agreeable to CSC and STC
- --------------------------------------------------------------------------------------------------------
Market Offering Market Offering #3 (#) CSC will create a 100,000
Market Offering to be
determined at a later
date which is mutually
agreeable to CSC and STC
- --------------------------------------------------------------------------------------------------------
Field Engagement Client Introductions (*) CSC will make 100 9,000 per Client
opportunity Introduction, up to an
introductions of an STC aggregate of 900,000;
representative to CSC provided that no
clients, each of which shares shall vest
results, after the date pursuant to Client
of the warrant, in a Introductions until a
signed license between minimum of 50 such
STC and such CSC client Client Introductions
(such event being a shall have occurred.
"Client Introduction")
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(#) "Market Offering" is defined as the completion of the following: (1) STC
software is "embedded" in market offering/repeatable/vertical solution that CSC
takes to market; (2) STC is installed in the solution center showcasing the
market offering; (3) Market offering personnel are trained in STC software; and
(4) CSC will issue a media announcement relating to these facts, which
announcement shall be reasonably acceptable to STC. If CSC and STC cannot, after
reasonable efforts, come to mutual agreement on what constitutes a "Market
Offering," CSC may define the subject matter of a Market Offering (so long as
such Market Offering meets the definition for Market Offering articulated
above), notify STC of such Market Offering and submit a media announcement
(subject to STC's approval, such approval not to be unreasonably withheld)
regarding such Market Offering, at which time, the shares with respect to such
Market Offering shall vest.
(*) The vesting event will have been achieved and the related portion of the
Warrant shall become vested at such time as a Client Introduction has resulted
in a signed license agreements with STC, each resulting in a minimum of $150,000
in license revenue to STC; provided, however, that in order for the
corresponding portion of the Warrant to become exercisable, the vesting event
must be achieved on or prior to March __, 2002. For license amounts with a
single customer license amount greater than $150,000, additional customer
credits will be given to CSC in multiples of $300,000 in license revenue to STC.
The maximum number of credits that may be earned on a single customer is 20,
which would be as a result of a customer providing license revenue to STC in the
amount of $5,850,000, which would result in the vesting of 180,000 shares
pursuant to this vesting schedule. However, such additional credits shall not be
counted for purposes of calculating the minimum threshold of 50 Client
Introductions, which threshold in order to be met must be achieved through 50
different CSC clients.
For purposes of defining a "Client Introduction," different operating units,
divisions or affiliates of the same corporate entity, or different agencies
within a governmental body, shall be determined to be separate Client
Introductions, provided that to constitute separate Client Introductions, each
discrete unit, division or affiliate either (a) signs a separate license with
STC, or (b) purchases software from STC such that STC recognizes revenue in an
amount greater than $150,000 from each discrete unit, division or affiliate.
However, if the sole purpose of a license resulting from a Client Introduction
is to connect two or more units, divisions or affiliates within a corporate
entity, then such purchase would constitute one project, and therefore one
Client Introduction for purposes of this schedule. For the avoidance of doubt
and for illustrative purposes only, (a) an investment banking division and a
retail banking division of the same corporate entity may be separate Client
Introductions if each results in separate licenses with STC or each purchases
software in an amount greater than $150,000; (b) NASA, the IRS, State
Department, Army Logistics, Army Land Warrior, FBI, Los Angeles Police
Department, Los Angeles Fire Department, etc., shall each be considered separate
Client Introductions if each results in a separate license with STC or each
purchases software in an amount greater than
<PAGE> 10
$150,000; and (c) if a bank signs a single STC license for the purposes of
integrating two separate units, divisions or affiliates within the bank entity,
such project shall be considered a single Client Introduction because it
resulted in only one signed license with STC, unless each separate unit
purchases software in an amount greater than $150,000.
<PAGE> 1
EXHIBIT 10.13
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT ("Agreement") is made as of November
16, 1999, by and between Software Technologies Corporation (the "Company"), and
Andersen Consulting LLP ("AC").
WHEREAS, AC intends to purchase a warrant from the Company, which
warrant will be exercisable for shares of the Company's common stock; and
WHEREAS, the parties hereto wish to provide for the sale and
issuance of such warrant in consideration for services rendered and to be
rendered to the Company by AC as contemplated by Section 3 of the Warrant;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Issuance of the Warrant. The Company hereby sells and issues to
AC a warrant (the "Warrant") to purchase shares of the Company's common stock
(collectively, the "Common Stock") as set forth therein in consideration for
services rendered and to be rendered to the Company by AC as contemplated by
Section 3 of the Warrant. The Warrant shall be in the form attached hereto as
Exhibit A.
2. Representations and Warranties of the Company. In connection with
the transactions provided for herein, the Company hereby represents and warrants
to AC that:
2.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder, and the authorization, issuance (or reservation for
issuance), and delivery of the Warrant and the Common Stock issuable upon
exercise of the Warrant has been taken or will be taken prior to the Closing.
2.3 Valid Issuance of Common Stock. The Common Stock, when issued,
sold, and delivered in accordance with the terms of the Warrant for the
consideration expressed therein, will be duly and validly issued, fully paid,
and nonassessable and, based upon the representations of AC in this Agreement,
will be issued in compliance with all applicable federal and state securities
laws.
3. Representations and Warranties of AC. In connection with the
transactions provided for herein, AC hereby represents and warrants to the
Company that:
<PAGE> 2
3.1 Authorization. This Agreement constitutes AC's valid and legally
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. AC acknowledges that this
Agreement is made with AC in reliance upon AC's representation to the Company
that the Warrant and the Common Stock issuable upon exercise of the Warrant
(collectively, the "Securities") will be acquired for investment for AC's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that AC has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, AC further represents that AC does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participations to such person or to any third person, with
respect to the Securities. AC represents that it has full power and authority to
enter into this Agreement.
3.3 Disclosure of Information. AC acknowledges that it has received
all the information it considers necessary or appropriate for deciding whether
to acquire the Securities. AC further represents that it has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Securities.
3.4 Investment Experience. AC is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. AC also represents it has
not been organized solely for the purpose of acquiring the Securities.
3.5 Accredited Investor. AC is an "accredited investor" within the
meaning of Rule 501 of Regulation D of the Securities and Exchange Commission
(the "SEC"), as presently in effect.
3.6 Restricted Securities. AC understands that the Securities are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, AC represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, AC further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
2
<PAGE> 3
(b) (i) AC shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, AC shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Act. It is agreed that the Company
will not require opinions of counsel for transactions made pursuant to Rule
144(k) or pursuant to Rule 144 if the transfer is to an affiliate of the
transferor.
3.8 Legend. It is understood that the Securities shall bear the
following legend:
"These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged, hypothecated, or
otherwise transferred except pursuant to an effective registration statement
under the Securities Act of 1933 or an opinion of counsel satisfactory to the
Company that registration is not required under such Act or unless sold pursuant
to Rule 144 under such Act."
4. California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
5. Right of First Refusal.
5.1 Right of First Refusal. In the event that AC proposes to sell,
pledge or otherwise transfer to a third party (other than an affiliate of AC)
any shares of Common Stock, or any interest in such Common Stock, the Company
shall have the Right of First Refusal to purchase all (or less than all) of such
shares of Common Stock. If AC desires to transfer the Common Stock, AC shall
give a written Transfer Notice to the Company describing fully the proposed
transfer, including the number of shares of Common Stock proposed to be
transferred, the proposed transfer price, the name and address of the proposed
transferee and proof satisfactory to the Company that the proposed sale or
transfer will not violate any applicable federal or state securities laws. The
Transfer Notice shall be signed both by AC and by the proposed transferee and
must constitute a binding commitment of both parties to the transfer of the
Common Stock. The Company shall have the right to purchase all, or less than
all, of the Common Stock on the terms of the proposal described in the Transfer
Notice (subject, however, to any change in such terms permitted under Subsection
5.2 below) by delivery to AC of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer Notice 3
<PAGE> 4
was received by the Company. The Company's rights under this Subsection 5.1
shall be assignable, in whole or in part.
5.2 Transfer of Shares. If the Company fails to exercise its Right
of First Refusal within 30 days after the date when it received the Transfer
Notice, AC may, not later than 90 days following receipt of the Transfer Notice
by the Company, conclude a transfer of the Common Stock subject to the Transfer
Notice on the terms and conditions described in the Transfer Notice, provided
that any such sale is made in compliance with applicable federal and state
securities laws and not in violation of any other contractual restrictions to
which AC is bound. Any proposed transfer on terms and conditions different from
those described in the Transfer Notice, as well as any subsequent proposed
transfer by AC, shall again be subject to the Right of First Refusal and shall
require compliance with the procedure described in Subsection 5.1 above. If the
Company exercises its Right of First Refusal, the parties shall consummate the
sale of the Common Stock on the terms set forth in the Transfer Notice within 60
days after the date when the Company received the Transfer Notice (or within
such longer period as may have been specified in the Transfer Notice); provided,
however, that in the event the Transfer Notice provided that payment for the
Common Stock was to be made in a form other than cash or cash equivalents paid
at the time of transfer, the Company shall have the option of paying for the
Common Stock with cash or cash equivalents equal to the present value of the
consideration described in the Transfer Notice or as may otherwise be agreed to
by AC and the Company.
5.3 Additional Shares or Substituted Securities. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a spin-off, a stock split, a
recapitalization or a similar transaction affecting the Company's outstanding
securities without receipt of consideration, any new, substituted or additional
securities or other property (including money paid other than as an ordinary
cash dividend) which are by reason of such transaction distributed with respect
to any Common Stock subject to this Section 5 or into which such Common Stock
thereby become convertible shall immediately be subject to this Section 5.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the number and/or class of Common Stock subject to
this Section 5.
5.4 Termination of Right of First Refusal. The Right of First
Refusal shall lapse upon the earliest to occur of (i) such time as the Company
becomes obligated to file reports pursuant to the Securities Exchange Act of
1934, as amended, or (ii) the closing of a firm commitment underwritten public
offering, pursuant to an effective registration statement on Form S-1 or Form
SB-2 under the Act, covering the offer and sale of the Company's common stock.
However, the market stand-off (described below) shall continue to remain in full
force and effect following the lapse of the right of first refusal set forth in
this Section 5.
5.5 Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Common Stock to be purchased in accordance
with this Section 5, then after such time the person from whom such Common Stock
is to be purchased shall no longer have any rights as a holder of such Common
Stock (other than the right to receive payment of such consideration in
4
<PAGE> 5
accordance with this Agreement). Such Common Stock shall be deemed to have been
purchased in accordance with the applicable provisions hereof, whether or not
the certificate(s) therefor have been delivered as required by this Agreement.
6. Miscellaneous.
6.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Warrant cannot be assigned
by AC without the express written consent of the Company, except when such
assignment is to an affiliate of AC.
6.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
6.3 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, by
delivery by confirmed facsimile or upon deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to such
party at the address set forth below, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
If to the Company:
Software Technologies Corporation
404 E. Huntington Drive
Monrovia, CA 91016
Attn.: Chief Executive Officer
Facsimile: 626-471-6103
5
<PAGE> 6
If to AC:
Andersen Consulting LLP
1661 Page Mill Road
Palo Alto, Ca 94304
Attn: General Counsel
Facsimile:
6.6 Finder's Fee. Each party represents that it neither is or will
be obligated for any finder's fee or commission in connection with this
transaction. AC agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which AC or any of its officers, partners, employees, or
representatives is responsible.
The Company agrees to indemnify and hold harmless AC from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
6.7 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.8 Entire Agreement; Amendments and Waivers. This Agreement and the
Warrant constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof. Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and AC. Any waiver or
amendment effected in accordance with this Section shall be binding upon AC,
each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and the Company.
6.9 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
SOFTWARE TECHNOLOGIES CORPORATION
By: /S/ JAMES T. DEMETRIADES
--------------------------------
James Demetriades
Chief Executive Officer
Address: 404 E. Huntington Drive
Monrovia, CA 91016
SIGNATURE PAGE TO SOFTWARE TECHNOLOGIES CORPORATION
WARRANT PURCHASE AGREEMENT
<PAGE> 8
ANDERSEN CONSULTING LLP
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address: 1661 Page Mill Road
Palo Alto, CA 94304
Attn: Chief Financial Officer
SIGNATURE PAGE TO SOFTWARE TECHNOLOGIES CORPORATION
WARRANT PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.14
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT ("Agreement") is made as of February
2, 2000, by and between Software Technologies Corporation (the "Company"), and
Electronic Data Systems Corporation ("EDS").
WHEREAS, EDS intends to purchase a warrant from the Company, which
warrant will be exercisable for shares of the Company's common stock; and
WHEREAS, the parties hereto wish to provide for the sale and
issuance of such warrant in consideration for services rendered and to be
rendered to the Company by EDS as contemplated by Section 3 of the Warrant;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Issuance of the Warrant. The Company hereby sells and issues to EDS a warrant
(the "Warrant") to purchase shares of the Company's common stock (collectively,
the "Common Stock") as set forth therein in consideration for services rendered
and to be rendered to the Company by EDS as contemplated by Section 3 of the
Warrant. The Warrant shall be in the form attached hereto as Exhibit A.
2. Representations and Warranties of the Company. In connection with the
transactions provided for herein, the Company hereby represents and warrants to
EDS that:
2.1 Organization, Good Standing, and Qualification. The Company is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of California and has all requisite corporate power and authority to carry
on its business as now conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so to
qualify would have a material adverse effect on its business or properties.
2.2 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder, and the authorization, issuance (or reservation for
issuance), and delivery of the Warrant and the Common Stock issuable upon
exercise of the Warrant has been taken or will be taken prior to the Closing.
2.3 Valid Issuance of Common Stock. The Common Stock, when issued, sold, and
delivered in accordance with the terms of the Warrant for the consideration
expressed therein, will be duly and validly issued, fully paid, and
nonassessable and, based upon the representations of EDS in this Agreement, will
be issued in compliance with all applicable federal and state securities laws.
3. Representations and Warranties of EDS. In connection with the transactions
provided for herein, EDS hereby represents and warrants to the Company that:
<PAGE> 2
3.1 Authorization. This Agreement constitutes EDS's valid and legally binding
obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. EDS acknowledges that this Agreement is
made with EDS in reliance upon EDS's representation to the Company that the
Warrant and the Common Stock issuable upon exercise of the Warrant
(collectively, the "Securities") will be acquired for investment for EDS's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that EDS has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, EDS further represents that EDS does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participations to such person or to any third person, with
respect to the Securities. EDS represents that it has full power and authority
to enter into this Agreement.
3.3 Disclosure of Information. EDS acknowledges that it has received all the
information it considers necessary or appropriate for deciding whether to
acquire the Securities. EDS further represents that it has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Securities.
3.4 Investment Experience. EDS is an investor in securities of companies in the
development stage and acknowledges that it can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities. EDS also represents it has not been organized solely for the
purpose of acquiring the Securities.
3.5 Accredited Investor. EDS is an "accredited investor" within the meaning of
Rule 501 of Regulation D of the Securities and Exchange Commission (the "SEC"),
as presently in effect.
3.6 Restricted Securities. EDS understands that the Securities are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, EDS
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, EDS further agrees not to make any disposition
of all or any portion of the Securities until either:
(a) There is then in effect a Registration Statement under the Act covering such
proposed disposition and such disposition is made in accordance with such
Registration Statement; or
(b) (i) EDS shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, EDS shall have furnished the
2
<PAGE> 3
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144(k) or pursuant to Rule 144 if the transfer is to an
affiliate of the transferor.
3.8 Legend. It is understood that the Securities shall bear the following
legend:
"These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged, hypothecated, or
otherwise transferred except pursuant to an effective registration statement
under the Securities Act of 1933 or an opinion of counsel satisfactory to the
Company that registration is not required under such Act or unless sold pursuant
to Rule 144 under such Act."
4. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Right of First Refusal.
5.1 Right of First Refusal. Subject to Section 5.4, in the event that EDS
proposes to sell, pledge or otherwise transfer to a third party (other than an
affiliate of EDS) any shares of Common Stock, or any interest in such Common
Stock, the Company shall have the Right of First Refusal to purchase all (or
less than all) of such shares of Common Stock. If EDS desires to transfer the
Common Stock, EDS shall give a written Transfer Notice to the Company describing
fully the proposed transfer, including the number of shares of Common Stock
proposed to be transferred, the proposed transfer price, the name and address of
the proposed transferee and proof satisfactory to the Company that the proposed
sale or transfer will not violate any applicable federal or state securities
laws. The Transfer Notice shall be signed both by EDS and by the proposed
transferee and must constitute a binding commitment of both parties to the
transfer of the Common Stock. The Company shall have the right to purchase all,
or less than all, of the Common Stock on the terms of the proposal described in
the Transfer Notice (subject, however, to any change in such terms permitted
under Subsection 5.2 below) by delivery to EDS of a notice of exercise of the
Right of First Refusal within 30 days after the date when the Transfer Notice
was received by the Company. The Company's rights under this Subsection 5.1
shall be assignable, in whole or in part.
5.2 Transfer of Shares. If the Company fails to exercise its Right of First
Refusal within 10 days after the date when it received the Transfer Notice, EDS
may, not later than 90 days following receipt of the Transfer Notice by the
Company, conclude a transfer of the Common
3
<PAGE> 4
Stock subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice, provided that any such sale is made in compliance with
applicable federal and state securities laws and not in violation of any other
contractual restrictions to which EDS is bound. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by EDS, shall again be subject to the Right of
First Refusal and shall require compliance with the procedure described in
Subsection 5.1 above. If the Company exercises its Right of First Refusal, the
parties shall consummate the sale of the Common Stock on the terms set forth in
the Transfer Notice within 60 days after the date when the Company received the
Transfer Notice (or within such longer period as may have been specified in the
Transfer Notice); provided, however, that in the event the Transfer Notice
provided that payment for the Common Stock was to be made in a form other than
cash or cash equivalents paid at the time of transfer, the Company shall have
the option of paying for the Common Stock with cash or cash equivalents equal to
the present value of the consideration described in the Transfer Notice or as
may otherwise be agreed to by EDS and the Company.
5.3 Additional Shares or Substituted Securities. In the event of the declaration
of a stock dividend, the declaration of an extraordinary dividend payable in a
form other than stock, a spin-off, a stock split, a recapitalization or a
similar transaction affecting the Company's outstanding securities without
receipt of consideration, any new, substituted or additional securities or other
property (including money paid other than as an ordinary cash dividend) which
are by reason of such transaction distributed with respect to any Common Stock
subject to this Section 5 or into which such Common Stock thereby become
convertible shall immediately be subject to this Section 5. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number and/or class of Common Stock subject to this Section 5.
5.4 Termination of Right of First Refusal. The Right of First Refusal shall
lapse upon the earliest to occur of (i) one year after the date of this
Agreement, (ii) such time as the Company becomes obligated to file reports
pursuant to the Securities Exchange Act of 1934, as amended, or (iii) the
closing of a firm commitment underwritten public offering, pursuant to an
effective registration statement on Form S-1 or Form SB-2 under the Act,
covering the offer and sale of the Company's common stock. However, the market
stand-off provision contained in the warrant attached hereto as Exhibit A shall
continue to remain in full force and effect following the lapse of the right of
first refusal set forth in this Section 5.
5.5 Termination of Rights as Stockholder. If the Company makes available, at the
time and place and in the amount and form provided in this Agreement, the
consideration for the Common Stock to be purchased in accordance with this
Section 5, then after such time the person from whom such Common Stock is to be
purchased shall no longer have any rights as a holder of such Common Stock
(other than the right to receive payment of such consideration in accordance
with this Agreement). Such Common Stock shall be deemed to have been purchased
in accordance with the applicable provisions hereof, whether or not the
certificate(s) therefor have been delivered as required by this Agreement.
6. Miscellaneous.
4
<PAGE> 5
6.1 Successors and Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Except in accordance with the Warrant, the
Warrant cannot be assigned by EDS without the express written consent of the
Company, except when such assignment is to an affiliate of EDS.
6.2 Arbitration.
(a) In the event of any dispute arising hereunder or with respect to
the transactions contemplated hereby, the Company and EDS shall attempt in good
faith for thirty (30) days to agree upon the rights of the respective parties
with respect to such dispute. If the Company and EDS should so agree, a
memorandum setting forth such agreement shall be prepared and signed by such
parties and shall be binding upon such parties and each other or transferee of
any of the Securities.
(b) If no such agreement can be reached after good faith
negotiation, either the Company or EDS may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or such parties agree to
arbitration, and in either such event the matter shall be settled by arbitration
conducted by three (3) arbitrators. Within fifteen (15) days after such written
notice is sent, the Company and EDS shall each select one (1) arbitrator, and
the two (2) arbitrators so selected shall select a third arbitrator. The
decision of the arbitrators as to the validity and amount of any claim shall be
binding and conclusive upon the Company and EDS or transferee of any of the
Securities.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction; however, the parties hereto agree to
submit to the jurisdiction of the federal and state courts of the State of
California with respect to the rendering of any such judgment. Any such
arbitration shall be held in Los Angeles County, California under the commercial
rules then in effect of the American Arbitration Association.
6.3 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents, made and to be performed entirely within the State of California.
6.4 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon personal
5
<PAGE> 6
delivery to the party to be notified, by delivery by confirmed facsimile or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to such party at the address set forth below, or
at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
If to the Company:
Software Technologies Corporation
404 E. Huntington Drive
Monrovia, CA 91016
Attn.: Chief Executive Officer
Facsimile: 626-471-6103
If to EDS:
Electronic Data Systems Corporation
MS H3-3D-05
5400 Legacy Drive
Plano, TX 75024
Attn: General Counsel
Facsimile: (972) 605-5610
6.7 Finder's Fee. Each party represents that it neither is or will be obligated
for any finder's fee or commission in connection with this transaction. EDS
agrees to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
EDS or any of its officers, partners, employees, or representatives is
responsible.
The Company agrees to indemnify and hold harmless EDS from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
6.8 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
6.9 Reservation of Shares. The Company shall reserve and keep available at all
times, free of preemptive rights, the full number of shares of Common Stock
issuable upon exercise of the Warrant.
6.10 Entire Agreement; Amendments and Waivers. This Agreement and the Warrant
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either
6
<PAGE> 7
retroactively or prospectively), with the written consent of the Company and
EDS. Any waiver or amendment effected in accordance with this Section shall be
binding upon EDS, each holder of any securities purchased under this Agreement
at the time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and the Company.
6.11 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SOFTWARE TECHNOLOGIES CORPORATION
By: /S/ JAMES T. DEMETRIADES
------------------------------------
James Demetriades
Chief Executive Officer
Address: 404 E. Huntington Drive
Monrovia, CA 91016
SIGNATURE PAGE TO SOFTWARE TECHNOLOGIES CORPORATION
WARRANT PURCHASE AGREEMENT
<PAGE> 9
ELECTRONIC DATA SYSTEMS CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address: 5400 Legacy Drive
MS H3-3D-05
Plano, TX 75024
Attn: General Counsel
SIGNATURE PAGE TO SOFTWARE TECHNOLOGIES CORPORATION
WARRANT PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.15
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT ("Agreement") is made as of March
23, 2000, by and between Software Technologies Corporation, a California
corporation (the "Company"), and Computer Sciences Corporation, a Nevada
corporation ("CSC").
WHEREAS, the Company intends to grant a warrant to CSC, which
warrant will be exercisable for shares of the Company's common stock upon the
achievement of certain defined events; and
WHEREAS, the parties hereto wish to provide for the sale and
issuance of such warrant in consideration for services rendered and to be
rendered to the Company by CSC as contemplated by Section 3 of the Warrant;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Issuance of the Warrant. The Company hereby sells and issues to CSC a
warrant (the "Warrant") to purchase shares of the Company's common stock
(collectively, the "Common Stock") as set forth therein in consideration for
services rendered and to be rendered to the Company by CSC as contemplated by
Section 3 of the Warrant. The Warrant shall be in the form attached hereto as
Exhibit A.
2. Representations and Warranties of the Company. In connection with the
transactions provided for herein, the Company hereby represents and warrants to
CSC that:
(a) Organization, Good Standing, and Qualification. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.
(b) Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization, issuance (or
reservation for issuance), and delivery of the Warrant and the Common Stock
issuable upon exercise of the Warrant has been taken or will be taken prior to
the Closing.
(c) Valid Issuance of Common Stock. The Common Stock, when
issued, sold, and delivered in accordance with the terms of the Warrant for the
consideration expressed therein, will be duly authorized and validly issued,
fully paid, and nonassessable and, based upon the representations of CSC in this
Agreement, will be issued in compliance with all applicable federal and state
securities laws.
3. Representations and Warranties of CSC. In connection with the
transactions provided for herein, CSC hereby represents and warrants to the
Company that:
<PAGE> 2
3.1 Authorization. This Agreement constitutes CSC's valid and
legally binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. CSC acknowledges that this
Agreement is made with CSC in reliance upon CSC's representation to the Company
that the Warrant and the Common Stock issuable upon exercise of the Warrant
(collectively, the "Securities") will be acquired for investment for CSC's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that CSC has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, CSC further represents that CSC does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participations to such person or to any third person, with
respect to the Securities. CSC represents that it has full power and authority
to enter into this Agreement.
3.3 Disclosure of Information. CSC acknowledges that it has
received all the information it considers necessary or appropriate for deciding
whether to acquire the Securities. CSC further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities.
3.4 Investment Experience. CSC is an investor in securities of
companies in the development stage and acknowledges that it can bear the
economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities. CSC also represents it has not been
organized solely for the purpose of acquiring the Securities.
3.5 Accredited Investor. CSC is an "accredited investor" within
the meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the "SEC"), as presently in effect.
3.6 Restricted Securities. CSC understands that the Securities
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, CSC represents that it is familiar with SEC Rule 144, as presently
in effect, and understands the resale limitations imposed thereby and by the
Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, and except with respect to a
transfer to a CSC affiliate or successor in interest, CSC further agrees not to
make any disposition of all or any portion of the Securities until either:
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) CSC shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, CSC shall have furnished the
2
<PAGE> 3
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144(k) or pursuant to Rule 144 if the transfer is to an
affiliate or successor of the transferor.
3.8 Legend. It is understood that the Securities shall bear the
following legend:
"These securities have not been registered under the Securities Act of 1933.
They may not be sold, offered for sale, pledged, hypothecated, or otherwise
transferred except pursuant to an effective registration statement under the
Securities Act of 1933 or an opinion of counsel satisfactory to the Company that
registration is not required under such Act or unless sold pursuant to Rule 144
under such Act."
4. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Right of First Refusal.
5.1 Right of First Refusal. Subject to Section 5.4, in the event
that CSC proposes to sell, pledge or otherwise transfer to a third party (other
than an affiliate of CSC) any shares of Common Stock, or any interest in such
Common Stock, the Company shall have the Right of First Refusal to purchase all
(or less than all) of such shares of Common Stock. If CSC desires to transfer
the Common Stock, CSC shall give a written Transfer Notice to the Company
describing fully the proposed transfer, including the number of shares of Common
Stock proposed to be transferred, the proposed transfer price, the name and
address of the proposed transferee and proof satisfactory to the Company that
the proposed sale or transfer will not violate any applicable federal or state
securities laws. The Transfer Notice shall be signed both by CSC and by the
proposed transferee and must constitute a binding commitment of both parties to
the transfer of the Common Stock. The Company shall have the right to purchase
all, or less than all, of the Common Stock on the terms of the proposal
described in the Transfer Notice (subject, however, to any change in such terms
permitted under Subsection 5.2 below) by delivery to CSC of a notice of exercise
of the Right of First Refusal within 7 days after the date when the Transfer
Notice was received by the Company. The Company's rights under this Subsection
5.1 shall be assignable, in whole or in part.
5.2 Transfer of Shares. If the Company fails to exercise its
Right of First Refusal within 7 days after the date when it received the
Transfer Notice, CSC may, not later than 90 days following receipt of the
Transfer Notice by the Company, conclude a transfer of the Common
3
<PAGE> 4
Stock subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice, provided that any such sale is made in compliance with
applicable federal and state securities laws and not in violation of any other
contractual restrictions to which CSC is bound. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by CSC, shall again be subject to the Right of
First Refusal and shall require compliance with the procedure described in
Subsection 5.1 above. If the Company exercises its Right of First Refusal, the
parties shall consummate the sale of the Common Stock on the terms set forth in
the Transfer Notice within 60 days after the date when the Company received the
Transfer Notice (or within such longer period as may have been specified in the
Transfer Notice); provided, however, that in the event the Transfer Notice
provided that payment for the Common Stock was to be made in a form other than
cash or cash equivalents paid at the time of transfer, the Company shall have
the option of paying for the Common Stock with cash or cash equivalents equal to
the present value of the consideration described in the Transfer Notice or as
may otherwise be agreed to by CSC and the Company.
5.3 Additional Shares or Substituted Securities. In the event of
the declaration of a stock dividend, the declaration of an extraordinary
dividend payable in a form other than stock, a spin-off, a stock split, a
recapitalization or a similar transaction affecting the Company's outstanding
securities without receipt of consideration, any new, substituted or additional
securities or other property (including money paid other than as an ordinary
cash dividend) which are by reason of such transaction distributed with respect
to any Common Stock subject to this Section 5 or into which such Common Stock
thereby become convertible shall immediately be subject to this Section 5.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the number and/or class of Common Stock subject to
this Section 5.
5.4 Termination of Right of First Refusal. The Right of First
Refusal shall lapse upon the earliest to occur of (i) one year after the date of
this Agreement, (ii) such time as the Company becomes obligated to file reports
pursuant to the Securities Exchange Act of 1934, as amended, or (iii) the
closing of a firm commitment underwritten public offering, pursuant to an
effective registration statement on Form S-1 or Form SB-2 under the Act,
covering the offer and sale of the Company's common stock. However, the market
stand-off provision contained in the warrant attached hereto as Exhibit A shall
continue to remain in full force and effect following the lapse of the right of
first refusal set forth in this Section 5.
5.5 Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Common Stock to be purchased in accordance
with this Section 5, then after such time the person from whom such Common Stock
is to be purchased shall no longer have any rights as a holder of such Common
Stock (other than the right to receive payment of such consideration in
accordance with this Agreement). Such Common Stock shall be deemed to have been
purchased in accordance with the applicable provisions hereof, whether or not
the certificate(s) therefor have been delivered as required by this Agreement.
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6. Miscellaneous.
6.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Except in accordance with the
Warrant, the Warrant cannot be assigned by CSC without the express written
consent of the Company, except when such assignment is to an affiliate (as such
term is defined in Rule 405 under the Securities Act of 1933) of CSC.
6.2 Arbitration.
(a) In the event of any dispute arising hereunder or
with respect to the transactions contemplated hereby, the Company and CSC shall
attempt in good faith for thirty (30) days to agree upon the rights of the
respective parties with respect to such dispute. If the Company and CSC should
so agree, a memorandum setting forth such agreement shall be prepared and signed
by such parties and shall be binding upon such parties and each other or
transferee of any of the Securities.
(b) If no such agreement can be reached after good faith
negotiation, either the Company or CSC may, by written notice to the other,
demand arbitration of the matter to be settled by arbitration conducted by three
(3) arbitrators. Within fifteen (15) days after such written notice is sent, the
Company and CSC shall each select one (1) arbitrator, and the two (2)
arbitrators so selected shall select a third arbitrator. The decision of the
arbitrators as to the validity and amount of any claim shall be binding and
conclusive upon the Company and CSC or transferee of any of the Securities.
(c) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction; however, the parties hereto
agree to submit to the jurisdiction of the federal and state courts of the State
of California with respect to the rendering of any such judgment. Any such
arbitration shall be held in Los Angeles County, California under the commercial
rules then in effect of the American Arbitration Association.
6.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
6.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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6.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, by
delivery by confirmed facsimile or upon deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to such
party at the address set forth below, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
If to the Company:
Software Technologies Corporation
404 E. Huntington Drive
Monrovia, CA 91016
Attn.: Chief Executive Officer
Facsimile: 626-471-6103
If to CSC:
Corporate Controller
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, CA 90245
Facsimile: 310-322-9766
With a mandatory copy to:
Assistant General Counsel
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, CA 90245
Facsimile: 310-640-3167
6.7 Finder's Fee. Each party represents that it neither is or
will be obligated for any finder's fee or commission in connection with this
transaction. CSC agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which CSC or any of its officers, partners, employees, or
representatives is responsible.
The Company agrees to indemnify and hold harmless CSC
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees, or
representatives is responsible.
6.8 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
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6.9 Reservation of Shares. The Company shall reserve and keep
available at all times, free of preemptive rights, the full number of shares of
Common Stock issuable upon exercise of the Warrant.
6.10 Entire Agreement; Amendments and Waivers. This Agreement and
the Warrant constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof. Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and CSC. Any waiver or
amendment effected in accordance with this Section shall be binding upon CSC,
each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and the Company.
6.11 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
SOFTWARE TECHNOLOGIES CORPORATION
By: /S/ JAMES DEMETRIADES
---------------------------------
James Demetriades
Chief Executive Officer
Address: 404 E. Huntington Drive
Monrovia, CA 91016
SIGNATURE PAGE TO SOFTWARE TECHNOLOGIES CORPORATION
WARRANT PURCHASE AGREEMENT
<PAGE> 9
COMPUTER SCIENCES CORPORATION
By: /s/ LEON J. LEVEL
----------------------------------------------
Name: Leon J. Level
--------------------------------------------
Title: Vice President and Chief Financial Officer
-------------------------------------------
Address:
SIGNATURE PAGE TO SOFTWARE TECHNOLOGIES CORPORATION
WARRANT PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 11, 2000 (except for Note 10, as to which the
date is March 23, 2000) in Amendment No. 1 to the Registration Statement (No.
333-30648) and related Prospectus of Software Technologies Corporation.
/s/ Ernst & Young LLP
Woodland Hills, California
March 23, 2000
