<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SOFTWARE TECHNOLOGIES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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)
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COPIES TO:
<TABLE>
<S> <C>
JEFFREY D. SAPER, ESQ. PATRICK A. POHLEN, ESQ.
J. ROBERT SUFFOLETTA, ESQ. SUZANNE SAWOCHKA HOOPER, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION 5 PALO ALTO SQUARE
650 PAGE MILL ROAD 3000 EL CAMINO REAL
PALO ALTO, CA 94304 PALO ALTO, CA 94306
(650) 493-9300 (650) 843-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, no par value........................... $100,000,000 $26,400
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933.
------------------------
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 , 2000
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. ELECTRONIC
DATA SYSTEMS CORPORATION HAS AGREED TO PURCHASE DIRECTLY FROM US AN ADDITIONAL
1,200,000 SHARES OF OUR COMMON STOCK CONCURRENTLY WITH THE SALE OF SHARES IN
THIS OFFERING AT A PURCHASE PRICE EQUAL TO THE INITIAL PUBLIC OFFERING PRICE.
SEE "CONCURRENT SALE OF STOCK TO EDS" ON PAGE 13. WE ANTICIPATE THAT THE INITIAL
PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE.
-------------------------
WE HAVE FILED AN APPLICATION FOR OUR COMMON STOCK TO BE LISTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "STCS."
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
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PRICE $ A SHARE
-------------------------
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<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
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*Gate 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: e*Gate e-Business Integrator
Connects Your e-Business Systems
o Optimizes your business
o Globally deployed, centrally managed
o Fully graphical-minimal programming
o Proven customer success
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................. 1
Risk Factors........................ 4
Special Note Regarding
Forward-Looking Statements........ 12
Use of Proceeds..................... 13
Concurrent Sale of Stock to EDS..... 13
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Consolidated Financial
Data.............................. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 17
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Business............................ 27
Management.......................... 39
Related Party Transactions.......... 49
Principal Shareholders.............. 50
Description of Capital Stock........ 52
Shares Eligible for Future Sale..... 55
Underwriters........................ 57
Legal Matters....................... 59
Experts............................. 59
Where You Can Find More
Information....................... 59
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.
<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 e-Business integration software that enables
the seamless flow of information within and among enterprises on a global basis.
Our comprehensive e*Gate 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 B2B, integration, as well business process management
capabilities. e*Gate builds upon more than nine years of our dedication to the
continuous development of application and systems integration solutions within
and among enterprises.
e*Gate enables our customers to connect applications, databases or systems,
deploy and manage trading partner paradigms, including direct 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*Gate'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 GUI-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*Gate can also lower operational costs for customers by streamlining business
processes as well as by reducing IT investments and costs.
To promote additional market penetration of our products, we have
established strategic alliances with two of the largest independent systems
integrators, Andersen Consulting and 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.
1
<PAGE> 6
THE OFFERING
Common stock offered.................. shares
Common stock to be outstanding after
this offering......................... 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 12,307,314 shares at a weighted average exercise
price of $2.04 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.
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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) (25,296)
Net income (loss)...................................... 506 (11,243) (25,811)
Basic and diluted net income (loss) per share available
to common shareholders............................... $ .01 $ (.27) $ (.61)
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 shares of common stock in this offering at an assumed
public offering price of $ 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
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,572 $ 1,572 $
Working capital (deficit)............................ (1,917) (1,917)
Total assets......................................... 29,852 29,852
Deferred revenue..................................... 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)
</TABLE>
3
<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.
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*Gate software suite.
Accordingly, our future operating results will depend on the demand for e*Gate
by future customers, including new and enhanced releases that are subsequently
introduced. Our 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*Gate in performance or price, or if we fail to enhance
e*Gate and introduce new products in a timely manner, demand for our products
may decline. A decline in demand for e*Gate as a result of these or other
factors would significantly reduce our revenues.
In the past, we have experienced delays in the commencement of commercial
releases of our e*Gate 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
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<PAGE> 9
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*Gate
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*Gate has been deployed to a greater extent
in intra-enterprise environments than in business-to-business environments. We
cannot assure you that e*Gate 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*Gate 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.
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 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
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<PAGE> 10
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 significantly limit our ability
to meet our customers' implementation needs and increase our expenses. 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*Gate product. 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.
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.
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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 business will
suffer. 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. If our operating results are below the
expectations of securities analysts or investors, our stock price is likely to
decline, perhaps substantially. 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.
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 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. The
loss of any of our senior management or other key research
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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.
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 20.3% of our total revenues in 1998 and 27.1% of our total
revenues 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;
- unexpected changes in regulatory requirements, including imposition of
currency exchange controls, applicable to our business or to the
Internet;
- difficulties and costs of staffing and managing international operations;
- political and economic instability; 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.
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.
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;
8
<PAGE> 13
- 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*Gate software. We
expect to earn substantially all of our revenues in the foreseeable future from
sales of e*Gate 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 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
9
<PAGE> 14
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 shares of our common stock that are not
being sold in the offering but which were outstanding as of December 31, 1999
will be eligible for sale into the public market:
<TABLE>
<CAPTION>
FIRST ELIGIBLE FOR SALE NUMBER
----------------------- --------
<S> <C>
On the date of this prospectus............................
180 days after the date of this prospectus................
At various times thereafter...............................
</TABLE>
Additional shares will be eligible for sale upon the exercise of
outstanding options or warrants to purchase 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 financing on favorable terms,
or at all. 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.
10
<PAGE> 15
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.
As a result, you may be unable to sell your shares of common stock at or
above the offering price. 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 % of our outstanding
common stock. Mr. Demetriades, together with our other executive officers,
directors and principal shareholders will beneficially own, in the aggregate,
approximately % 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
11
<PAGE> 16
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 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 $ in net tangible
book value per share of common stock, based on the assumed initial public
offering price of $ 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.
12
<PAGE> 17
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering will be
approximately $ million, or approximately $ million if the underwriters'
over-allotment option is exercised in full, at an assumed initial public
offering price of $ 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.
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.
13
<PAGE> 18
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 shares of common stock in this offering at an assumed
initial public offering price of $ 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; shares
issued and outstanding, pro forma as adjusted... 19,164 43,845
Deferred stock compensation........................ (5,078) (5,078)
Accumulated other comprehensive loss............... (237) (237)
Accumulated deficit................................ (42,270) (42,270)
-------- -------- --------
Total shareholders' equity (deficit)....... (28,421) (3,740)
-------- -------- --------
Total capitalization.................. $ (3,740) $ (3,740) $
======== ======== ========
</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 12,307,314 shares at a weighted average exercise
price of $2.04 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.
14
<PAGE> 19
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 shares
of common stock offered by this prospectus at an assumed initial public offering
price of $ 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 $ million or
$ per share. This represents an immediate decrease in net tangible book
value of $ 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............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $ (.06)
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution in pro forma net tangible book value per share to
new investors............................................. $
=======
</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 $ 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 % $33,771,000 % $.56
New investors..............
---------- --- ----------- ---
Total............ 100% $ 100%
========== === =========== ===
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options. 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 % of the total number of shares of our
common stock outstanding; and the number of shares held by new investors will
increase to , or approximately % of the total number of our
common stock outstanding after this offering.
In the preceding tables, the shares of common stock outstanding exclude:
- 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 12,307,314 shares at a weighted average exercise
price of $2.04 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.
15
<PAGE> 20
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................. -- -- -- -- 1,654
------- ------- -------- -------- --------
Total operating expenses............................... 8,557 13,055 16,398 33,998 55,286
------- ------- -------- -------- --------
Income (loss) from operations.............................. (122) (3,172) 779 (11,259) (25,296)
Interest income (expense), net............................. (103) (151) (263) 16 (515)
------- ------- -------- -------- --------
Income (loss) before provision for taxes................... (225) (3,323) 516 (11,243) (25,811)
Provision for income taxes................................. 72 (297) 10 -- --
------- ------- -------- -------- --------
Net income (loss).......................................... $ (297) $(3,026) $ 506 $(11,243) $(25,811)
======= ======= ======== ======== ========
Accretion on preferred stock............................... -- -- -- 686 2,410
------- ------- -------- -------- --------
Net income (loss) available to common shareholders......... $ (297) $(3,026) $ 506 $(11,929) $(28,221)
======= ======= ======== ======== ========
Basic and diluted net income (loss) per share available to
common shareholders...................................... $ (.01) $ (.08) $ .01 $ (.27) $ (.61)
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>
16
<PAGE> 21
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 provide a comprehensive solution for e-Business integration, enabling
the seamless flow of information across systems, applications and enterprises on
a global basis. We provide this solution to our customers primarily by licensing
our software and by offering software implementation and consulting services.
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 8% 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 our product line 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.
17
<PAGE> 22
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.
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. We 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
and EDS in January 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 the generation of STC
license revenues in the case of EDS. These warrants expire from July 2002 to
November 2003, and have a weighted average exercise price of $6.00 per share.
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 $6.0 million related to the valuation of
the remaining warrants to purchase 1,200,000 shares granted to EDS. 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 $5.2 million in 2000, $3.0 million in 2001 and $252,000 in 2002. The
amortization of the alliance warrants is classified as a separate component of
operating expenses in our consolidated statement of operations.
18
<PAGE> 23
In connection with stock option grants to our employees, we have recorded
deferred stock compensation totaling $4.3 million through December 31, 1999, of
which approximately $2.6 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>
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.
19
<PAGE> 24
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.
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
20
<PAGE> 25
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 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 $4.3 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.
21
<PAGE> 26
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.
22
<PAGE> 27
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..................... -- -- -- -- 3 622 479 550
------ ------- ------- ------- ------- ------- ------- --------
Total operating expenses......... 5,162 7,412 9,691 11,733 11,154 12,720 13,296 18,116
------ ------- ------- ------- ------- ------- ------- --------
Loss from operations................. (920) (1,700) (3,093) (5,546) (6,426) (5,834) (3,439) (9,599)
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) (10,038)
Provision for income taxes........... -- -- -- -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- --------
Net income (loss).................... $ (993) $(1,726) $(3,041) $(5,483) $(6,481) $(5,768) $(3,524) $(10,038)
====== ======= ======= ======= ======= ======= ======= ========
</TABLE>
23
<PAGE> 28
<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.
24
<PAGE> 29
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. 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 $32.0 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. 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. 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.
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
25
<PAGE> 30
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.
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. 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.
Our comprehensive e*Gate 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. 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. 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
B2B, integration, as well business process management capabilities. e*Gate
builds upon more than nine years of our dedication to the continuous development
of application and systems integration solutions within and among enterprises.
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. 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.
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 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 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.
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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 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.
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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*Gate 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 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. The e*Gate product suite can grow to manage the
transaction levels required for global e-Business with minimal technical or
administrative complexity. e*Gate's distributed architecture 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.
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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. The
e*Gate 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.
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*Gate 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*Gate 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.
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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*Gate solution enables our strategic partners
to offer readily deployable, repeatable e-Business solutions. Consistent with
our strategy to foster strategic alliances, Andersen Consulting 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, 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.
PRODUCTS
Our core solution, the e*Gate e-Business Integrator, provides the following
key capabilities:
- Enterprise Integration. Integration capabilities are the core of all
e*Gate offerings. Whether at the application, network or system level,
e*Gate 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*Gate Intelligent Adapters, enabling them to work
together. As opposed to solutions based upon "hub and spoke"
architectures, e*Gate'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*Gate'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*Gate supports a wide range of inter- and intra-business
processes. e*Gate 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*Gate 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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[Graphical depiction of STC's e*Gate e-Business Integrator product, 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 our e*Gate Enterprise Integrator 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*Gate 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 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.
- e*Gate 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. e*Gate Intelligent Bridges provide customers with a
fast and predictable time-to-market advantage. Examples of e*Gate
Intelligent Bridges include the PeopleSoft-to-SAP Intelligent Bridge and
the Siebel-to-SAP Intelligent Bridge.
- e*Gate Xchange (e*Xchange) 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.
- e*Gate Index (e*Index) 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*Gate. 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*Gate product suite. In particular, we
are focused on enhancing the functionality of e*Gate 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*Gate 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 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 $7.6 million, or 20% of our total revenues in 1998 and
$15.1 million, or 27% of our total revenues 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.
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 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.
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Solution: Barnes & Noble.com entered into a multi-year software and support
agreement with STC to use e*Gate to enable and manage the information flow among
their multiple systems and the Web. The e*Gate 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*Gate 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*Gate 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*Gate with hundreds more to
follow. Applications sharing information through e*Gate 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.
Solution: WestLB Electronic Banking Services implemented e*Gate to create a
fully integrated electronic banking environment. e*Gate 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*Gate can handle electronic data transfers in any format, enabling
centralized
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treasury functions and conversion of payment orders into international formats,
sending them directly into the clearing systems of those countries for
processing. e*Gate 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*Gate
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*Gate 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*Gate.
STRATEGIC ALLIANCES WITH LEADING SYSTEMS INTEGRATORS
To promote additional market penetration of our products, we have
established strategic relationships with two of the largest independent systems
integrators, Andersen Consulting 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 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
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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, CSC,
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 the e*Gate suite of products and applications. 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.
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
36
<PAGE> 41
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*Gate product. 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.
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
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<PAGE> 42
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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<PAGE> 43
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 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 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 as President of the Employer Services division. Ms. Mitchell holds a
B.A. degree in economics from Newton College (later merged with Boston College).
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<PAGE> 44
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. He has published numerous technical
articles, and is an invited contributor to technical handbooks and
encyclopedias. Mr. Demetriades continues 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. 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. 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
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<PAGE> 45
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. 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.
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. 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.
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. Mr. Laurin holds a B.A. degree from California State
University, Fullerton.
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<PAGE> 46
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.
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.
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
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<PAGE> 47
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 -- 900,000 --
President, Americas(4)
Rangaswamy Srihari....... 187,500 58,500 202,436(5) 60,000 --
Vice President,
Engineering and Chief
Technology Officer
Kathleen Mitchell........ 158,045 37,500 -- 780,000 --
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.
(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.
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<PAGE> 48
(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 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.
(3) The option granted to Mr. Hoffman vests and is exercisable as follows:
vested with respect to 225,000 shares on May 14, 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 May 14, 1999, with the remainder
vesting in four equal annual installments beginning on the first anniversary
thereafter.
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<PAGE> 49
(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
$ 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 -- $ $
Paul J. Hoffman........................... 225,000 1,125,000
Rangaswamy Srihari........................ 157,500 202,500
Kathleen Mitchell......................... 45,000 1,125,000
Stephen Edwards........................... -- --
</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.
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.
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<PAGE> 50
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.
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
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<PAGE> 51
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.
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
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<PAGE> 52
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> 53
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
Funds affiliated with Storie
Partners.......................... -- 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. Murdock, a director of
STC, is a partner of InSight Capital Partners. 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. 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> 54
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 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% %
Norwest Venture Partners VI, L.P.(2)........................ 7,272,446 12.0
George J. Still
245 Lytton Avenue, Suite 250
Palo Alto, California 94301
Storie Partners, L.P.(3).................................... 5,239,007 8.6
Steven A. Ledger
100 Pine Street, Suite 2700
San Francisco, California 94111
InSight Capital Partners(4)................................. 2,397,961 3.9
Jerry F. Murdock
122 E. 42nd Street, Suite 2300
New York, New York 10168
Sterge T. Demetriades(5).................................... 1,192,986 2.0
Andersen Consulting LLP(6).................................. 1,044,597 1.7
Jack L. Wilson
1661 Page Mill Road
Palo Alto, CA 94304
Salah M. Hassanein(7)....................................... 937,143 1.5
Raymond J. Lane(8).......................................... 686,924 1.1
Paul J. Hoffman(9).......................................... 225,000 *
Rangaswamy Srihari(10)...................................... 157,500 *
Kathleen Mitchell(11)....................................... 45,000 *
Richard L. deNey............................................ -- *
Stephen Edwards............................................. -- *
All directors and officers as a group (13 persons).......... 49,615,542 79.0
</TABLE>
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<PAGE> 55
- -------------------------
* less than 1% of the outstanding shares of common stock.
(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 has voting and
dispositive power over.
(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.
(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.
(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.
(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 has voting and dispositive
power over.
(6) Includes 409,500 shares issuable upon the exercise of warrants which are
exercisable within 60 days of January 31, 2000.
(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.
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<PAGE> 56
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,
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 Act. In our registration subsequent to this offering, the
underwriters may, for marketing reasons, limit the
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<PAGE> 57
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.
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.
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<PAGE> 58
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.
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<PAGE> 59
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 the offering, we will have outstanding
shares of common stock. Of these shares, the shares sold in the
offering, plus any shares issued upon exercise of the underwriters'
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 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, only the shares sold in the
offering will be immediately available for sale in the public market.
- beginning 180 days after the date of this prospectus, an additional
shares will be freely tradeable pursuant to Rule 144(k),
and an additional 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 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.
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<PAGE> 60
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.
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 shares of common stock, of which options to
purchase approximately shares were vested and exercisable.
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<PAGE> 61
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.....................................................
========
</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.
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
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.
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
57
<PAGE> 62
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.
58
<PAGE> 63
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 report, 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.
59
<PAGE> 64
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> 65
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.
ERNST & YOUNG LLP
Woodland Hills, California
February 11, 2000, except for Note 10, as to which the date is February ,
2000.
The foregoing report is in the form that will be signed upon completion of the
restatement of capital accounts described in Note 10 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
February 17, 2000
F-2
<PAGE> 66
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 19,164 43,845
Deferred stock compensation.................... -- (5,078) (5,078)
Accumulated other comprehensive loss........... (52) (237) (237)
Accumulated deficit............................ (14,049) (42,270) (42,270)
-------- -------- --------
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> 67
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.............................................. 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.............................. 4,242 8,496 11,990
Sales and marketing................................... 6,849 16,273 28,652
General and administrative............................ 5,307 9,229 12,176
Amortization of alliance warrants..................... -- -- 814
Amortization of stock-based compensation.............. -- -- 1,654
------- -------- --------
Total operating expenses...................... 16,398 33,998 55,286
------- -------- --------
Income (loss) from operations........................... 779 (11,259) (25,296)
Interest and other income............................... 14 217 165
Interest expense........................................ (277) (201) (680)
------- -------- --------
Income (loss) before provision for income taxes......... 516 (11,243) (25,811)
Provision for income taxes.............................. 10 -- --
------- -------- --------
Net income (loss)....................................... 506 (11,243) (25,811)
------- -------- --------
Accretion on preferred stock............................ -- 686 2,410
------- -------- --------
Net income (loss) available to common shareholders...... $ 506 $(11,929) $(28,221)
======= ======== ========
Basic and diluted net income (loss) per share........... $ 0.01 $ (0.27) $ (0.61)
======= ======== ========
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> 68
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............................... -- -- -- -- (25,811) (25,811)
Foreign currency translation
adjustment........................... -- -- -- (185) -- (185)
--------
Total comprehensive loss........... (25,996)
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.......................... -- 4,290 (4,290) -- -- --
Amortization of deferred stock
compensation........................... -- -- 1,654 -- -- 1,654
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 $19,164 $(5,078) $(237) $(42,270) $(28,421)
====== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 69
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) $(25,811)
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............... -- -- 1,654
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> 70
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> 71
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,
the "AICPA", issued Statement of Position ("SOP 97-2"), Software Revenue
Recognition. SOP 97-2 became effective for fiscal years beginning after December
15, 1997 and 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." The SOP amends certain
provisions of SOP 97-2. The provisions of SOP 98-9 were adopted by the Company
effective as of January 1, 1999.
The adoption of these statements, as amended, did not have a material
impact on the Company's operating results, financial position or cash flows.
License revenues consist primarily of revenue earned under software license
agreements. License revenue is generally recognized when an agreement has been
signed by both parties, the fees are fixed or determinable, collection of the
fees is probable, delivery of the product has occurred and no other significant
obligations remain.
Revenues from services are comprised of consulting and implementation
services and training. Consulting revenues are generally sold on a
time-and-materials basis or a fixed fee basis. 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.
F-8
<PAGE> 72
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
If services and maintenance are included in an arrangement that includes a
license agreement, amounts related to the services and maintenance are allocated
based on vendor-specific objective evidence of the fair value of the element. If
an element of a license agreement has not been delivered, revenue for that
element is deferred. Vendor-specific objective evidence of fair value of an
element is based on the price charged when such element is sold separately. If
vendor-specific objective evidence of fair value does not exist, all revenue is
deferred until sufficient objective evidence exists or all elements have been
delivered.
Prior to January 1, 1998, the Company recognized revenue in accordance with
the provisions of the AICPA's SOP 91-1, "Software Revenue Recognition."
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.
F-9
<PAGE> 73
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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).
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
F-10
<PAGE> 74
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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 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>
F-11
<PAGE> 75
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<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 operating income (loss).............. $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.
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) $(25,811)
Accretion on preferred stock............... -- 686 2,410
------- -------- --------
Net income (loss) available to common
stockholders............................. $ 506 $(11,929) $(28,221)
======= ======== ========
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) $ (0.61)
======= ======== ========
</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.
F-12
<PAGE> 76
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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.
F-13
<PAGE> 77
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-14
<PAGE> 78
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-15
<PAGE> 79
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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.
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 13,815,903 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.
F-16
<PAGE> 80
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1.17
Cancelled............................................ (205,200) 1.15
Exercised............................................ (15,903) .22
----------
Outstanding as of December 31, 1997.................... 4,753,166 1.15
Granted.............................................. 4,654,350 1.37
Cancelled............................................ (1,400,175) 1.33
Exercised............................................ (13,500) 1.15
----------
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>
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, 1,363,500, 2,356,500
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>
F-17
<PAGE> 81
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $1.17 $0.35 $1.37 $0.74 $3.22
Exercise price was less than
market value of stock at date
of grant....................... $ -- $ -- $ -- $ -- $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).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
---- -------- --------
<S> <C> <C> <C>
Net income (loss), as reported............................ $506 $(11,243) $(25,811)
Pro forma net income (loss)............................... $ 95 $(11,508) $(27,097)
Pro forma net income (loss) available to common
shareholders............................................ $ 95 $(12,194) $(29,507)
Pro forma basic and diluted net (income) loss per share... $ -- $ (0.28) $ (0.50)
</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*Gate 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
F-18
<PAGE> 82
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 $4,290,000, 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
$1,654,000 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.
F-19
<PAGE> 83
SOFTWARE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Warrant Grant
In January 2000, the Company issued a warrant (the "2000 Alliance Warrant")
to a second strategic alliance partner to purchase 1,200,000 shares of common
stock at $6.67 per share. The 2000 Alliance Warrant vests contingently upon the
achievement of various milestones, primarily the generation of license revenue
for the Company, and expires on July 31, 2002. The 2000 Alliance Warrant
contains a significant economic disincentive for non-performance, and,
accordingly, the fair value of the 2000 Alliance Warrant will be measured at the
date of grant in accordance with Emerging Issues Task Force No. 96-18. The fair
value of the 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.
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-20
<PAGE> 84
[STC Logo]
<PAGE> 85
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........................................ $ 26,400
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................................ 250,000
Blue Sky Fees and Expenses.................................. 15,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous............................................... 93,100
----------
Total............................................. $1,300,000
==========
</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.
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.
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.
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.
II-1
<PAGE> 86
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.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act. The recipients of securities in each 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.
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 (included in page II-5).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Report of Independent Auditors, Ernst & Young LLP
Schedule II
II-2
<PAGE> 87
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> 88
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 February 17, 2000.
SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ JAMES T. DEMETRIADES
---------------------------------------
Name: James T. Demetriades
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, James T.
Demetriades and Barry J. Plaga, and each of them, as his attorney-in-fact, with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this registration statement (including post-effective
amendments), and any and all registration statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this registration statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said registration statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on February 17, 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
</TABLE>
II-4
<PAGE> 89
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Software
Technologies Corporation 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 (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> 90
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> 91
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.
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 (included in page II-5).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
SOFTWARE TECHNOLOGIES CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is made as of this ____ day
of ______________ by and between Software Technologies Corporation, a California
corporation (the "COMPANY"), and [_____________________________] ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the limitations in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting officers and directors to
expensive litigation risks at the same time as liability insurance has been
limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by Indemnitee in
connection with such action or proceeding if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, or (ii) with respect to any
criminal action or proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of
-1-
<PAGE> 2
the Company, or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while an officer or director or by reason of
the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
and, to the fullest extent permitted by law, amounts paid in settlement, in each
case to the extent actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or proceeding if Indemnitee acted
in good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company and its shareholders, except that
no indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court orders or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification is or will be sought under this Agreement.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). Notice
shall be deemed received three (3) business days after the date postmarked if
sent by domestic certified or registered mail, properly addressed; otherwise
notice shall be deemed received when such notice shall actually be received by
the Company. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee (or at such earlier time as
is provided in the applicable section). If a claim under this Agreement, under
any statute, or under any provision of the Company's Articles of Incorporation
or Bylaws providing for indemnification, is not paid in full by the Company
within the time allowed, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) of bringing such action.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action or
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Subsection 2(a) unless and
until such defense may be finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the parties' intention that if
the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its shareholders) to have made a determination that indemnification of
Indemnitee is proper in the
-2-
<PAGE> 3
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its shareholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
under Section 2(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, which approval shall
not be reasonably withheld, upon the delivery to Indemnitee of written notice of
its election so to do. Notwithstanding the foregoing, the Company shall not be
permitted to settle any action or claim on behalf of Indemnitee in any manner
which would require any acknowledgment of wrongdoing on the part of Indemnitee
without Indemnitee's written consent, which consent shall not be unreasonably
withheld. After delivery of such notice, approval of such counsel by Indemnitee
and the retention of such counsel by the Company, the Company will not be liable
to Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule which
expands the right of a California corporation to indemnify a member of its Board
of Directors, an officer or other corporate agent, such changes shall be ipso
facto, within the preview of Indemnitee's rights and Company's obligations,
under this Agreement. In the event of any change in any applicable law, statute
or rule which narrows the right of a California corporation to indemnify a
member of its Board of Directors, an officer or other corporate agent, such
changes, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement shall have no effect on this Agreement or the parties'
rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested Directors, the Corporation Law of the
State of California, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
-3-
<PAGE> 4
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of liability under the
California General Corporation Law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit.
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<PAGE> 5
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement), but
such exception shall only apply to the extent such expenses or liabilities have
been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company, provided
that such limitation shall not apply to any expenses incurred by Indemnitee
which except for this paragraph would be paid hereunder and which remain
outstanding after all payments are received from an insurance company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall constitute an original.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this
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<PAGE> 6
Agreement, Indemnitee shall be entitled to be paid all costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee in defense of such
action (including with respect to Indemnitee's counterclaims and cross-claims
made in such action), unless as a part of such action the court determines that
each of Indemnitee's material defenses to such action were made in bad faith or
were frivolous.
13. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
14. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
15. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
16. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable to
corporation effectively to bring suit to enforce such rights.
17. CONTINUATION OF INDEMNIFICATION. All agreements and obligations of
the Company contained herein shall continue during the period that Indemnitee is
a director, officer or agent of the Company and shall continue thereafter so
long as Indemnitee shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Indemnitee was
serving in the capacity referred to herein.
18. AMENDMENT AND TERMINATION. Subject to Section 17, no amendment,
modification, termination or cancellation of this Agreement shall be effective
unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SOFTWARE TECHNOLOGIES CORPORATION
By:
-----------------------------------
Title:
--------------------------------
Address: 404 East Huntington Drive
Monrovia, California 91016
AGREED TO AND ACCEPTED:
INDEMNITEE:
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<PAGE> 7
- -----------------------------------
(Signature)
Address:
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<PAGE> 1
EXHIBIT 10.2
1997 STOCK OPTION PLAN
OF
SOFTWARE TECHNOLOGIES CORPORATION
1. PURPOSE.
This 1997 Stock Option Plan (the "Plan") is intended to allow
directors, consultants and employees of Software Technologies Corporation
("STC" or the "Company" herein) and Subsidiaries which it may have from time to
time (together the "Company") to be granted certain options to purchase shares
of STC common stock ("Stock Options") which shall be (a) incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("Incentive Stock Options") or (b) Nonstatutory Stock
Options (sometimes referred to as restricted or non-qualified stock options).
The purpose of the Plan is to provide its directors, consultants and employees
with additional incentives to make valuable contributions to the long term
performance and growth of the company and to attract and retain directors,
consultants and employees of ability. Awards to employees from time to time may
be concentrated among officers and key management employees. Individuals
receiving awards under the Plan are herein referred to as "Participants".
"Subsidiary" herein means a corporation which is a subsidiary as defined in IRC
section 424(f); namely, any corporation in an unbroken chain of corporations
beginning with STC, if at the time of the award each of the corporations other
than the last in the chain owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. ADMINISTRATION.
2.1 The Plan shall be administered by the Board of Directors of STC
(the "Board"), or by a committee consisting of two or more members of the Board
(the Board, or, if applicable, the Committee administering the Plan shall
hereinafter be referred to as the "Committee"). If and when the Company becomes
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), all Committee members must qualify as non-employee directors,
as that term is defined in Rule 16b-32 promulgated by the Securities and
Exchange Commission (the "Commission") pursuant to the Exchange Act.
Notwithstanding the foregoing, no action of the Committee shall be invalid if
the non-employee director requirement in the preceding sentence is not met. The
Committee shall select one of its members as Chairman and shall act by vote of a
majority of a quorum, or by unanimous written consent. A majority of its members
shall constitute a quorum. The Committee shall be governed by the provisions of
STC's Bylaws and of California law applicable to the Board, except as otherwise
provided herein or determined by the Board.
2.2 Subject to complying with applicable federal and state
securities laws, rules and regulations including applicable exemptions, and
subject to qualifying Incentive Stock Options for favorable tax treatment under
Section 422 of the Code, the Committee
<PAGE> 2
shall have full and complete authority, in its discretion, but subject to
the express provisions of the Plan set out herein below: to approve the
Optionees nominated by the management of the Company to be granted Stock
Options; to determine the number of Stock Options to be granted to an
Optionee; to determine the time or times at which Stock Options shall be
granted; to establish the terms and conditions upon which Stock Options may
be exercised and upon which the underlying shares may be issued; to
establish the terms and conditions upon which Stock Options may vest; to
remove or adjust any restrictions and conditions upon Stock Options; to
specify, at the time of grant, provisions relating to exercisability of
Stock Options and to accelerate or otherwise modify the exercisability of
any Stock Options; and to adopt such rules and regulations and to make all
other determinations deemed necessary or desirable for the administration
of the Plan. All interpretations and constructions of the Plan by the
Committee, and all of its actions hereunder, shall be binding and
conclusive on all persons for all purposes.
2.3 The Company hereby agrees to indemnify and hold harmless each
Board member, each Committee member and each employee of the Company, and
the estate and heirs of such persons against all claims, liabilities,
expenses, penalties, damages or other pecuniary losses, including legal
fees incurred or suffered by such persons as a result of his or her
responsibilities, obligations or duties in connection with the Plan, to the
extent that insurance, if any, does not cover the payment of such items.
3. ELIGIBILITY AND PARTICIPATION.
Any employee (including any officer) of the Company shall be eligible
to receive grants of Stock Options which qualify as Incentive Stock Options
under the Plan.
Incentive Stock Options and Nonstatutory Stock Options shall be
granted only to those Board members, consultants, employees and officers
who qualify for an exemption under applicable federal and state (including
California) securities laws, rules and regulations.
4. GRANTS AND CERTAIN LIMITATIONS.
4.1 While normally the Committee will grant Incentive Stock Options
to employees, it shall have the discretion to grant Stock Options which are
Nonstatutory Stock options to any eligible individual. Stock Options shall
be appropriately designated by the Committee at the time of grant.
The aggregate fair market value (determined as of the time an
Incentive Stock Option is granted) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any
Employee during any one calendar year (under all plans of the Company and
any parent or subsidiary of the Company) may not
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<PAGE> 3
exceed the maximum amount permitted under Section 422 of the Code (currently
$100,000.00). Nonstatutory Stock options shall not be subject to the
limitations relating to incentive stock options contained in the preceding
sentence.
4.2 Subject to the provisions of paragraph 11 hereof, the number of
shares of Common Stock issued and issuable pursuant to the exercise of Stock
Options granted in any year hereunder shall not exceed 30% of the then
outstanding shares of common stock of STC (after giving effect to the
conversion of any outstanding convertible preferred or convertible senior
common shares) or such lesser percent as may be determined by the Board but in
no event shall exceed 1,700,000 shares. Each Stock Option shall be evidenced by
a written agreement (the "Option Agreement") in a form approved by the
Committee, which shall be executed on behalf of the Company and by the Optionee
to whom the Stock Option is granted.
4.3 If a Stock Option expires, terminates or is cancelled for any
reason without having been exercised in full, the shares of Common Stock not
purchased thereunder shall again be available for purposes of the Plan.
5. EXERCISE OF OPTION PURCHASE PRICE.
The purchase price (the "Exercise Price") of shares of Common Stock
subject to each Stock Option ("Option Shares") shall be equal to (a) 100% of
the fair market value ("Fair Market Value") of such shares as determined by the
Committee as of the date of grant of any Incentive Stock Option and (b) at
least 85% of the Fair Market Value of such shares as determined by the Committee
as of the date of grant of any Nonstatutory Stock Option. Notwithstanding the
foregoing, the Exercise Price of Option Shares subject to an Incentive Stock
Option granted to an Optionee who at the time of grant owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or of any parent or Subsidiary shall be at least equal to 110% of the
Fair Market Value of such shares on the date of grant of such Stock Option.
6. TERM OF OPTION.
The Stock Option period (the "Term") shall be ten years commencing on
the date of grant of the Stock Option or such shorter period as is determined
by the Committee at the time of the grant. Such provisions need not be uniform.
Notwithstanding the foregoing, the Term of an Incentive Stock Option granted to
an Optionee who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary shall not exceed five years. Each Stock Option shall
provide that it will vest and be exercisable in such installments as the
Committee in its sole discretion may determine; provided that Incentive Stock
Options granted hereunder shall vest and be exercisable at the rate of at least
20% per year measured from the date of grant. If an Optionee shall not in any
period purchase all of the Option Shares which such Optionee is entitled to
purchase in such period, such Optionee may
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<PAGE> 4
purchase all or any part of such Option Shares at any time prior to the
expiration of the Stock Option.
7. EXERCISE OF OPTIONS.
7.1 Each Stock Option may be exercised in whole or in part (but not
as to fractional shares) by delivering it for surrender or endorsement to the
Company, attention of the Chief Financial Officer, at the principal office of
the Company, together with payment of the Exercise Price and an executed Notice
and Agreement of Exercise in the form prescribed by paragraph 7.2. Payment may
be made in cash, by cashier's or certified check, or by surrender of
outstanding shares of the Company's Common Stock valued pursuant to paragraph 5
(if the Committee authorizes payment in stock).
7.2 Exercise of each Stock Option is conditioned upon the agreement
of the Optionee to the terms and conditions of this Plan, the Option Agreement
and by the execution and delivery of a Notice and Agreement of Exercise in a
form to be determined by the Committee in its discretion. Such Notice and
Agreement of Exercise shall set forth the agreement of the Optionee that: (a)
no Option Shares will be sold or otherwise distributed in violation of the
Securities Act of 1933 (the "Securities Act") or any other applicable federal
or state securities laws, (b) each Option Share certificate may be imprinted
with legends reflecting any applicable federal and state securities law
restrictions and conditions, (c) the Company may comply with said securities
law restrictions and issue "stop transfer" instructions to its Transfer Agent
and Registrar without liability and (e) the Optionee will notify the Company in
writing, to the attention of the Chief Financial Officer, at least ten days in
advance of any proposed transfer or sale of any option shares, (f) if the
Participant is subject to reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, the Participant will furnish to the Company a
copy of each Form 4 or Form 5 filed by him and will timely file all reports
required under federal securities laws.
7.3 No Stock Option shall be exercisable unless and until any
applicable registration or qualification requirements of federal and state
securities laws, and all other legal requirements, have been fully complied
with, or an exemption therefrom in the opinion of counsel to the Company is
available for the issuance of Stock Options and Option Shares. At such time as
the Company is eligible to file a Registration Statement on Form S-8 covering
the issuance of Stock Options and Options Shares, the Company will use
reasonable efforts to maintain the effectiveness of such Registration Statement
under the Securities Act, but there may be times when no such Registration
Statement will be currently effective. The exercise of Stock Options may be
temporarily suspended without liability to the Company during times when no such
Registration Statement is currently effective, or during times when, in the
reasonable opinion of the Committee, such suspension is necessary to preclude
violation of any requirements of applicable law or regulatory bodies having
jurisdiction over the Company. If any Stock Option would expire for any reason
except the end of its term during such a suspension, then if exercise of such
Stock Option is duly tendered before its expiration, such Stock Option shall be
exercisable and exercised (unless the attempted exercise
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<PAGE> 5
is withdrawn) as of the first day after the end of such suspension. The Company
shall have no obligation to file any Registration Statement covering resales of
Option Shares.
8. EMPLOYMENT REQUIREMENTS.
Unless otherwise provided by the Committee, except as provided in
paragraph 10 below, a Stock Option granted to an Employee may not be exercised
unless at all times during the period from the date of grant and ending on the
day 3 months before the date of exercise such Employee was an employee of the
Company. For purposes of this Paragraph 8, the period of continuous employment
of an Employee with the Company shall be deemed to include (without extending
the term of the Stock Option) any period during which such Employee is on leave
of absence with the consent of the Company, provided that such leave of absence
shall not exceed three (3) months and that such Employee returns to the employ
of the Company at the expiration of such leave of absence. If such Employee
fails to return to the employ of the Company at the expiration of such leave of
absence, such Employee's employment with the Company shall be deemed terminated
as of the date such leave of absence commenced.
The continuous employment of an Employee with the Company shall also
be deemed to include any period during which such Employee is a member of the
Armed Forces of the United States, provided that such Employee returns to the
employ of the Company within ninety (90) days (or such longer period as may be
prescribed by law) from the date such Employee first becomes entitled to
discharge. If an Employee does not return to the employ of the Company within
ninety (90) days (or such longer period as may be prescribed by law) from the
date such Employee first becomes entitled to discharge from the Armed Forces,
such Employee's employment with the Company shall be deemed to have terminated
as of the date such Employee's military service ended.
9. RESTRICTIONS ON TRANSFER.
Each Stock Option granted under this Plan, except as expressly
provided by the Committee with respect to Nonstatutory Stock Options, under
this Plan shall be transferable only by will or the laws of descent and
distribution. No interest of any Optionee under the Plan shall be subject to
attachment, execution, garnishment, sequestration, the laws of bankruptcy or
any other legal or equitable process. Each Stock Option granted under this Plan
shall be exercisable during an Optionee's lifetime only by such Optionee or by
such Optionee's legal representative.
10. TERMINATION OF EMPLOYMENT.
10.1 Unless otherwise provided by the Committee with respect to
Nonstatutory Stock Options, upon the termination of the employment of an
Employee with the Company for any reason other than for Disability as described
in paragraph 10.2 below, (a) all Stock Options to the extent then presently
exercisable by such Employee shall remain
Page 5 of 10
<PAGE> 6
exercisable only for a period ending within three months after the date of such
termination of employment (except that the three months period shall be extended
to six (6) months if the Employee shall die during such three months period),
and (b) all Stock Options of such Employee not then vested shall terminate as
of the date of such termination of employment and shall not be exercisable
thereafter.
10.2 In the case of an Employee terminated because of disability as
defined in Section 22(e) of the code the three month period described in
Section 10.1 above shall be one year.
10.3 "Disability" under Section 22(e) of the Code means the total and
permanent incapacity of an Employee, due to physical impairment or legally
established mental incompetence, to perform the duties of such Employee's
employment with the Company. In reaching such determination, the Committee may
rely on medical evidence by a licensed physician designated by the Committee.
11. ADJUSTMENT UPON CHANGE IN CAPITALIZATION.
11.1 The number and class of shares subject to each outstanding Stock
Option, the Exercise Price thereof (but not the total price), the maximum
number of Stock Options that may be granted under the Plan, and the minimum
number of shares as to which a Stock Option may be exercised at any one time,
shall be proportionately adjusted in the event of any increase or decrease in
the number of the issued shares of Common Stock which results from a split-up
or consolidation of shares, payment of a stock dividend or dividends, a
recapitalization (other than the conversion of convertible securities according
to their terms), a combination of shares or other like capital adjustment, so
that upon exercise of the Stock Option, the Optionee shall receive the number
and class of such shares such Optionee would have received had such Optionee
been the holder of the number of shares of Common Stock for which the Stock
Option is being exercised upon the date of such change or increase or decrease
in the number of issued shares of the Company.
11.2 Upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which STC is not the surviving
corporation, or in which STC survives as a wholly-owned subsidiary of another
corporation, or upon a sale of all or substantially all of the property of the
Company to another corporation, or any dividend or distribution to shareholders
of the Company's assets in kind (other than a regular cash dividend, if any),
adequate adjustment or other provisions shall be made by the Company or other
party to such transaction so that there shall remain and/or be substituted for
the Option Shares provided for herein, the shares, securities or assets which
would have been issuable or payable in respect of or in exchange for such Option
Shares then remaining, as if the Optionee had been the owner of such shares as
of the applicable date. Any securities so substituted shall be subject to
similar successive adjustments.
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<PAGE> 7
11.3 In the sole discretion of the Committee, Stock Options may
include provisions, on terms (which need not be uniform) authorized by the
Committee in its sole discretion, that accelerate the Optionees' rights to
exercise Stock Options upon a sale of substantially all of the Company's
assets, its dissolution or upon a change in the controlling shareholder
interest in STC resulting from a tender offer, reorganization, merger or
consolidation or from any other transaction or occurrence, whether or not
similar to the foregoing (each, a "Change in Control").
12. WITHHOLDING TAXES.
The Company shall have the right at the time of exercise of any Stock
Option which is then not an Incentive Stock Option to make adequate provision
for any federal, state, local or foreign taxes which it believes are or may be
required by law to be withheld with respect to such exercise ("Tax Liability"),
to ensure the payment of such Tax Liability. The Company may provide for the
payment of any Tax Liability by any of the following means or a combination of
such means, as determined by the Committee in its sole and absolute discretion
in the particular case: (i) by requiring the Optionee to tender a cash payment
to the Company, (ii) by withholding from the Optionee's salary, (iii) by
withholding from the Option Shares which would otherwise be issuable upon
exercise of the Stock Option that number of Option Shares having an aggregate
fair market value (determined in the manner prescribed by paragraph 5) as of
the date the withholding tax obligation arises in an amount which is equal to
the Optionee's Tax Liability or (iv) by any other method deemed appropriate by
the Committee.
13. RELATIONSHIP TO OTHER EMPLOYEE BENEFIT PLANS.
Stock Options granted hereunder shall not be deemed to be salary or
other compensation to any Optionee for purposes of any pension, thrift,
profit-sharing, stock purchase or any other employee benefit plan now
maintained or hereafter adopted by the Company.
14. AMENDMENTS AND TERMINATION.
The Board of Directors may at any time suspend, amend or terminate
this Plan. No amendment or modification of this Plan may be adopted, except
subject to shareholder approval, which would: (a) materially increase the
benefits accruing to Optionees under this Plan, (b) materially increase the
number of securities which may be issued under this Plan (except for adjustments
pursuant to paragraph 11 hereof), or (c) materially modify the requirements as
to eligibility for participation in the Plan.
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<PAGE> 8
15. SUCCESSORS IN INTEREST.
The provisions of this Plan and the actions of the Committee shall be
binding upon all heirs, successors and assigns of the Company and of each
Optionee.
16. OTHER DOCUMENTS.
All documents prepared, executed or delivered in connection with this
Plan shall be, in substance and form, as established and modified by the
committee or by persons under its direction and supervision; provided, however,
that all such documents shall be subject in every respect to the provisions of
this Plan, and in the event of any conflict between the terms of any such
document and this Plan, the provisions of this Plan shall prevail. All Stock
Options granted under the Plan shall be evidenced by written agreements
executed by the Company and the Optionees to whom the Stock Options have been
granted. Each agreement shall specify whether a Stock Option is an incentive
stock option or a nonstatutory stock option.
17. NO OBLIGATION TO CONTINUE EMPLOYMENT.
This Plan and grants hereunder shall not impose any obligation on the
Company to continue to employ any Optionee. Moreover, no provision of this Plan
or any document executed or delivered pursuant hereto shall be deemed modified
in any way by any employment contract between an Optionee (or other employee)
and the Company.
18. MISCONDUCT OF AN OPTIONEE.
Notwithstanding any other provision of this Plan, if an Optionee
commits fraud or dishonesty toward the Company or wrongfully uses or discloses
any trade secret, confidential data or other information proprietary to the
Company, or intentionally takes any other action materially inimical to the
best interests of the Company, as determined by the Committee, in its sole and
absolute discretion, such Optionee shall forfeit all rights and benefits under
this Plan.
19. TERM OF PLAN.
This Plan was adopted by the Board effective ___________, 1997. No
Stock Option may be granted under this Plan beyond ten years from that date,
and no Stock Option may be exercised later than ten years after its date of
grant.
20. GOVERNING LAW.
This Plan shall be construed in accordance with, and governed by, the
laws of the State of California.
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<PAGE> 9
21. SHAREHOLDER APPROVAL.
No Stock Option shall be exercisable unless and until the
shareholders of the Company have approved this Plan and all other legal
requirements have been fully complied with. The Company shall submit the Plan
to its shareholders for approval, within twelve (12) months of Board adoption
of the Plan, by holders of a majority of its common shares given by their
written consent or by vote at a shareholders meeting duly noticed and held.
While no stock option may be exercised until such shareholder consent has been
given, the date of the grant and the fair market value of the underlying shares
shall be as of the date the option is awarded by the Committee.
22. PRIVILEGES OF STOCK OWNERSHIP.
The holder of a Stock Option shall not be entitled to the
privileges of stock ownership as to any shares of the Company Common Stock not
actually issued to such holder.
23. ANNUAL FINANCIAL STATEMENTS.
STC will deliver to each holder of a Stock Option granted hereunder
a copy of its annual financial statement each year when completed.
24. COMPLIANCE WITH TAX AND SECURITIES LAWS.
STC adopts this plan so that Incentive Stock Options granted under
it will comply with Section 422 of the Code. Incentive Stock Options and
Nonstatutory Stock Options shall be granted and shares shall be issued upon
exercise thereof only when under the circumstances the grant and issuance are
exempt from or qualify under applicable federal
Page 9 of 10
<PAGE> 10
and state securities laws, rules and regulations. Consequently, the Committee
shall administer, and interpret the Plan in order to comply with all such
applicable federal and state exemptions.
Page 10 of 10
<PAGE> 1
EXHIBIT 10.3
SOFTWARE TECHNOLOGIES CORPORATION
1998 STOCK PLAN
(AS AMENDED AND RESTATED)
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Software Technologies Corporation, a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
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(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
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(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
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<PAGE> 4
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 13,725,903 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
The number of Shares reserved for issuance under the Plan shall
increase annually on the first day of the Company's fiscal year beginning in
2001 by an amount of Shares equal to the lesser of (i) 6,000,000 Shares (ii) 5%
of the outstanding Shares on such date or (iii) an amount determined by the
Board. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
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<PAGE> 5
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
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<PAGE> 6
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than [________] Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional [________]
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an
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<PAGE> 7
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
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<PAGE> 8
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the
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<PAGE> 9
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
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(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
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(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
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15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE> 1
EXHIBIT 10.5
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
November 15, 2003
SOFTWARE TECHNOLOGIES CORPORATION
WARRANT TO PURCHASE SHARES OF COMMON STOCK
This Warrant is issued to Andersen Consulting LLP ("AC") by Software
Technologies Corporation, a California corporation (the "Company"), on November
16, 1999 (the "Warrant Issue Date"). This Warrant is issued pursuant to the
terms of that certain Warrant Purchase Agreement (the "Purchase Agreement")
dated as of November 16, 1999.
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 800,000 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
$8.00, as adjusted from time to time pursuant to Section 8 hereof (the "Exercise
Price").
3. Exercise Period. This Warrant may be exercised at the sole discretion
of AC (subject to the conditions set forth herein) upon 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
Company to persons or entities that were not shareholders of the Company prior
to such transaction (a "Merger") or (iii) November 15, 2000; and this Warrant
shall remain so exercisable until the earliest to occur of (x) November 15,
2003, (y) the date of the closing of the Company's Asset Sale, or (z) the date
of the closing of the Company's Merger.
<PAGE> 2
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 a vesting schedule to be agreed upon
by the Company and AC. 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 800,000 shares on or prior to May 15,
2000, then AC shall be obligated to make a one-time payment to the Company of
$1.0 million. Such payment shall be made by AC to the Company by check or wire
transfer no later than May 25, 2000. Any such payment made under this provision
by AC shall have no effect on the exercisability of any portion of this Warrant
that had previously become exercisable.
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:
(1) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(2) 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:
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
-2-
<PAGE> 3
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. 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 IPO and prior to the closing of such IPO, 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 thirty (30) 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:
(i) 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 or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Common Stock as a dividend 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.
(ii) 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
-3-
<PAGE> 4
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.
(iii) 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. 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.
10. 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.
11. 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 its successors and assigns. This Warrant cannot be assigned by AC
without the express written consent of the Company. Notwithstanding the
foregoing, this Warrant may be assigned, sold or otherwise transferred to an
affiliate of AC, 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.
12. 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 AC. Any waiver or amendment effected in
accordance with this Section shall be binding upon AC, 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.
13. 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. 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.
-4-
<PAGE> 5
14. 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.
SOFTWARE TECHNOLOGIES CORPORATION
By: /S/ JAMES DEMETRIADES
---------------------------------
James Demetriades
Chief Executive Officer
-5-
<PAGE> 6
SOFTWARE TECHNOLOGIES CORPORATION
404 E. HUNTINGTON DRIVE
MONROVIA, CA 91016
November 16, 1999
Andersen Consulting LLP
1661 Page Mill Road
Palo Alto, CA 94304
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 (the "Company") that may be purchased upon exercise of
that certain Warrant to Purchase Shares of Common Stock dated as of November 16,
1999 (the "Warrant") issued by the Company to Andersen Consulting LLP 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:
----------------------------------
Title:
-------------------------------
Agreed to:
ANDERSEN CONSULTING LLP
By:
----------------------------------
Title:
-------------------------------
<PAGE> 7
STC WARRANT ISSUED TO ANDERSEN CONSULTING
WARRANT EXERCISE SCHEDULE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Category Activity Metric* Number of Shares Vesting
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Program Management Program Manager AC will appoint a A total of 200,000
full-time alliance shares in the
manager to manage this aggregate will vest
program (Janet Johnson) for all of the Program
Management Activities,
and will be deemed to
vest upon signing of the
warrant purchase
agreement.
- -------------------------------------------------------------------------------------------------------------------
Program Partner AC will appoint a
partner to manage and See above
oversee this program
(Christy Bass)
- -------------------------------------------------------------------------------------------------------------------
Marketing Professional AC will appoint a See above
marketing professional to
support this program
as needed
- -------------------------------------------------------------------------------------------------------------------
Marketing Activities White Paper AC will prepare a 50,000
"White Paper" addressing
EAI and describing client
engagements where STC and
AC have worked together &
created value.
- -------------------------------------------------------------------------------------------------------------------
Capability Brochure AC will prepare a 50,000
Capability Brochure
highlighting the STC/AC
relationship and
combined skills
- -------------------------------------------------------------------------------------------------------------------
Press Release AC will prepare a press 50,000
release announcing its
relationship with STC
- -------------------------------------------------------------------------------------------------------------------
Internal Marketing re: AC will develop and 50,000
AC Portal distribute an internal
communication aimed at
partners, announcing
STC's involvement in
AC's global portal
- -------------------------------------------------------------------------------------------------------------------
Internal Marketing to AC will develop and 50,000
AC Personnel distribute internal
communications to
introduce the AC/STC
relationship, to announce
the successful completion
of Global Portal, and to
introduce the PeopleSoft
and Siebel Intelligent
Bridge
- -------------------------------------------------------------------------------------------------------------------
Client Success AC will work with STC 50,000
Testimonial to organize and prepare
a Business Benefits
Testimonial from a client ,
for internal and external
marketing initiatives
(electronic or
paper-based)
- -------------------------------------------------------------------------------------------------------------------
Solution Centers AC will provide STC 10,000 per solution
with access to AC center, with up to 5
Solution Centers and allowed (Total is
personnel for 20,000 if 2 centers,
demonstration of STC etc., up to 50,000 if
products 5 centers)
- -------------------------------------------------------------------------------------------------------------------
Internal Training AC will work with STC 50,000
Program to create an internal
training program for AC
professionals on STC
products
- -------------------------------------------------------------------------------------------------------------------
Market Offering Creation of Market AC will use STC B2B marketspace--150,000
Offerings software in at least CRM LOB--100,000
five market offerings, FSI GMU--100,000
which will typically Any two others--75,000
include the following each
components: 1) STC
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
software is "embedded"
in market offering
solution; 2) STC is
installed in the
solution center
showcasing the market
offering; 3) Market
offering personnel are
trained in STC; and 4)
AC will issue a media
announcement relating
to these facts
- -------------------------------------------------------------------------------------------------------------------
Field Engagement Introductions AC will make up to 60 9,000 per introduction
opportunity (maximum earn is
introductions of an STC 540,000) (36,000
representative to AC deemed earned upon
client partners and/or signing of the warrant
clients, as the case purchase agreement due
may be. to introductions
already made at Dow,
SCI Investment, Ford
and American Family
Insurance)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Each metric will be deemed to be achieved and the related portion of the
Warrant shall become vested upon the mutual written consent of the Company and
AC. In order for the corresponding portion of the Warrant to become exercisable,
the metric must be achieved on or prior to May 15, 2000.
<PAGE> 1
EXHIBIT 10.6
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
July 31, 2002
SOFTWARE TECHNOLOGIES CORPORATION
WARRANT TO PURCHASE 800,000 SHARES OF COMMON STOCK
This Warrant is issued to Electronic Data Systems Corp. ("EDS") by
Software Technologies Corporation, a California corporation (the "Company"), on
February 2, 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 January 31, 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 800,000 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
$10.00, as adjusted from time to time pursuant to Section 8 hereof (the
"Exercise Price").
3. Exercise Period. This Warrant may be exercised at the sole discretion
of EDS (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
Company to persons or entities that were not shareholders of the Company prior
to such transaction (a "Merger") or (iii) January 31, 2001; and this Warrant
shall remain so exercisable until the earliest to occur (the
<PAGE> 2
"Termination Date") of (x) July 31, 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 a vesting schedule to be agreed upon
by the Company and EDS. 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 800,000 shares on or prior to
February 1, 2002, then (provided the Termination Date has not occurred) EDS
shall be obligated to make a one-time payment to the Company equal to $2.2
million. Such payment shall be made by EDS to the Company by check or wire
transfer no later than February 15, 2002. Any such payment made under this
provision by EDS 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 EDS is required to make a one-time payment specified in this Section,
EDS 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 EDS 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 800,000 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:
-2-
<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 EDS objects to such determination, by nationally recognized
investment bankers mutually acceptable to EDS. 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 IPO and prior to the closing of such IPO,
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 or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or
-3-
<PAGE> 4
Common Stock as a dividend 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. 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 securities which are also being
registered), the Company shall, at such time, promptly give EDS written notice
of such registration. Upon the written request of EDS given within ten (10) days
after mailing of such notice by the Company, the
-4-
<PAGE> 5
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 EDS has requested to be registered.
(b) Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock in which EDS
makes a written request pursuant to Section 9(a) hereof, the Company shall not
be required under this Section 9 to include any of EDS' Shares in such
underwriting unless EDS 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 discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
EDS' 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 discretion is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including EDS' Shares, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering, but in no event shall (i) the amount of securities of EDS included in
the offering be reduced below ten percent (10%) of the total amount of
securities included in such offering, in which case EDS may be excluded entirely
if the underwriters make the determination described above and no other
shareholder's securities are included. 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 its successors and assigns. This Warrant cannot be assigned by EDS
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 EDS to an affiliate of EDS, 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
EDS 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
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<PAGE> 6
instance and either 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 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. 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.
SOFTWARE TECHNOLOGIES CORPORATION
By: /S/ JAMES DEMETRIADES
---------------------------------
James Demetriades
Chief Executive Officer
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<PAGE> 7
SOFTWARE TECHNOLOGIES CORPORATION
404 E. HUNTINGTON DRIVE
MONROVIA, CA 91016
January 31, 2000
Electronic Data Systems Corporation
5400 Legacy Drive
MS H3-3D-05
Plano, TX 75024
Attn: General Counsel
Re: WARRANT TO PURCHASE 800,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
This is to confirm that the shares of Common Stock of Software
Technologies Corporation (the "STC") that may be purchased upon exercise of that
certain Warrant to Purchase Shares of Common Stock dated as of February 2, 2000
(the "Warrant") issued by STC to Electronic Data Systems Corporation ("EDS")
shall become vested and exercisable (up to a maximum of 800,000 shares in the
aggregate) for 40,000 shares of STC Common Stock for each integral increment of
five (5) opportunity introductions by EDS to a client, customer or prospect of
EDS which result in a signed license between STC and such person (with each
signed license resulting in a minimum of $150,000 in revenue to STC), with
credit being given - at the rate of one such additional license for each
$500,000 in STC license revenue (for purposes of clarification and by way of
example, if a single customer results in $2.5 million in STC license revenue,
EDS will earn credit for five (5) opportunity introductions) - for additional
signed licenses (up to 20 such additional credits for a single customer) from
such a client, customer or prospect which provides at least $2.5 million in STC
license revenue.
Each metric will be deemed to be achieved and the related portion of the
Warrant shall become vested upon the confirmation by STC of the signing of the
required license agreements. In order for the corresponding portion of the
Warrant to become exercisable, the metric must be achieved on or prior to
January 31, 2002.
<PAGE> 8
This letter is being provided pursuant to Section 3 of the Warrant.
Sincerely,
SOFTWARE TECHNOLOGIES CORPORATION
By: James T. Demetriades
-----------------------------------
Title: President & Chief Executive Officer
-----------------------------------
Agreed to:
ELECTRONIC DATA SYSTEMS CORPORATION
By:
-----------------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 10.7
Loan and Security Agreement
Borrower: Software Technologies Corporation
Address: 404 E. Huntington Drive
Monrovia, California 91016
Date: October 29, 1999
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of Banc of America Commercial Finance Corporation
(GREYROCK), whose address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA
90024 and the borrower named above (BORROWER), whose chief executive office is
located at the above address (BORROWER'S ADDRESS). The Schedule to this
Agreement (the SCHEDULE) being signed concurrently is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth
in Section 8 below.)
1. LOANS.
1.1 LOANS. (a) Revolving Credit Loans. Greyrock will make loans to Borrower
(the REVOLVING CREDIT LOANS), in amounts determined by Greyrock in its good
faith business judgment, up to the amount (the REVOLVING CREDIT LIMIT) shown on
the Schedule, provided no Default or Event of Default has occurred and is
continuing.
(b) Term Loan. Greyrock will make a loan to Borrower (the TERM LOAN), in the
amount (the TERM LOAN LIMIT) shown on the Schedule, provided no Default or
Event of Default has occurred and is continuing.
(c) If at any time or for any reason the outstanding aggregate amount of all
outstanding Revolving Credit Loans, the Term Loan, and all other Obligations
exceeds the amount shown on the Schedule as the Total Credit Limit (the TOTAL
CREDIT LIMIT), Borrower shall immediately pay the amount of the excess to
Greyrock, without notice or demand. The Revolving Credit Loans and the Term
Loan are sometimes collectively referred to herein as the "LOANS."
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by
Greyrock and Borrower. Interest shall be payable monthly, on the last day of
the month. Interest may, in Greyrock's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans.
1.3 FEES. Borrower shall pay Greyrock the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Greyrock and
are not refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all the
Obligations when due, Borrower hereby grants to Greyrock a security
interest in all of Borrower's interest in the following, whether now
owned or hereafter acquired, and wherever located (collectively, the
Collateral): All Receivables, Inventory, Equipment, Investment Property
and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, all money, all collateral in which Greyrock
is granted a security interest pursuant to any other present or future
agreement, all property now or at any time in the future in Greyrock's
possession and all proceeds (including proceeds of any insurance
policies, proceeds of proceeds and claims against third parties), all
products of the foregoing and all books and records related to any of
the foregoing.
Notwithstanding the foregoing, the security interest granted herein
shall not extend to and the term "Collateral" shall not include, any
property, rights or licenses to the extent the granting of a security
interest therein (i) would be contrary to applicable law or (ii) is
prohibited by, or would constitute a default under, any of the
agreements or other documents listed on Exhibit A hereto (but only to
the extent such prohibition is enforceable under applicable law).
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Greyrock to enter into this Agreement and to make Loans,
Borrower represents and warrants to Greyrock as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation; provided that, upon
written notice to Greyrock and subject to Borrower's continuing compliance with
the terms of this Agreement (including, but not limited to, Section 5.9
hereof), Borrower may redomesticate into another state within the United
States. Borrower is and will continue to be qualified and licensed to do
business in all jurisdictions in which any failure to do so could reasonably be
expected to have a material adverse effect on Borrower. The execution, delivery
and performance by Borrower of this Agreement, and all other documents
contemplated hereby (i) have been duly and validly authorized, (ii) are
enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), (iii) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (iv) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Greyrock contemporaneous written notice of changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Greyrock contemporaneous written
notice of opening any additional place of business, changing its chief executive
office, or moving any of the Collateral to a location other than Borrower's
address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Greyrock now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Greyrock and the Collateral against all claims
of others. So long as any Loan is outstanding, none of the Collateral now is or
will be affixed to any real property in such a manner, or with such intent, as
to become a fixture. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall, whenever requested by Greyrock, use
its best efforts to cause such third party to execute and deliver to Greyrock,
in form acceptable to Greyrock, such waivers and subordinations as Greyrock
shall specify, so as to ensure that Greyrock's rights in the Collateral are, and
will continue to be, superior to the rights of any such third party. Borrower
will keep in full force and effect, and will comply with all the terms of, any
lease of real property where any of the Collateral now or in the future may be
located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, ordinary wear and tear excepted, and Borrower will not
use the Collateral for any unlawful purpose. Borrower will immediately advise
Greyrock in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All quarterly and
annual financial statements now or in the future delivered to Greyrock have
been, and will be, prepared in conformity with generally accepted accounting
principles and now and in the future will completely and fairly reflect the
financial condition of Borrower, at the times and for the periods therein
stated. Between the last date covered by any such statement provided to Greyrock
and the date hereof, there has been no material adverse change in the financial
condition or business of Borrower. Borrower is now and will continue to be
solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies Greyrock in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guarantee Corporation or any other governmental
agency. Borrower shall, at all times, maintain a separate payroll account which
shall be used exclusively for payment of payroll and payroll taxes and other
items related directly to payroll.
3.9 COMPLIANCE WITH LAW. Unless non-compliance would not materially
adversely affect (i) Borrower's financial condition as reflected in its
financial statements previously delivered to Greyrock, (ii) Borrower's
operations, or (iii) Borrower's business, Borrower has complied, and will
comply, in all material respects, with all provisions of all applicable laws and
regulations, including, but not limited to, those relating to Borrower's
ownership of real or personal property, the conduct and licensing of Borrower's
business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is not claim,
suit, litigation, proceeding or
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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investigation pending or (to best of Borrower's knowledge) threatened by or
against or affecting Borrower in any court or before any governmental agency
(or any basis therefor known to Borrower) which may result, either separately
or in the aggregate, in any material adverse change in the financial condition
or business of Borrower, or in any material impairment in the ability of
Borrower to carry on its business in substantially the same manner as it is now
being conducted. Borrower will promptly inform Greyrock in writing of any
claim, proceeding, litigation or investigation in the future threatened or
instituted by or against Borrower which could reasonably be expected to result
in a liability with respect to any single claim of $50,000 or more, or
involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes.
3.12 YEAR 2000 COMPLIANCE. Borrower has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by Borrower or any of its subsidiaries (or its suppliers and
vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably be expected to have material adverse effect.
Borrower will promptly notify Greyrock in the event Borrower discovers or
determines that any computer application (including those of its suppliers and
vendors) that is material to its or any of its subsidiaries' business and
operations will not be Year 2000 compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to have a material
adverse effect.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Greyrock as follows: Each Receivable with respect to which Loans
are requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed, bona fide, existing, unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Greyrock as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct in all material
respects and all such invoices, instruments and other documents and all of
Borrower's books and records are and shall be genuine and in all material
respects what they purport to be, and all signatories and endorsers have the
capacity to contract. All sales and other transactions underlying or giving rise
to each Receivable shall comply with all applicable laws and governmental rules
and regulations. All signatures and indorsements on all documents, instruments,
and agreements relating to all Receivables are and shall be genuine, and all
such documents, instruments and agreements are and shall be legally enforceable
in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Greyrock transaction reports and loan requests, schedules of all
Receivables, and schedules of collections, all on Greyrock's standard forms or
as otherwise agreed by the parties; provided, however, that Borrower's failure
to execute and deliver the same shall not affect or limit Greyrock's security
interest and other rights in all of Borrower's Receivables, nor shall Greyrock's
failure to advance or lend against a specific Receivable affect or limit
Greyrock's security interest and other rights therein. Together with each such
schedule or later if requested by Greyrock, Borrower shall furnish Greyrock with
copies (or, at Greyrock's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Greyrock an aged accounts receivable trial balance in such form and
at such intervals as Greyrock shall request. In addition, Borrower shall deliver
to Greyrock the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, immediately upon receipt thereof and in the same form as
received, with all necessary indorsements.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until a Default or an Event of Default has
occurred. Borrower shall hold all payments on, and proceeds of, Receivables in
trust for Greyrock, and Borrower shall deliver all such payments and proceeds
to Greyrock, within one business day after receipt of the same, in their
original form, duly endorsed, to be applied to the Obligations in such order as
Greyrock shall determine.
4.5 DISPUTES. Borrower shall notify Greyrock promptly of all disputes
or claims relating to Receivables on the regular reports to Greyrock. Borrower
shall not forgive, or settle any Receivable for less than payment in full, or
agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Greyrock on the regular reports provided to Greyrock; (ii) no
Default or Event of Default has occurred and is continuing; and (iii) taking
into account all such settlements and forgiveness, the total outstanding
Revolving Credit Loans, the Term Loan and other Obligations will not exceed the
Total Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Greyrock). In the event any attempted return occurs
after the occurrence and during the continuance of any Event of Default,
Borrower shall (i) not accept any return without Greyrock's prior written
consent, (ii) hold the returned Inventory in trust for Greyrock, (iii)
segregate all returned Inventory from all of Borrower's other property, and
(iv) immediately notify Greyrock of the return of any Inventory, specifying the
reason for such return, the location and condition of the returned Inventory,
and on Greyrock's request deliver such returned Inventory to Greyrock.
4.7 VERIFICATION. Greyrock may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the
name of Borrower or Greyrock or such other name as Greyrock may choose, and
Greyrock or its designee may, at any time, notify Account Debtors that it has a
security interest in the Receivables.
4.8 NO LIABILITY. Greyrock shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring
in the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Greyrock be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Greyrock from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Greyrock, in such form and amounts as
Greyrock may reasonably require, and Borrower shall provide evidence of such
insurance to Greyrock, so that Greyrock is satisfied that such insurance is, at
all times, in full force and effect. All liability insurance policies of
Borrower shall name Greyrock as an additional insured and all property casualty
and related insurance policies of Borrower shall name Greyrock as an additional
insured and loss payee thereon, and borrower shall cause a lenders loss payee
endorsement in form reasonably acceptable to Greyrock to be delivered to
Greyrock. Upon receipt of the proceeds of any such insurance, Greyrock shall
apply such proceeds in reduction of the Obligations as Greyrock shall determine
in its sole discretion, except that, provided no Default or Event of Default
has occurred and is continuing, Greyrock shall release to Borrower insurance
proceeds with respect to Collateral subject to a casualty loss totaling less
than $100,000, which shall be utilized by Borrower for the replacement of such
Collateral with respect to which the insurance proceeds were paid. Greyrock may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Greyrock may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Greyrock copies of all reports made to insurance companies.
5.2 REPORTS. Borrower, at its expense, shall provide Greyrock with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sale projections, operating plans and
other financial documentation), as Greyrock shall from time to time reasonably
specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one business day's notice, Greyrock, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Greyrock shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Greyrock shall have
the right to disclose any such information to its auditors, regulatory agencies,
and attorneys, and pursuant to any subpoena or other legal process. The
foregoing inspections and audits shall be at Borrower's expense and the charge
therefor shall be $600 per person per day (or such higher amount as shall
represent Greyrock's then current standard charge for the same), plus reasonable
out-of-pockets expenses. Borrower shall not be charged more than $3,000 per
audit (plus reasonable out-of-pockets expenses), nor shall audits be done more
frequently than four times per calendar year, provided that the foregoing limits
shall not apply after the occurrence and during the continuance of a Default or
Event of Default, nor shall they restrict Greyrock's right to conduct audits at
its own expense (whether or not a Default or Event of Default has occurred).
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address, without first obtaining Greyrock's written consent,
which may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Greyrock the same rights with respect to access to
books and records and related rights as Greyrock has under this Agreement.
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to
Greyrock in the original form in which received by Borrower not later than the
following business day after receipt by Borrower, to be applied to the
Obligations in such order as Greyrock shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, and if no term loan
is outstanding hereunder, then Borrower shall not be obligated to remit to
Greyrock the proceeds of the sale of Equipment which is sold in the ordinary
course of business, in a good-faith arm's length transaction. Except for the
proceeds of the sale of Equipment as set forth above, Borrower shall not
commingle proceeds of Collateral with any of Borrower's other funds or property,
and shall hold such proceeds separate and apart from such other funds and
property and in an express trust for Greyrock. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not without Greyrock's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity, except
in a transaction in which (a) the shareholders of Borrower hold at least 50% of
the common stock and all other
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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capital stock of the surviving corporation immediately after such merger or
consolidation (b) Borrower is the surviving corporation and (c) no Default or
Event of Default shall exist either immediately prior to or after giving effect
to the transaction; (ii) acquire any assets, except in the ordinary course of
business; (iii) enter into any transaction outside the ordinary course of
business consisting of a transaction or a series of transactions involving the
payment of an aggregate amount in excess of $500,000, provided that no Default
or Event of Default shall exist either immediately prior to or after giving
effect to the transaction; (iv) sell or transfer any Collateral, except that,
provided no Default or Event of Default has occurred and is continuing,
Borrower may (a) sell finished Inventory in the ordinary course of Borrower's
business, (b) sell Equipment in the ordinary course of business, in good-faith
arm's length transactions, (c) sell or transfer non-exclusive (or exclusive in
a particular field of use or geographic area or with respect to a particular
software module) licenses and similar arrangements for the use of property of
Borrower in the ordinary course of business, (d) sell or transfer worn-out or
obsolete Equipment, (e) sell or transfer any property of Borrower otherwise
permitted in this Agreement, and (f) in addition to the foregoing, sell or
transfer property of Borrower having a value not exceeding $500,000 in the
aggregate in any fiscal year; (v) store any Inventory or other Collateral with
any warehouseman or other third party; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii)
make any loans of any money or other assets, except (a) advances to suppliers
if created, acquired or made in the ordinary course of business in an aggregate
amount not to exceed $250,000, (b) travel advances, and other employee loans
and advances in the ordinary course of business and employee relocation loans
in an amount not to exceed $500,000, (c) loans to employees, officers and
directors for the purpose of purchasing equity securities of Borrower in an
aggregate amount not to exceed $100,000 at any time outstanding, (d) other
loans to officers and employees approved by the Board of Directors of Borrower
in an aggregate amount not to exceed $100,000 at any time outstanding, (e)
other loans and extensions of credit not otherwise permitted hereunder in an
aggregate amount not to exceed $100,000 at any time outstanding, and (f) loans
to Borrowers's subsidiaries in the ordinary course of business consistent with
past practices, and provided, further, that no Default or Event of Default
shall exist either immediately prior to or after giving effect to the making of
any of the foregoing advances, loans or other extensions of credit; (viii)
incur any debts, outside the ordinary course of business, which would have a
material, adverse effect on Borrower or on the prospect of repayment of the
Obligations; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity, except by endorsements of instruments of
items of payment for deposit to the general account of Borrower or which are
transmitted or turned over to Greyrock on account of the Obligations in the
ordinary course of business and except for guarantees of the obligations of
subsidiaries; (x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase
or otherwise acquire, directly or indirectly, any of Borrower's stock, except
that Borrower may repurchase stock owned by employees, directors and consultants
of Borrower pursuant to terms of employment, consulting or other stock
restriction agreements at such time as any such employee, director or
consultant terminates his or her affiliation with Borrower, provided that no
Default or Event of Default shall exist either immediately prior to or after
giving effect to any such repurchase, and provided that the aggregate purchase
price so paid in any fiscal year shall not exceed $300,000; (xii) make any
change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; or
(xiii) dissolve or elect to dissolve; or (xiv) agree to do any of the foregoing.
The provisions of this Section 5.5 shall not prohibit (i) issuance by Borrower
of common stock upon exercise of stock options, (ii) sale of shares of
Borrower's capital stock for cash, (iii) issuance of convertible debentures
subordinate in all respects to the Obligations pursuant to subordination
provisions acceptable to Greyrock in its discretion, (iv) sale by Borrower of
worn out or obsolete equipment, (v) indebtedness for borrowed money existing
on the date of this Agreement to the extent listed and described on Exhibit B
hereto, (vi) Borrower from incurring indebtedness for or with respect to capital
leases or for the financing of capital assets incurred in the ordinary course of
business so long as the aggregate amount of indebtedness permitted by this
clause (vi) shall not exceed $1,000,000 in any fiscal year, (vii) indebtedness
of Borrower to subsidiaries incurred in the ordinary course of business and
consistent with past practices, or (viii) extension, refinancings,
modifications, amendments and restatements of any of the items of permitted
indebtedness set forth in the above, provided that the amount thereof is not
increased and the terms thereof are not modified to impose more burdensome
terms upon Borrower, outside of the ordinary course of Borrower's business.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Greyrock with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Greyrock, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Greyrock may deem them
reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify Greyrock in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, and any material adverse change in the
business or financial affairs of Borrower.
5.8 INVESTMENT PROPERTY. Upon the request of Greyrock, Borrower shall
deliver to Greyrock all certificated securities included in Investment Property,
with all necessary indorsements, and obtain such account control agreements with
securities intermediaries and take such other action with respect to any
Investment Property, as Greyrock shall request, in form and substance
satisfactory to Greyrock. Borrower shall have the right to retain all Investment
Property payments and distributions, unless and until a Default or an Event of
Default has occurred and is continuing. If a Default or an Event of Default
exists, Borrower shall hold all payments on, and proceeds of, and distributions
with respect to, Investment Property in trust for Greyrock, and Borrower shall
deliver all such payments, proceeds and distributions to
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Greyrock, immediately upon receipt, in their original form, duly endorsed, to be
applied to the Obligations in such order as Greyrock shall determine. Upon the
request of Greyrock, any such distributions and payments with respect to any
Investment Property held in any securities account shall be held and retained in
such securities account as part of the Collateral.
5.9 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Greyrock, to execute all documents and take all actions, as Greyrock may deem
reasonably necessary or useful in order to perfect and maintain Greyrock's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
5.10 INDEMNITY. Borrower hereby agrees to indemnify Greyrock and hold
Greyrock harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
Greyrock may sustain or incur based upon or arising out of any of the
Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Greyrock and Borrower, any actual or alleged failure of
Greyrock to comply with any writ of attachment or other legal process relating
to Borrower or any of its property, or any other matter, cause or thing
whatsoever occurred, done, omitted or suffered to be done by Greyrock relating
to Borrower or the Obligations (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Greyrock or any of
its directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Greyrock). Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this Section
shall survive any termination of this Agreement and shall for all purposes
continue in full force and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the MATURITY DATE); provided that the
Maturity Date with respect to the Revolving Credit Loans shall automatically be
extended, and this Agreement shall automatically and continuously renew solely
to the extent relating to the Revolving Credit Loans, for successive additional
terms of one year each, unless one party gives written notice to the other, not
less than sixty days prior to the next Maturity Date, that such party elects to
terminate this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three business days after
written notice of termination is given to Greyrock; or (ii) by Greyrock at any
time after the occurrence and during the continuation of an Event of Default,
without notice, effective immediately.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of Greyrock, then on such date Borrower shall provide to
Greyrock cash collateral in an amount equal to 110% of the face amount of all
such letters of credit plus all interest, fees and costs due or (in Greyrock's
estimation) likely to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Greyrock's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Greyrock's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Greyrock, Greyrock may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Greyrock, nor shall any such termination relieve Borrower of any
Obligation to Greyrock, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the Obligations
and termination of this Agreement, Greyrock shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be reasonably required to terminate Greyrock's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an EVENT OF DEFAULT under this Agreement, and Borrower shall give
Greyrock immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Greyrock by Borrower or
any of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Total Credit Limit and Borrower shall not have paid such excess amount
within one business day of such due date pursuant to Section 1.1 hereof; or (d)
Borrower shall fail to perform any non-monetary Obligation which by its nature
cannot be cured; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within 20 business days after the date
performance is due; or (f) any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within 10 days after the occurrence of the same;
or (g) any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien, provided that such default or
event of default shall not only constitute an Event of Default hereunder if
notice of such default or event of default is given to Borrower or if the holder
of such Permitted Lien commences enforcement thereof; or (h) Borrower breaches
any material contract or obligation, which has or may reasonably be expected to
have a material adverse effect on Borrower's business or financial condition; or
(i) dissolution, termination of existence, insolvency or business failure of
borrower or any Guarantor; or appointment of a receiver, trustee or custodian,
for all or
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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any part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower or any Guarantor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 45 days after the date commenced; or (k) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset pledged by any
third party to secure any or all of the Obligations, or any attempt to do any of
the foregoing, or commencement of proceedings by or against any such third party
under any bankruptcy or insolvency law; or (m) Borrower makes any payment on
account of any indebtedness or obligation which has been subordinated to the
Obligations other than as permitted in the applicable subordination agreement,
or if any Person who has subordinated such indebtedness or obligations
terminates or in any way limits or terminates its subordination agreement; or
(n) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of stock of Borrower
(excluding any changes resulting from a public offering of equity securities or
the public trading of equity securities), in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Greyrock; or (o) Borrower
shall generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law. Greyrock may cease making any Loans hereunder during any of the above cure
periods, and thereafter if an Event of Default has occurred.
7.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, Greyrock, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower)
(except that, prior or concurrently with the taking of the first of any of the
following actions, Greyrock shall give Borrower one general written notice
stating that Greyrock is "proceeding to exercise its rights and remedies" or
words to that effect), may do any one or more of the following: (a) Cease making
Loans or otherwise extending credit to Borrower under this Agreement or any
other document or agreement; (b) Accelerate and declare all or any part of the
Obligations to be immediately due, payable, and performable, notwithstanding any
deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (c) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes
Greyrock without judicial process to enter onto any of Borrower's premises
without interference to search for, take possession of, keep, store, or remove
any of the Collateral, and remain on the premises or cause a custodian to remain
on the premises in exclusive control thereof, without charge for so long as
Greyrock deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Greyrock seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives, to the extent permitted by law; (i)
any bond and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Greyrock retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Greyrock at places designated by Greyrock which are reasonably convenient to
Greyrock and Borrower, and to remove the Collateral to such locations as
Greyrock may deem advisable; (e) Complete the processing, manufacturing or
repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, Greyrock shall have the right to use Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge; (f) Collect, receive, dispose of and realize upon any Investment
Property, including withdrawal of any and all funds from any securities
accounts; (g) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Greyrock obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Greyrock shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Greyrock deems reasonable, or on Greyrock's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Greyrock may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(h) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Greyrock to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Greyrock's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables,
General Intangibles and the like for less than face value; and (i) Demand and
receive possession of any of Borrower's federal and state income tax returns and
the books and records utilized in the preparation thereof or referring thereto.
Borrower recognizes that Greyrock may be unable to make a public sale of any or
all of the Investment Property, by reasons of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a
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commercially reasonable sale. All reasonable attorney's fees, expenses, costs,
liabilities and obligations incurred by Greyrock with respect to the foregoing
shall be added to and become part of the Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Greyrock agree that a sale or other disposition (collectively, sale) of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Greyrock, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price
in cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Greyrock may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Greyrock shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of
any Event of Default, without limiting Greyrock's other rights and remedies,
Borrower grants to Greyrock an irrevocable power of attorney coupled with an
interest, authorizing and permitting Greyrock (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Greyrock
agrees to exercise the following powers in a commercially reasonable manner: (a)
Execute on behalf of Borrower any documents that Greyrock may, in its sole
discretion, deem advisable in order to perfect and maintain Greyrock's security
interest in the Collateral, or in order to exercise a right of Borrower or
Greyrock, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements; (b) Execute
on behalf of Borrower any documents exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Greyrock's Collateral or
in which Greyrock has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Receivable, any draft against any Account Debtor and
any notice to any Account Debtor, any proof of claim in bankruptcy, and Notice
of Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in any
manner of any cash or non-cash items of payment of proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Greyrock's possession; (e) Endorse all
checks and other forms of remittances received by Greyrock; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both; (i) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Greyrock the same rights
of access and other rights with respect thereto as Greyrock has under this
Agreement; (k) Execute and deliver to any securities intermediary or other
Person any entitlement order, account control agreement or other notice,
document or instrument with respect to any Investment Property, and (l) Take any
action or pay any sum required of Borrower pursuant to this Agreement and any
other present or future agreements. Any and all reasonable sums paid and any and
all reasonable costs, expenses, liabilities, obligations and reasonable
attorney's fees incurred by Greyrock with respect to the foregoing shall be
added to and become part of the Obligations, shall be payable on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. In no event shall Greyrock's rights under the foregoing
power of attorney or any of Greyrock's other rights under this Agreement be
deemed to indicate that Greyrock is in control of the business, management or
properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale or other disposition of the Collateral shall be applied by Greyrock first
to the reasonable costs, expenses, liabilities, obligations and attorney's fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Greyrock for any deficiency.
If Greyrock, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Greyrock shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Greyrock and Borrower, and all of such rights
and remedies are cumulative and none is exclusive. Exercise or partial exercise
by Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
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remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
ACCOUNT DEBTOR means the obligor on a Receivable.
AFFILIATE means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person or any Person controlling, controlled by or under
common control with such Person.
AGREEMENT and THIS AGREEMENT means this Loan and Security Agreement and
all modifications and amendments thereto, extensions thereof, and replacements
therefor.
BUSINESS DAY means a day on which Greyrock is open for business.
CODE means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
COLLATERAL has the meaning set forth in Section 2.1 above.
DEFAULT means any event which with notice or passage of time or both,
would constitute an Event of Default.
DEPOSIT ACCOUNT has the meaning set forth in Section 9105 of the Code.
ELIGIBLE RECEIVABLES means unconditional Receivables arising in the
ordinary course of Borrower's business from the completed sale of goods or
rendition of services, which Greyrock, in its good faith business judgment,
shall deem eligible for borrowing, based on such considerations as Greyrock may
from time to time deem appropriate.
EQUIPMENT means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind of
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
EVENT OF DEFAULT means any of the events set forth in section 7.1 of this
Agreement.
GENERAL INTANGIBLES means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all causes in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Greyrock rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
GUARANTOR means any Person who has guaranteed any of the Obligations.
INVENTORY means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling of finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
INVESTMENT PROPERTY means any and all investment property of Borrower,
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise wherever
located, and whether now existing or hereafter acquired or arising.
OBLIGATIONS means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Greyrock, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Greyrock in
Borrower's debts owing to others), absolute or contingent, due or to become
due, including, without limitation, all interest, charges, expenses, fees,
attorney's fees, expert witness fees, audit fees, letter of credit fees, loan
fees, termination fees, minimum interest charges and any other sums chargeable
to Borrower under this Agreement or under any other present or future instrument
or agreement between Borrower and Greyrock.
PERMITTED LIENS means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Greyrock's security
interests; (iv) additional security interests and liens which are subordinate
to the security interest in favor of Greyrock and are consented to in writing
by Greyrock (which consent shall not be unreasonably withheld); (v) security
interests being terminated substantially concurrently with this Agreement; (vi)
liens of materialmen, mechanics, warehousemen, carriers, or other similar
liens arising in the ordinary course of business and securing obligations which
are not delinquent for more than 45 days or are
9
<PAGE> 10
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
being contested in good faith by appropriate proceedings; (vii) any judgment,
attachment or similar lien, unless the judgment it secures is not fully covered
by insurance and has not been discharged or execution thereof effectively stayed
and bonded against pending appeal within 30 days of the entry thereof, provided
that if the judgment is not fully covered by insurance or execution thereof has
not been so stayed and bonded, Greyrock shall not be required to make any Loans
or otherwise extend credit to or for the benefit of Borrower; (viii) liens
existing on equipment at the time of its acquisition or lease, provided that the
lien is confined solely to the equipment so acquired and improvements thereon;
(ix) leases or subleases and licenses or sublicenses granted to others in the
ordinary course of business which do not interfere in any material respect with
the business of Borrower; (x) liens which constitute rights of set-off of a
customary nature or bankers' liens on amounts on deposit, whether arising by
contract or by operation of law, in connection with arrangements entered into
with depository institutions in the ordinary course of business; (xi) liens in
existence on the date hereof and listed on Exhibit C hereto; (xii) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or (ii)
above, provided that any extension, renewal or replacement lien is limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; and (xii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Greyrock will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Greyrock's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Greyrock,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
PERSON means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or
any agency or political division thereof, or any other entity.
PRIME RATE means the variable rate of interest, per annum, most recently
announced by Bank of America, N.A., as its "prime rate" or "reference rate," as
the case may be, irrespective of whether such announced rate is the best rate
available from such financial institution. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published
in the Wall Street Journal, as the base rate on corporate loans at large U.S.
money center commercial banks.
RECEIVABLES means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, documents and all other forms of obligations at any
time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Greyrock
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Greyrock on account of the Obligations upon receipt by
Greyrock of immediately available funds. Greyrock shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Greyrock in its discretion, and Greyrock may charge
Borrower's Loan account for the amount of any item of payment which is returned
to Greyrock unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations
may be applied, and in Greyrock's sole discretion reversed and re-applied, to
the Obligations, in such order and manner as Greyrock shall determine in its
sole discretion.
9.3 CHARGES TO ACCOUNT. Greyrock may, in its discretion, require that
Borrower pay monetary Obligations in cash to Greyrock, or charge them to
Borrower's loan account, in which event they will bear interest at the same
rate applicable to the Loans.
9.4 MONTHLY ACCOUNTINGS. Greyrock shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Greyrock), unless
Borrower notifies Greyrock in writing to the contrary within sixty days after
each account is rendered, describing the nature of any alleged errors or
admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Greyrock or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one business day following delivery to the private delivery service, or two
business days following the deposit thereof in the United States mail, which
postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
10
<PAGE> 11
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
9.7 Integration. The Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Greyrock and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement. There
are no oral understandings, representations or agreements between the parties
which are not set forth in this Agreement or in other written agreements signed
by the parties in connection herewith.
9.8 Waivers. The failure of Greyrock at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Greyrock shall not waive
or diminish any right of Greyrock later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Greyrock shall be deemed to have been
waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Greyrock on which Borrower is or may in any way be liable, and notice of any
action taken by Greyrock, unless expressly required to this Agreement.
9.9 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Greyrock.
9.10 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.11 Attorneys Fees and Costs. Borrower shall reimburse Greyrock for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Greyrock,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonably
attorneys' fees and costs Greyrock incurs in order to do the following: prepare
and negotiate this Agreement and the documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend
actions by, Account Debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Greyrock's security interest in, the
Collateral; and otherwise represent Greyrock in any litigation relating to
Borrower. If either Greyrock or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Greyrock may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.12 Benefit of Agreement. The provision of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Greyrock; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Greyrock, and any prohibited
assignment shall be void. No consent by Greyrock to any assignment shall
release Borrower from its liability for the Obligations.
9.13 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 Paragraph Headings; Construction. Paragraph headings are only used
in this Borrower for convenience. Borrower and Greyrock acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Borrower under any
rule of construction or otherwise.
9.16 Governing Law; Jurisdiction; Venue. This Agreement and all acts
and transactions hereunder and all rights and obligations of Greyrock and
Borrower shall be governed by the laws of the State of California. As a
material part of the consideration to Greyrock to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at Greyrock option, be litigated in courts
located within California, and that the exclusive venue therefor shall be Los
Angeles County; (ii) consents to the jurisdiction and venue of any such court
and consents to service of process in any such action or proceeding by personal
delivery or any other method permitted by law; and (iii) waives any and all
rights Borrower may have to object to the jurisdiction of any such court, or to
transfer or change the venue of any such action or proceeding.
9.17 Mutual Waiver of Jury Trial. BORROWER AND GREYROCK EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND BORROWER, OR ANY
CONDUCT, ACTS OR OMISSIONS OF
11
<PAGE> 12
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
GREYROCK OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH GREYROCK OR
BORROWER, IN ALL OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
BORROWER:
SOFTWARE TECHNOLOGIES
CORPORATION
BY /s/ William Overell
--------------------------------
TITLE VP Finance & CFO
-----------------------------
GREYROCK:
GREYROCK CAPITAL
A DIVISION OF BANC OF AMERICA COMMERCIAL
FINANCE CORPORATION
BY /s/
--------------------------------
TITLE
-----------------------------
12
<PAGE> 13
EXHIBIT A
TO
LOAN AND SECURITY AGREEMENT
AGREEMENTS PROHIBITING GRANT OF SECURITY INTERESTS IN COLLATERAL
(a) LinkSoft Technologies, Inc., Software License Agreement, dated December
14, 1996, including Volume Purchase Agreement and Credit Agreement each
dated December 14, 1996.
(b) LinkSoft Technologies, Inc., Software License Agreement, dated March 30,
1998, including Volume Purchase Addendum dated March 4, 1999.
(c) Intersolv, Inc., Distributor License Agreement, dated August 8, 1997,
including Amendment No. 1 dated April 13, 1998.
(d) Intelligent Search Technology, Ltd., OEM License Agreement, dated August
10, 1999.
<PAGE> 14
EXHIBIT B
TO
LOAN AND SECURITY AGREEMENT
PERMITTED INDEBTEDNESS
The Company is a party to the following agreements related to indebtedness
for borrowed money:
(a) The Company is a party to the following equipment and operating
leases:
See Attachment A.
(b) The Company is a party to the following leases for real property
greater than one year in length:
(i) The Company is party to a seventy two (72) month lease agreement,
as amended as of August 5, 1998, with Boone/Fetter/Occidental 1
dated June 6, 1997. Pursuant to such lease, the Company leases
property located at 404 Huntington Drive, Monrovia, California
for $45,563 per month through November 30, 1998, and $63,280 for
the next 25 months. The remaining months are paid at a monthly
rate of $69,307.
(ii) The Company is negotiating a lease for up to approximately 10,000
square feet of office space in El Segundo, California.
-2-
<PAGE> 15
EXHIBIT C
TO
LOAN AND SECURITY AGREEMENT
PERMITTED LIENS
1. LIENS AND ENCUMBRANCES
(a) The Company has granted certain liens and security interests to Imperial
Bank pursuant to the terms of the Security and Loan Agreement dated August
11, 1998, addenda and related notes thereto. Such Security and Loan
Agreement currently prohibits certain repurchases of the Company's stock,
including the redemption of the Shares contemplated by the Restated
Articles of Incorporation.
(b) The Company has granted certain liens and security interests to certain
equipment lessors under the terms of the respective equipment leases listed
below.
(c) The Company is a party to the following equipment and operating leases:
See Attachment A.
(d) The Company is a party to the following leases for real property greater
than one year in length:
(i) The Company is party to a seventy two (72) month lease agreement, as
amended as of August 5, 1998, with Boone/Fetter/Occidental I dated
June 6, 1997. Pursuant to such lease, the Company leases property
located at 404 Huntington Drive, Monrovia, California for $45,563 per
month through November 30, 1998, and $63,280 for the next 25 months.
The remaining months are paid at a monthly rate of $69,307.
(ii) The Company is negotiating a lease for up to approximately 10,000
square feet of office space in El Segundo, California.
-3-
<PAGE> 16
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
----------------------------------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 175,000 ISSUE DATE: OCTOBER 29, 1999
SHARES OF THE COMMON EXPIRATION DATE: OCTOBER 29, 2004
STOCK OF SOFTWARE TECHNOLOGIES INITIAL EXERCISE PRICE: $2.83 PER SHARE
CORPORATION
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, GREYROCK CAPITAL, a Division of Banc of
America Commercial Finance Corporation ("Holder") is entitled to purchase the
number of fully paid and non-assessable shares of common stock (the "Shares")
of Software Technologies Corporation, a California corporation (the "Company")
at the initial exercise price per Share (the "Warrant Price") all as set forth
above and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the
fair market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.3.
1.3 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the average closing prices of the
Shares (or the closing prices of the Company's stock into which the Shares are
convertible) reported for the five business days immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares are not traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that
Holder disagrees with such determination, then the Company and Holder shall
promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares so acquired.
1.5 REPLACEMENT OF WARRANTS. 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 amount 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.
1.6 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.6.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of
the assets of the Company, or any reorganization, consolidation, or merger of
the Company where the holders of the Company's securities before the
transaction beneficially own less than 50% of the outstanding voting securities
of the surviving entity after the transaction.
1.6.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.6.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
-1-
<PAGE> 17
WARRANT TO PURCHASE STOCK
- --------------------------------------------------------------------------------
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides
the outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATIONS, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed under this Warrant by the Company, but shall
at all times in good faith assist in carrying out of all the provisions of this
Article 2 and in taking all such action as may be necessary or appropriate to
protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that specifically and adversely affects Holder's rights under
this Warrant, the Warrant Price shall be adjusted downward and the number of
Shares issuable upon exercise of this Warrant shall be adjusted upward in such
a manner that the aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise
or conversion of the Warrant and the number of Shares to be issued shall be
rounded down to the nearest whole Share. If a fractional share interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional share interest by paying Holder amount computed by multiplying the
fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(b) The capitalization of the Company at June 30, 1999 was set forth
on Schedule 3.1(b) attached hereto, and on the issue date hereof the Shares
shall represent no less than 0.35% of the Company's common stock on a fully
diluted basis.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend (other than a stock dividend in the nature of a stock
split) or distribution upon its common stock, whether in cash, property, stock,
or other securities and whether or not a regular cash dividend; (b) to offer
for subscription pro rata to the holders of any class or series of its stock
any additional shares of stock of any class or series or other rights; (c) to
effect any reclassification or recapitalization of common stock; or (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Company
shall give Holder (1) at least 10 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; and (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
-2-
<PAGE> 18
WARRANT TO PURCHASE STOCK
- --------------------------------------------------------------------------------
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event).
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holders notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2 and 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 MARKET STAND-OFF AGREEMENT. Holder agrees not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Holder (other than any securities purchased in the public market or
directly from the underwriters of such offering) 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 Securities Act with respect to the Company's initial public offering
(other than any shares sold in such offering), provided that all executive
officers and directors of the Company who then hold Common Stock (or other
securities) of the Company enter into similar agreements in a form satisfactory
to the Company and such underwriter. The Company may impose stop-transfer
instructions with respect to the Common Stock (or other securities) issuable
upon exercise of this Warrant subject to the foregoing restriction until the end
of said period.
4.6 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.7 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.8 ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.9 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
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<PAGE> 19
SOFTWARE TECHNOLOGIES
CORPORATION
By WILLIAM OVERELL
------------------------------
Title VP Finance & CFO
---------------------------
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<PAGE> 20
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the Common
Stock of Software Technologies Corporation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ________ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
__________________________
(NAME)
__________________________
__________________________
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_______________________________
(Signature)
_______________________________
(Date)
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<PAGE> 21
Warrant to Purchase Stock
- --------------------------------------------------------------------------------
EXHIBIT A
ANTI-DILUTION PROVISIONS
Per Anti-Dilution Agreement of even date.
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<PAGE> 1
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT"), dated as of May 8,
1998, is entered into by and among Software Technologies Corporation, a
California corporation (the "COMPANY"), the purchasers listed on Exhibit A
attached hereto (collectively, the "PURCHASERS") and the investors listed on
Exhibit B attached hereto (collectively, the "INVESTORS"). The Purchasers and
the Investors are collectively referred to as the "SHAREHOLDERS".
R E C I T A L S
A. The Purchasers and the Company are parties to a Preferred Stock
Purchase Agreement dated as of the date hereof (the "PURCHASE AGREEMENT").
B. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Purchase Agreement.
C. The Purchasers and the Company desire that the transactions
contemplated by the Purchase Agreement be consummated.
D. The Investors and the Company are parties to that certain
Registration Rights Agreement dated as of June 20, 1996 (the "1996 RIGHTS
AGREEMENT").
E. The Investors and the Company desire that the Investors agree not to
exercise any rights they have pursuant to the 1996 Rights Agreement and that, in
lieu thereof, the Investors be granted the rights hereunder.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the common stock of the Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"HOLDER" shall mean any holder, or an assignee under Section 15
hereof, of outstanding Registrable Securities.
<PAGE> 2
"INITIATING HOLDERS" shall mean any Holders who in the aggregate are
Holders of fifty percent (50%) or more of the outstanding Registrable
Securities.
The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" shall mean shares of Common Stock (i) issued
or issuable pursuant to the conversion of the Shares, (ii) held by the Investors
as of the date hereof, (iii) held by the Purchasers, and (iv) issued in respect
of securities described in (i), (ii) or (iii) above upon any stock split, stock
dividend, recapitalization, substitution, or similar event; provided, however,
that Registrable Securities shall not include any (a) shares of Common Stock
which have previously been registered, (b) shares of Common Stock which have
previously been sold to the public, or (c) securities which would otherwise be
Registrable Securities held by a Holder who is then permitted to sell all of
such securities within any three (3) month period pursuant to Rule 144 if such
securities then held by such Holder constitute less than one percent of the
Company's outstanding equity securities.
"REGISTRATION EXPENSES" shall mean all expenses (excluding
underwriting discounts and selling commissions) incurred in connection with a
registration under Sections 5, 6 and 8 hereof, including all registration and
filing fees, printing expenses, accounting fees, fees and disbursements of
counsel for the Company and blue sky fees and expenses (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and the fees and
expenses of counsel for the selling shareholders.
"SHARES" shall mean shares of the Company's Series A Preferred Stock
and Series B Preferred Stock.
2. Restrictions on Transferability. The Restricted Securities held by
the Shareholders shall not be transferred except upon the conditions specified
in this Agreement, which conditions are intended to insure compliance with the
provisions of the Securities Act or, in the case of Section 16 hereof, to assist
in an orderly distribution. Each Shareholder will cause any proposed transferee
of
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<PAGE> 3
Restricted Securities held by that Shareholder to agree to take and hold those
securities subject to the provisions and upon the conditions specified in this
Agreement.
3. Restrictive Legend. Each certificate representing (i) the Shares,
(ii) shares of the Company's Common Stock issued upon conversion of the Shares,
(iii) any other shares of Common Stock held as of the date hereof by the
Investors or the Purchasers and (iv) any other securities issued in respect of
the securities described in (i), (ii) or (iii) above upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH
SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF
THE CORPORATION.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 4(i) or
the "no-action" letter referred to in Section 4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k), in which case no such
opinion or "no-action" letter shall be required, and provided that the Company
shall not be obligated to remove any such legends prior to the date of the
initial public offering of the Company's Common Stock under the Securities Act.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 5, 6 and 8 hereof), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except for a transfer to a holder's
spouse, ancestors, descendants or a trust for any of their benefit or to a
holder's limited partners or other affiliates in a distribution without
consideration) by either (i) a written
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<PAGE> 4
opinion of legal counsel to the holder who shall be reasonably satisfactory to
the Company, addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act or (ii) a "no-action" letter from the Commission to the effect
that the distribution of such securities without registration will not result in
a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by such holder to the Company provided, however, no such
opinion or no action letter will be required if such transfer is in compliance
with Rule 144 under the Securities Act. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear the restrictive
legend set forth in Section 3 above, except that such certificate shall not bear
such restrictive legend after the date of the Company's initial public offering
under the Securities Act if the opinion of counsel or "no-action" letter
referred to above expressly indicates that such legend is not required in order
to establish compliance with the Act or if such legend is no longer required
pursuant to Rule 144(k).
5. Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders a written request that the Company effect a registration with
respect to at least 25% of the Registrable Securities originally issued to the
Initiating Holders (or such lesser number of Registrable Securities which would
result in an aggregate offering of at least $15,000,000), the Company will:
(i) promptly, but in any event within ten (10) days
thereafter, give written notice of the proposed registration to all
other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post effective amendments, appropriate
qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued
under the Securities Act) as may be so reasonably requested and as
would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a written request delivered to the Company within ten
(10) days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to effect, or to
take any action to effect, any such registration pursuant to this
Section 5:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in effecting such registration, qualification or
compliance, unless the Company is already
-4-
<PAGE> 5
subject to service in such jurisdiction and except as may be
required by the Securities Act; or
(B) After the Company has effected two (2) such
registrations pursuant to this Section 5(a) and such
registrations have been declared or ordered effective; or
(C) Prior to six (6) months following the closing of the
initial offering to the public of the Company's stock pursuant to
a firm commitment registered underwriting for the account of the
Company (the "PUBLIC OFFERING").
Subject to the foregoing clauses (A), (B), and (C), the Company shall
file with the Commission a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable, after receipt
of the request or requests of the Initiating Holders; provided, however, that if
the Company shall furnish to such Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company and its shareholders for
such registration statement to be filed on or before the time filing would be
required and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer such filing (but not more
than twice during any twelve (12) month period) for a period of not more than
ninety (90) days after receipt of the request of the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders, may, subject to the provisions of Section 5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no right to include any of its securities in any such
registration except as provided in Section 5(b) below.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 5, and the Company shall include such information in the written notice
referred to in Section 5(a)(i) above. The right of any Holder to registration
pursuant to Section 5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. A Holder may elect to include in
such underwriting all or a part of the Registrable Securities he holds.
If officers or directors of the Company shall request inclusion of
securities of the Company other than Registrable Securities in any registration
pursuant to Section 5, or if holders of securities of the Company who are
entitled by contract with the Company to have securities included in such a
registration (such officers, directors, and other shareholders being
collectively referred to as
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<PAGE> 6
the "OTHER SHAREHOLDERS") request such inclusion, the Initiating Holders shall
(subject to the limitations set forth below), on behalf of all Holders, offer to
include the securities of such Other Shareholders in the underwriting and may
condition such offer on their acceptance of the further applicable provisions of
this Agreement. The Company shall (together with all Holders and Other
Shareholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters (the "UNDERWRITER") selected for such
underwriting by the Company which underwriter shall be reasonably acceptable to
the Initiating Holders. Notwithstanding any other provision of this Section 5,
if the Underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the Underwriter may (subject to the
allocation priority set forth below) limit the number of Registrable Securities
to be included in the registration and underwriting. The Company shall so advise
all holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following priority: first, among all Holders of
Registrable Securities (and pro rata among such holders on the basis of all
Registrable Securities then held by such holders) and second, among all Other
Shareholders in proportion, as nearly as practicable, to the amounts of
securities which they had requested to be included in such registration at the
time of filing the registration statement. If any Holder or Other Shareholder
disapproves of the terms of any such underwriting, such holder may elect to
withdraw therefrom by written notice to the Company and the Underwriter. Any
Registrable Securities or securities held by Other Shareholders excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
the Underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the Underwriter so agrees and if the number
of Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
6. Company Registration.
(a) If the Company shall determine to register any of its securities
either for its own account or for the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule 145 transaction or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration, and in any underwriting
involved therein, all of the Registrable Securities specified in a
written request or requests made by any Holder within ten (10) days
after receipt of the written notice from the Company described in
clause (i) above, except as set forth in Section 6(b) below. Such
written request may specify all or a part of a Holder's Registrable
Securities.
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<PAGE> 7
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
6(a)(i). In such event the right of any Holder to registration pursuant to
Section 6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the Other Shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the Underwriter
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 6, if the Underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the Underwriter may
(subject to the allocation priority set forth below) exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
by persons other than the Company shall be allocated in the following priority:
first, among all Holders of Registrable Securities (and pro rata among such
holders on the basis of all Registrable Securities then held by such holders)
and second, among all Other Shareholders in proportion, as nearly as
practicable, to the amounts of securities which they had requested to be
included in such registration at the time of filing the registration statement,
provided that, notwithstanding the foregoing, the executive officers of the
Company shall be entitled to include not less than an aggregate of 200,000
shares of Common Stock (as adjusted for stock splits and like events) in the
first public offering by the Company that includes shares for the account of any
shareholder. If any Holder or Other Shareholder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the Underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
7. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by the holders of a majority of the
Registrable Securities held by the Initiating Holders requesting such
registration, the registration statement does not become effective, unless such
withdrawal is caused by a material adverse change in the business, operations or
prospects of the Company after such request for registration, or unless the
Initiating Holders agree to have such registration considered a registration
pursuant to Section 5(a)(ii)(B). If the Company is not required to pay any
Registration Expenses, then the Holders and Other Shareholders requesting
registration shall bear such Registration Expenses pro rata on the basis of the
number of their shares so included in the registration request, and such
registration shall not be considered a registration for purposes of Section
5(a)(ii)(B).
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<PAGE> 8
8. Registration on Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3, and to that end, the Company shall comply
with the reporting requirements of the Exchange Act promptly following the
effective date of the first registration of any securities of the Company for a
registered public offering. After the Company has qualified for the use of Form
S-3, the Holders shall have the right to request an unlimited number of
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by each such holder), subject only to the
following limitations:
(i) The Company shall not be obligated to cause a registration
on Form S-3 to become effective prior to one hundred eighty (180)
days following the effective date of a Company-initiated registration
(other than a registration effected solely to qualify an employee
benefit plan or to effect a business combination pursuant to Rule
145), provided that the Company shall use its best efforts to achieve
such effectiveness promptly following such one hundred eighty (180)
day period;
(ii) The Company shall not be obligated to cause a
registration on Form S-3 to become effective prior to expiration of
one hundred eighty (180) days following the effective date of the
most recent registration pursuant to a request by Initiating Holders
under this Agreement; provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly following
such one hundred eighty (180) day period;
(iii) The Company shall not be required to effect a
registration pursuant to this Section 8 unless the Holder or Holders
requesting registration propose to dispose of shares of Registrable
Securities having an aggregate price to the public (before deduction
of underwriting discounts and expenses of sale) of at least
$5,000,000;
(iv) The Company shall not be required to effect a
registration pursuant to this Section 8 prior to expiration of twelve
(12) months following the effective date of the most recent
registration on Form S-3 pursuant to this Agreement; and
(v) The Company shall not be required to maintain and keep any
such registration on Form S-3 effective for a period exceeding ninety
(90) days from the effective date thereof.
The Company shall give notice to all Holders and all holders of
registration rights under any other agreement of the Company granting
Form S-3 or similar demand registration rights of the receipt of a
request for registration pursuant to this Section 8 and shall provide
a reasonable opportunity for all such other holders to participate in
the registration. Subject to the foregoing, the Company will use its
best efforts to effect as soon as practicable the registration of all
shares of Registrable Securities on Form S-3 to the extent requested
by the Holder or Holders thereof for purposes of
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<PAGE> 9
disposition. In the event the Underwriter determines that market
factors require a limitation on the number of shares to be
underwritten, then shares shall be excluded from such registration
and underwriting pursuant to the method described in Section 5(b).
9. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder
advised as to the initiation of such registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of ninety (90)
days or until the Holder or Holders have completed the distribution described in
the registration statement relating thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Sections 5, 6 and 8 hereof, the Company
will enter into any underwriting agreement reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions; and
(d) Take such customary and reasonable actions as the Holders of at
least a majority of the Registrable Securities being sold and the underwriters,
if any, reasonably request in order to facilitate the disposition of such
Registrable Securities.
10. Indemnification.
(a) The Company will indemnify and hold harmless each Holder, each
of its officers, directors, partners and members and each person controlling
such Holder, if Registrable Securities held by such Holder are included in the
securities with respect to which registration, qualification or compliance has
been effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof), whether joint or several, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any applicable state securities
law or any rule or regulation thereunder relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners and members and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and
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<PAGE> 10
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, as such expenses
are incurred provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement (or alleged untrue statement) or omission
(or alleged omission) based upon written information furnished to the Company by
such Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable
Securities or other securities held by such holder are included in the
securities as to which such registration, qualification or compliance is being
effected, indemnify and hold harmless the Company, each of its directors,
officers and agents and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act, and the rules and
regulations thereunder, each other such Holder and Other Shareholder and each of
their officers, directors, partners and members and each person controlling such
Holder or Other Shareholder, against all claims, losses, damages and liabilities
(or actions in respect thereof), whether joint or several, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
and will reimburse the Company and such Holders, Other Shareholders, directors,
officers, agents, partners, members, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
such expenses are incurred, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder or Other Shareholder and stated to be
specifically for use therein. In no event shall the liability of a Holder or
Other Shareholder for indemnification under this Section 10 exceed the proceeds
received by such Holder or Other Shareholder in the offering.
(c) Each party entitled to indemnification under this Section 10
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement except to the extent
the Indemnifying Party is prejudiced thereby, and provided further, however,
that an indemnified party (together with all other indemnified parties) shall
have the right to retain one separate counsel, with the reasonable
-10-
<PAGE> 11
fees and expenses of such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. No Indemnifying Party in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing provisions of this Section 10, to
the extent that any provision contained in the underwriting agreement entered
into in connection with the underwritten public offering related to any such
claim for indemnification or contribution are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and the Holders and Other
Shareholders under this Section 10 shall survive the completion of any offering
of Registrable Securities pursuant to this Agreement, and otherwise.
11. Information by Holder. Each Holder and each Other Shareholder
holding securities included in any registration shall furnish to the Company
such information regarding such Holder or Other Shareholder as the Company may
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
12. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of more than 50% of the then outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company giving such holder or prospective holder any
-11-
<PAGE> 12
registration rights the terms of which are equal to or more favorable than the
registration rights granted to Holders in Section 6 above.
13. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration or pursuant to a
registration statement on Form S-3, the Company agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
following the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements and to take all such other reasonable actions so
that the Company will qualify for use of Form S-3;
(c) So long as a Shareholder owns any Restricted Securities, furnish
to the Shareholder forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements).
14. No-Action Letter or Opinion of Counsel in Lieu of Registration.
Notwithstanding anything in this Agreement to the contrary, if at any time after
the date of the Company's initial public offering of its securities under the
Securities Act the Company shall have obtained from the Commission a "no-action"
letter in which the Commission has indicated that it will take no action if,
without registration under the Securities Act, any Holder disposes of
Registrable Securities covered by any request for registration made under this
Agreement in the manner in which such Holder proposes to dispose of the
Registrable Securities included in such request, or if in the opinion of counsel
for the Company concurred in by counsel for such Holder no registration under
the Securities Act is required in connection with such disposition, the
Registrable Securities included in such request shall not be eligible for
registration under this Agreement; provided, however, with respect to any Holder
who may deemed to be an "affiliate," as that term is defined under Rule 144, if,
notwithstanding the opinion of such counsel, the Holder is unable to dispose of
all of the Registrable Securities included in his request in the manner in which
such Holder so proposes without registration, the Registrable Securities
included in such request shall be eligible for registration under this
Agreement.
15. Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities under Sections 5, 6 and 8 hereof may be
transferred or assigned by a Shareholder to its partners, former partners and
affiliates of such Shareholder and to persons holding at least
-12-
<PAGE> 13
150,000 shares (as adjusted for stock splits and like events) of Registrable
Securities ("PERMITTED TRANSFEREES"), provided that the Company is given written
notice by such Shareholder prior to the time of said transfer or assignment,
stating the name and address of said Permitted Transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned, and provided further that the Permitted
Transferee of such rights is not deemed by the Board of Directors of the
Company, in its reasonable judgment, to be a competitor of the Company; and
provided further that the Permitted Transferee of such rights assumes the
obligations of a Shareholder under this Agreement.
16. "Market Stand-off" Agreement. Each Shareholder agrees not to sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Shareholder (other than any securities purchased in the
public market or directly from the underwriters of such offering) 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 Securities Act with respect to the Company's initial public
offering (other than any shares sold in such offering), provided that all
executive officers and directors of the Company who then hold Common Stock (or
other securities) of the Company enter into similar agreements in a form
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the Common Stock (or other
securities) subject to the foregoing restriction until the end of said period.
17. Right of First Refusal.
(a) New Issuances. The Company hereby grants to the Shareholders the
right of first refusal (the "RIGHT OF FIRST REFUSAL") to purchase, pro rata, all
(or any part) of "NEW SECURITIES" (as defined in this Section 17) that the
Company may, from time to time propose to sell and issue. Such pro rata share,
for purposes of this right of first refusal, is the ratio of (X) the sum of the
number of shares of Common Stock then owned by such Shareholder and the number
of shares of Common Stock issuable upon the conversion of the Shares then owned
by such Shareholder, to (Y) the sum of the total number of shares of Common
Stock then outstanding and the total number of shares of Common Stock issuable
upon the conversion of all outstanding convertible securities or upon the
exercise of all options then outstanding. This right of first refusal shall be
subject to the following provisions:
(i) "NEW SECURITIES" shall mean any Common Stock and Preferred
Stock of the Company whether or not authorized on the date hereof, and rights,
options, or warrants to purchase Common Stock or Preferred Stock and securities
of any type whatsoever that are, or may become, exercisable for or convertible
into Common Stock or Preferred Stock; provided, however, that "NEW SECURITIES"
does not include the following:
(A) Shares issued pursuant to the Purchase Agreement;
-13-
<PAGE> 14
(B) shares of Common Stock issuable upon conversion of the
Shares issued pursuant to the Purchase Agreement;
(C) up to 4,000,000 shares of Common Stock issued 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 date of the Series B Closing (as defined in the Purchase
Agreement) 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 17(a)(i)(C) 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) of the Company's Restated Articles of Incorporation; or
(D) shares of Common Stock issued in connection with any
stock dividend or distribution by the Company on the Shares (or on the Common
Stock if the conversion price for the Shares is adjusted pursuant to the
Company's Restated Articles of Incorporation).
(ii) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Shareholder written notice of its
intention, describing the type of New Securities, the price, and the general
terms (including the number of New Securities expected to be offered) upon which
the Company proposes to issue the same. Each Shareholder shall have ten (10)
days after receipt of such notice to agree to purchase its pro rata share of
such New Securities at the price and upon the terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(iii) In the event that the Shareholders fail to exercise in
full the right of first refusal within the ten (10) day period specified above,
the Company shall have one hundred twenty (120) days thereafter to sell (or
enter into an agreement pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of said
agreement) the New Securities respecting which the rights of the Shareholders
were not exercised at a price and upon terms no more favorable to the purchasers
thereof than specified in the Company's notice. In the event the Company has not
sold the New Securities within such one hundred twenty (120) day period (or sold
and issued New Securities in accordance with the foregoing within sixty (60)
days from the date of such agreement) the Company shall not thereafter issue or
sell any New Securities, without first offering such New Securities to the
Shareholders in the manner provided above.
(iv) The Right of First Refusal granted under this Section 17
shall expire immediately prior to the closing of the Public Offering and shall
not apply to any shares sold in such offering.
-14-
<PAGE> 15
(v) This Right of First Refusal is nonassignable, except that
any Shareholder may assign or apportion such rights among its general partners
or affiliates provided that such action shall not extend any notice period or
delay the closing of the transaction.
(vi) This Right of First Refusal shall terminate as to any
Shareholder (or any transferee or assignee of such Shareholder) at such time as
such Shareholder ceases to own any Shares or Registrable Securities.
18. Termination of Rights. The provisions of this Agreement shall
terminate upon the first to occur of (a) the fifth anniversary of the date that
all of the outstanding Shares were converted into Common Stock; and (b) as to
any Holder on the date on which all Registrable Securities held by such Holder
(and any affiliate of the Holder with whom such Holder must aggregate its shares
under Rule 144) may be sold pursuant to Rule 144 in any three (3) month period,
provided that such shares represent less than one percent (1%) of the Company's
then outstanding equity securities.
19. Governing Law. This Agreement and the legal relations among the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations among the parties arising under this Agreement.
20. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties regarding rights to registration.
Except as otherwise expressly provided herein, the provisions hereof shall inure
to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
21. Termination of Rights Under Prior Agreement. Each of the Investors
hereby acknowledges and agrees not to exercise any rights of such Investor
pursuant to the 1996 Rights Agreement on or after the date hereof. Each Investor
agrees to terminate any rights such Investor may have under the 1996 Rights
Agreement if requested by the Company.
22. Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or otherwise delivered by hand or by messenger or by overnight
courier service, addressed (a) if to a Shareholder, at the address set forth on
Exhibit A or Exhibit B attached hereto, or at such other address as the
Shareholder shall have furnished to the other parties hereto in writing, or (b)
if to any other holder of any securities, at such address as such holder shall
have furnished the other parties hereto in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Shares who has so furnished an address to the Company, or (c) if
to the Company, at the address of its principal offices set forth on the
signature page of this Agreement, or at such other address as the Company shall
have furnished to the other parties hereto in writing.
-15-
<PAGE> 16
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
24. Attorney's Fees. If any party hereto brings an action against
another party hereto to enforce its rights under this Agreement, the party
prevailing in such action will be entitled to the reasonable attorneys' fees and
expenses of counsel and court costs and other out-of-pocket expenses incurred by
reason of such action.
25. Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted from this Agreement and
the remaining provisions of this Agreement shall be unaffected and shall
continue in full force and effect.
26. Amendments. Any provision of this Agreement may be amended, waived
or modified upon the written consent of the Company and the Shareholders (or
their assignees to whom Shareholders have expressly assigned their rights in
compliance with Section 15 hereof) who then hold at least a majority of the
Registrable Securities then held by persons entitled to registration rights
hereunder, provided further, any such amendment, waiver or modification applies
by its terms to each applicable Shareholder and each Permitted Transferee and,
provided further, that a Shareholder or Permitted Transferee hereunder may waive
any of such Holder's rights or the Company's obligations hereunder without
obtaining the consent of any other Shareholder or Permitted Transferee.
[remainder of page intentionally left blank]
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ JAMES T. DEMETRIADES
-------------------------------------------
James T. Demetriades, Chairman,
Chief Executive Officer and President
Address: 404 East Huntington Drive
Monrovia, CA 91016
INVESTOR
STORIE PARTNERS, L.P.
By: /s/ STEVEN A. LEDGER
-------------------------------------------
Steven A. Ledger, General Partner
PURCHASERS
NORWEST VENTURE PARTNERS VI, L.P.
By: Itasca VC Partners VI, LLP,
Its General Partner
By: /s/ GEORGE J. STILL
-------------------------------------------
George J. Still, Jr., General Partner
IMPRIMIS SB, L.P.
By: Imprimis SB G.P., LLC
Its General Partner
By: /s/ ROBERT HOLTZ
-------------------------------------------
Robert Holtz, Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 18
INSIGHT CAPITAL PARTNERS II, L.P.
By: InSight Venture Associates II, LLC
Its General Partner
By: /s/ JEFFREY HORING
-------------------------------------------
Jeffrey Horing, Member
INSIGHT CAPITAL PARTNERS (CAYMAN) II, L.P.
By: InSight Venture Associates II, LLC
Its General Partner
By: /s/ JEFFREY HORING
-------------------------------------------
Jeffrey Horing, Member
INTEGRAL CAPITAL PARTNERS IV, L.P.
By: Itasca Capital Management IV, LLC
Its General Partner
By: /s/ PAMELA K. HAGENAH
-------------------------------------------
Pamela K. Hagenah, A Manager
[remainder of page intentionally left blank]
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 19
PURCHASERS (SECOND CLOSING)
/s/ MARGARET L. TAYLOR
----------------------------------------------
Margaret L. Taylor
David A. Duffield Trust dated 7/14/88
By: /s/ DAVID A. DUFFIELD
-------------------------------------------
David A. Duffield, Trustee
/s/ ROBERT TYSON PARDUE
----------------------------------------------
Robert Tyson Pardue
/s/ JOHN LOAR
----------------------------------------------
John Loar
JBTC Trust
By: /s/ JAMES J. BOZZINI
-------------------------------------------
James J. Bozzini, Trustee
/s/ RICHARD BERGQUIST
----------------------------------------------
Richard Bergquist
/s/ TERRY Y. LEE
----------------------------------------------
Terry Y. Lee
/s/ CHARLES PHILLIPS
----------------------------------------------
Charles Phillips
/s/ GEORGE BATTLE
----------------------------------------------
George Battle
WS Investment Company 98A
By: /s/ JEFFREY SAPER
-------------------------------------------
Title: Member
----------------------------------------
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 20
/s/ JEFFREY D. SAPER
----------------------------------------------
Jeffrey D. Saper
WSGR Retirement Plan fbo
J. Robert Suffoletta
By: /s/ MARIO M. ROSATI
-------------------------------------------
Mario M. Rosati, Trustee
By: /s/ DOUGLAS M. LAURICE
-------------------------------------------
Douglas M. Laurice, Trustee
G&H Partners
By: /s/ G & H PARTNERS
-------------------------------------------
Title:
----------------------------------------
Trilogy Partners, L.P.
By: /s/ TRILOGY PARTNERS
-------------------------------------------
Title:
----------------------------------------
Stanford University
By: /s/ STANFORD UNIVERSITY
-------------------------------------------
Title:
----------------------------------------
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 21
PURCHASERS (THIRD CLOSING)
/s/ PETER DUNNING
----------------------------------------------
Peter Dunning
/s/ RAYMOND J. LANE
----------------------------------------------
Raymond J. Lane
/s/ STEVE PERKINS
----------------------------------------------
Steve Perkins
/s/ CHARLES PHILLIPS
----------------------------------------------
Charles Phillips
/s/ ROEL PIEPER
----------------------------------------------
Roel Pieper
/s/ ROBERT W. SHAW
----------------------------------------------
Robert W. Shaw
1997 Edward J. Sanderson, Jr. and
Susan C. Sanderson
Revocable Trust dated October 1, 1997
/s/ EDWARD J. SANDERSON
----------------------------------------------
Edward J. Sanderson Jr., Trustee
/s/ SUSAN C. SANDERSON
----------------------------------------------
Susan C. Sanderson, Trustee
AC II Technology (ACT II) B.V.
By: /s/ AC II TECHNOLOGY
-------------------------------------------
Title:
----------------------------------------
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 22
SOFTWARE TECHNOLOGIES CORPORATION
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This Amendment (the "AMENDMENT") to Registration Rights Agreement is
made as of February 23, 1999 by and among Software Technologies Corporation, a
California corporation (the "COMPANY"), the Shareholders (as defined below) and
the New Investors listed on Exhibit A hereto (the "NEW INVESTORS").
RECITALS
A. The Company, the holders of the Company's Series A Preferred Stock
and certain other holders of the Company's Common Stock (collectively, the
"SHAREHOLDERS") are parties to that certain Registration Rights Agreement dated
as of May 8, 1998 (the "RIGHTS AGREEMENT").
B. The Company proposes to sell an aggregate of 1,201,633 shares of its
Common Stock (the "COMMON SHARES") to the New Investors pursuant to that certain
Common Stock Purchase Agreement dated as of the date hereof (the "COMMON STOCK
PURCHASE AGREEMENT").
C. The Company and the Shareholders desire that the Company sell the
Common Shares to the New Investors and that the Rights Agreement be amended as
set forth herein.
D. Pursuant to Section 12 of the Rights Agreement, the Company may not
grant further registration rights without the written consent of the Holders of
a majority of the then outstanding Registrable Securities (as defined therein),
subject to certain limited exceptions.
E. Pursuant to Section 26 thereof, the Rights Agreement may be amended
upon the written consent of the Company and the holders of at least a majority
of the Registrable Securities (as defined therein) then held by persons entitled
to registration rights thereunder.
F. The Company and Shareholders holding not less than the minimum number
of shares required to amend the Rights Agreement hereby consent in writing to
this Amendment.
AGREEMENT
1. Amendment of Rights Agreement. The Rights Agreement is hereby amended
as follows:
(a) For all purposes of the Rights Agreement (as amended by this
Amendment), the term "Shares" and the term "Registrable Securities" shall
include the Common Shares issued pursuant to the Common Stock Purchase
Agreement.
(b) For all purposes of the Rights Agreement (as amended by this
Amendment), the term "Purchasers" shall include the New Investors.
<PAGE> 23
(c) Section 18 of the Rights Agreement is amended to provide in full
as follows:
"Termination of Rights. The provisions of this Agreement (except
for Section 16 hereof) shall terminate upon the first to occur of (a)
the fifth anniversary of the date that all of the outstanding Shares
were converted into Common Stock; and (b) as to any Holder on the date
on which all Registrable Securities held by such Holder (and any
affiliate of the Holder with whom such Holder must aggregate its shares
under Rule 144) may be sold pursuant to Rule 144 in any three (3) month
period, provided that such shares represent less than one percent (1%)
of the Company's then outstanding equity securities."
2. Governing Law. This Amendment and the legal relations among the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Amendment or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations among the parties arising under this Amendment.
3. Entire Agreement. The Rights Agreement, as amended hereby,
constitutes the full and entire understanding and agreement among the parties
regarding the subject matter herein. Except as otherwise expressly provided in
the Rights Agreement, as amended hereby, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs, executors
and administrators of the parties hereto.
4. Full Force and Effect. Except as amended hereby, the Rights Agreement
shall remain in full force and effect.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 24
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
Registration Rights Agreement as of the date set forth above.
"COMPANY"
SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ JAMES T. DEMETRIADES
-------------------------------------------
James T. Demetriades
President and Chief Executive Officer
Address: 404 E. Huntington Drive
Huntington, CA 91016
"SHAREHOLDERS"
NORWEST VENTURE PARTNERS VI, LLP
By: Itasca VC Partners VI, LLP
its General Partner
By: /s/ GEORGE J. STILL
-------------------------------------------
George J. Still, Jr., General Partner
Address: 245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
Attn: George J. Still, Jr.
IMPRIMIS SB, L.P.
By: Imprimis SB G.P., LLC
its General Partner
By: /s/ ROBERT HOLTZ
-------------------------------------------
Robert Holtz, Vice President
Address: c/o Wexford Management LLC
411 West Putnam Avenue
Greenwich, CT 06830
Attn: Robert Holtz
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 25
INSIGHT CAPITAL PARTNERS II, L.P.
By: InSight Venture Associates II, LLC
its General Partner
By: /s/ JEFFREY HORING
-------------------------------------------
Jeffrey Horing, Member
Address: 122 E. 42nd, Suite 2300
New York, NY 10168
Attn: Jeffrey Horing
INSIGHT CAPITAL PARTNERS (CAYMAN) II, L.P.
By: InSight Venture Associates II, LLC
its General Partner
By: /s/ JEFFREY HORING
-------------------------------------------
Jeffrey Horing, Member
Address: 122 E. 42nd, Suite 2300
New York, NY 10168
Attn: Jeffrey Horing
INTEGRAL CAPITAL PARTNERS IV, L.P.
By: Integral Capital Management IV, LLC
its General Partner
By: /s/ PAMELA K. HAGENAH
-------------------------------------------
Pamela K. Hagenah, A Manager
Address: 2750 Sand Hill Road
Menlo Park, California 94025
Attn: Pamela K. Hagenah
STORIE PARTNERS, L.P.
By: Steven A. Ledger
its General Partner
/s/ STEVEN A. LEDGER
------------------------------------------
Steven A. Ledger, General Partner
Address: 100 Pine Street, Suite 2700
San Francisco, California 94111
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 26
/s/ MARGARET L. TAYLOR
----------------------------------------------
MARGARET L. TAYLOR
Address: PeopleSoft, Inc.
4440 Rosewood Drive
Pleasanton, California 94588
WS INVESTMENT COMPANY 98A
By: /s/ JEFFREY D. SAPER
-------------------------------------------
Jeffrey D. Saper, Partner
Address: 650 Page Mill Road
Palo Alto, California 94304
Attn: Jim Terranova
/s/ JEFFREY D. SAPER
----------------------------------------------
JEFFREY D. SAPER
Address: 650 Page Mill Road
Palo Alto, California 94304
WS RETIREMENT PLAN FBO J. ROBERT SUFFOLETTA
By: /s/ MARIO M. ROSATI
------------------------------------------
Mario M. Rosati, Trustee
By: /s/ DOUGLAS M. LAURICE
-------------------------------------------
Douglas M. Laurice, Trustee
Address: 650 Page Mill Road
Palo Alto, California 94304
Attn: Jim Terranova
DAVID A. DUFFIELD TRUST DATED 7/14/88
By: /s/ DAVID A. DUFFIELD
-------------------------------------------
David A. Duffield, Trustee
Address: PeopleSoft, Inc.
4440 Rosewood Drive
Pleasanton, California 94588
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 27
/s/ ROBERT TYSON PARDUE
----------------------------------------------
ROBERT TYSON PARDUE
Address: PeopleSoft, Inc.
c/o Margaret Taylor
4440 Rosewood Drive
Pleasanton, California 94588
JBTC TRUST
By: /s/ JAMES J. BOZZINI
-------------------------------------------
James J. Bozzini, Trustee
Address: PeopleSoft, Inc.
c/o James J. Bozzini
4440 Rosewood Drive
Pleasanton, California 94588
/s/ JOHN LOAR
----------------------------------------------
JOHN LOAR
Address: PeopleSoft, Inc.
c/o Margaret Taylor
4440 Rosewood Drive
Pleasanton, California 94588
LYNN AND RICHARD BERGQUIST 1997
FAMILY TRUST DATED OCTOBER 23, 1997
/s/ LYNN BERGQUIST
----------------------------------------------
Lynn Bergquist, Trustee
/s/ RICHARD BERGQUIST
----------------------------------------------
Richard Bergquist, Trustee
Address: 460 Castanya Court
Danville, California 94526
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 28
/s/ TERRY Y. LEE
----------------------------------------------
TERRY Y. LEE
Address:
/s/ GEORGE BATTLE
----------------------------------------------
GEORGE BATTLE
Address: 1065 Sterling Avenue
Berkeley, California 94708
G&H PARTNERS
By: /s/ G&H PARTNERS
-------------------------------------------
Title:
----------------------------------------
Address: c/o Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
TRILOGY PARTNERS, L.P.
By: /s/ TRILOGY PARTNERS
-------------------------------------------
Title:
----------------------------------------
Address: c/o William Patterson
Piper Jaffray
222 Ninth Street
Minneapolis, MN 55402
STANFORD UNIVERSITY
By: /s/ CAROL GILMER
-------------------------------------------
Title:
----------------------------------------
Address: Carol Gilmer
2770 Sand Hill Road
Menlo Park, California 94025
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 29
/s/ PETER DUNNING
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PETER DUNNING
Address: 543 Gramercy Drive
Marietta, Georgia 30068
/s/ RAYMOND J. LANE
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RAYMOND J. LANE
Address: 127 Alta Vista
Atherton, California 94027-6401
/s/ STEVE PERKINS
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STEVE PERKINS
Address: 421 Timberbranch Parkway
Alexandria, Virginia 22302
/s/ CHARLES PHILLIPS
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CHARLES PHILLIPS
Address:
/s/ ROEL PIEPER
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ROEL PIEPER
Address: P.O. Box 77900
1070 MX Amsterdam
The Netherlands
/s/ ROBERT W. SHAW
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ROBERT W. SHAW
Address: 23 Teaberry Lane
Tiburon, California 94920
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 30
1997 EDWARD J. SANDERSON, JR. AND
SUSAN C. SANDERSON
REVOCABLE TRUST DATED 10/1/97
/s/ EDWARD J. SANDERSON
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Edward J. Sanderson, Trustee
/s/ SUSAN C. SANDERSON
----------------------------------------------
Susan C. Sanderson, Trustee
Address: 2327 Hale Drive
Burlingame, California 94010
AC II TECHNOLOGY (ACT II) B.V.
By: /s/ AC II TECHNOLOGY
-------------------------------------------
Title:
----------------------------------------
Address: c/o Andersen Consulting
1661 Page Mill Road
Palo Alto, California 94304
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 31
"NEW INVESTORS"
STORIE PARTNERS, L.P.
By: Steven A. Ledger
its General Partner
/s/ STEVEN A. LEDGER
------------------------------------------
Steven A. Ledger, General Partner
Address: 100 Pine Street, Suite 2700
San Francisco, California 94111
/s/ ROBERT A. NAIFY
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ROBERT A. NAIFY
Address: 172 Golden Gate Avenue
San Francisco, CA 94102
/s/ MARSHALL NAIFY
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MARSHALL NAIFY
Address: c/o Robert A. Naify
172 Golden Gate Avenue
San Francisco, CA 94102
/s/ SALAH M. HASSANEIN
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SALAH M. HASSANEIN
Address: 2318 Ocean Front
Del Mar, CA 92014
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 32
THE TODD-AO CORPORATION
By: /s/ SALAH HASSANEIN
-------------------------------------------
Title:
----------------------------------------
Address: 900 N. Seward Street
Hollywood, CA 90038
Attn: Randy Strickley
LYNN AND RICHARD BERGQUIST 1997 FAMILY TRUST
DATED OCTOBER 23, 1997
/s/ LYNN BERGQUIST
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Lynn Bergquist, Trustee
/s/ RICHARD BERGQUIST
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Richard Bergquist, Trustee
Address: 460 Castanya Court
Danville, California 94526
JBTC TRUST
By: /s/ JAMES J. BOZZINI
-------------------------------------------
James J. Bozzini, Trustee
Address:
PeopleSoft, Inc.
c/o James J. Bozzini
4440 Rosewood Drive
Pleasanton, California 94588
1997 EDWARD J. SANDERSON, JR. AND
SUSAN C. SANDERSON REVOCABLE TRUST
DATED 10/1/97
/s/ EDWARD J. SANDERSON
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Edward J. Sanderson, Trustee
/s/ SUSAN C. SANDERSON
----------------------------------------------
Susan C. Sanderson, Trustee
Address: 2327 Hale Drive
Burlingame, California 94010
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 33
/s/ ROBERT W. SHAW
----------------------------------------------
ROBERT W. SHAW
Address: 23 Teaberry Lane
Tiburon, California 94920
WS INVESTMENT COMPANY 98A
By: /s/ JEFFREY D. SAPER
-------------------------------------------
Jeffrey D. Saper, Partner
Address: 650 Page Mill Road
Palo Alto, California 94304
Attn: Jim Terranova
/s/ JEFFREY D. SAPER
----------------------------------------------
JEFFREY D. SAPER
Address: 650 Page Mill Road
Palo Alto, California 94304
/s/ J. ROBERT SUFFOLETTA
----------------------------------------------
J. ROBERT SUFFOLETTA
Address: 650 Page Mill Road
Palo Alto, California 94304
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 10.9
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only June 6, 1997, is made by and between BOONE/FETTER/OCCIDENTAL I ("LESSOR")
and SOFTWARE TECHNOLOGIES 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 as 404 East Huntington Drive, Monrovia, located in the County of Los
Angeles, State of California, and generally described as (describe briefly the
nature of the property and, if applicable, the "PROJECT", if the property is
located within a Project) approximately 43,393 square feet of high tech space
("PREMISES"). (See also Paragraph 2)
1.3 TERM: (See Paragraph 50 of Addendum) __ years and __________
months ("ORIGINAL TERM") commencing ______________ ("COMMENCEMENT DATE") and
ending August 31, 2003 ("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also
Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $36,754.00 per month ("BASE RENT"), payable on the
1st day of each month commencing (See Paragraph 51 of Addendum). (See also
Paragraph 4)
[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: $0 as Base Rent for the period
N/A.
1.7 SECURITY DEPOSIT: $91,126.00 (See Paragraph 52) ("SECURITY
DEPOSIT"). (See also Paragraph 5)
1.8 AGREED USE: Office space, light assembly or any lawful use.
(See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[ ] _________________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] ______________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[X] CB Commercial and Carl Anderson represents both Lessor and Lessee ("DUAL
AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of * % of
the total Base Rent for the brokerage services rendered by said Broker). *4% for
1st 60 months; 2% for months 61-72
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _______________________________________________________________
_________________________________________ ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 61.1 and Exhibits A,B, 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 size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, 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, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty, correction of such
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense. (See Paragraphs 53 of Addendum)
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start 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. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting 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 Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
PAGE 1
(c)1997 -- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM 204N-R-2/97
<PAGE> 2
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use; (b)
Lessee has made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises; and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 50.
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
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement 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
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent 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
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, 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, expense, loss or damage 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 monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
PAGE 2
FORM 204N-R-2/97
<PAGE> 3
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, 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 potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "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 governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance 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, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. 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 or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations 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, removal, remediation,
restoration and/or abatement, and shall survive the expiration or 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, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
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 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 date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements 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 the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
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. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
PAGE 3
FORM 204N-R-2/97
<PAGE> 4
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices, specifically including the procurement and maintenance of
the service contracts required by Paragraph 7.1(b) below. 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. Lessee shall, during the term of this Lease, keep the
exterior appearance of the Building in a first-class condition consistent with
the exterior appearance of other similar facilities of comparable age and size
in the vicinity, including, when necessary, the exterior repainting of the
Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers, (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment, if
reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is 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, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on 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, 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 pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to 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) without such consent but upon notice to
Lessor, 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 this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year. Exclusive of all computer and
communication cabling.
(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 detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing 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.
(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
mechanic's 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. If Lessee shall 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. If Lessor shall require, Lessee shall furnish a
surety bond 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. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. 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.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom 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. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.
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FORM 204N-R-2/97
<PAGE> 5
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$11,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term 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.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
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 $2,000,000 per
occurrence with an "ADDITIONAL INSURED -- MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as 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 shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
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. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), 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 a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss 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 any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property 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 debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered 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.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. 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 Rent 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
Rent 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 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.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable 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. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, 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,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice 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 defended or 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, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC 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. 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, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction.
PAGE 5
FORM 204N-R-2/97
<PAGE> 6
Lessor shall notify Lessee in writing within thirty (30) days from the date of
the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, 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 Requirements, 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 any
applicable 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, such shortage 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 such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) 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, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of 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, 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.
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),
Lessor may 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) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such 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 after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months 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 terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, 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, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
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 such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration 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 actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" 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 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or 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.
9.8 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 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated
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<PAGE> 7
with reference to the Building address and where the proceeds so generated are
to be applied by the city, county or other local taxing authority of a
jurisdiction within which the Premises are located. 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 during the term of this
Lease, including but not limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes 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 an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All monies paid
to Lessor under this Paragraph may be intermingled with other monies of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may, at the option of Lessor,
be treated as an additional Security Deposit.
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 to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
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. When possible, Lessee shall cause such 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's property within ten (10) days
after receipt of a written statement.
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.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
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<PAGE> 8
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) 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 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,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
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 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 of any general arrangement or assignment for the benefit of creditors;
(ii) 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 (e) 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 that any financial statement of Lessee or of
any Guarantor given to Lessor 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 basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide 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 of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, 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 upon receipt of 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 by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, 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:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) 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 any leasing commission paid by Lessor in connection with this Lease
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 immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, 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 and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability
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<PAGE> 9
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. Any agreement for free or abated rent or
other charges, 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. Upon
Breach of this Lease by Lessee, 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
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, 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 at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent 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 any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge of $1,500 of each 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 such late payment. 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 the exercise of 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 any provision of this Lease to
the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. 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, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender 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 are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
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
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises 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 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 proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. 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.
16. ESTOPPEL CERTIFICATES.
(a) 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 "ESTOPPEL CERTIFICATE" 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.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
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<PAGE> 10
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee and all Guarantors shall deliver to any potential lender or
purchaser designated by Lessor such financial statements 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. DEFINITION OF LESSOR. 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 the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. 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. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
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. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. 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.
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. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted
by this Lease shall be in writing and may be delivered in person (by hand or by
courier) 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 addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. 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 guarantee next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall be
deemed delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, 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. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies 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 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 termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
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 upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon 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
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<PAGE> 11
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 (1) 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 a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, 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. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
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
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' 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 attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' 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 as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
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, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect 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. Except 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' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment 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.
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. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent 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 and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
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 have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, 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 Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) 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 prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) 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 a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including
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FORM 204N-R-2/97
<PAGE> 12
the care and cleanliness of the grounds and including the parking, loading and
unloading of vehicles, 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.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, 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. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence 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 either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered 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. 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 a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] IS [ ] IS NOT attached to this Lease.
50. See Addendum 50.
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.
________________________________________________________________________________
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
________________________________________________________________________________
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Monrovia, California Executed at:___________________________
on: July 1, 1997 on: July 1, 1997
By LESSOR: By LESSEE:
BOONE/FETTER/OCCIDENTAL I SOFTWARE TECHNOLOGIES CORPORATION
By: /s/ BLAINE P. FETTER By: /s/ JAMES T. DEMETRIADES
--------------------------------- -----------------------------------
Name Printed: Blaine P. Fetter Name Printed: James T. Demetriades
Title: Partner Title: President
By:__________________________________ By:____________________________________
Name Printed:________________________ Name Printed:__________________________
Title:_______________________________ Title:_________________________________
Address: 602 East Huntington Drive, Address:_______________________________
Ste D _______________________________
Monrovia, CA 91016 Telephone: (818) 445-7000
Telephone: (818) 305-5530 Facsimile: (818) 445-5548
Facsimile: (818) 305-5541 Federal ID No._________________________
Federal ID No. 95-3947813
NOTE: These forms are often modified to meet the 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, 700
So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777. Fax No. (213) 687-8616
PAGE 12
FORM 204N-R-2/97
<PAGE> 13
RIDER TO LEASE DATED JUNE 6, 1997
BY AND BETWEEN
BOONE/FETTER/OCCIDENTAL I, AS LESSOR
AND
SOFTWARE TECHNOLOGIES CORPORATION, AS LESSEE
The following additional provisions are incorporated in the Lease dated
June 6, 1997 by and between BOONE/FETTER/OCCIDENTAL I ("Lessor") and SOFTWARE
TECHNOLOGIES CORPORATION ("Lessee"). In the event of any conflicts between the
provisions of this Rider and Paragraphs 1 through 49 of the printed lease form,
the provisions of this Rider shall prevail.
50. TERM. The lease term for Phase I of Exhibit "B" shall be 72 months
beginning September 1, 1997 and ending August 31, 2003. The lease term for Phase
II of Exhibit "B" shall be 64 months beginning May 1, 1998 and ending August 31,
2003. Lessee may occupy the area shown as Phase II of Exhibit "B" no later than
October 15, 1997.
51. BASE RENT. Months 1 - 2 $0 NNN
Months 3 - 8 $36,754 NNN
Months 9 - 35 $45,563 NNN
Months 36 - 72 $49,902 NNN
52. SECURITY DEPOSIT. Lessee to initially provide $91,126 (two months
rent) as security deposit. Lessor will release $45,563 in the 13th month of the
lease term to Lessee or credit it against the 13th month's rent at Lessee's
option.
53. WARRANTIES. Lessor shall warrant the roof membrane for the first two
(2) years of the lease term. Lessor shall warrant the HVAC system for the first
twelve (12) months of lease beginning September 1, 1997 and all other building
systems for sixty (60) days, provided they are not problems created by Lessee's
inappropriate usage or failure to maintain (i.e. in the case of the HVAC, a 24
hour per day usage requires higher frequency of service). All warranties of new
equipment will be passed through to Software Technologies Corporation.
54. TENANT IMPROVEMENT ALLOWANCE. Lessor shall provide Lessee with a
Tenant Improvement Allowance not to exceed $417,906.76 including all areas
outlined in Exhibit "B". Lessee shall be responsible for any and all costs
incurred for tenant improvement work in excess of the T.I. Allowance. Lessor
shall be responsible for all repairs to the Entire Premises, where necessary,
and all work required to bring the Entire Premises into compliance with current
building codes
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including ADA and including the repainting of the building's exterior and the
slurry coating and restriping of the asphalt parking lot prior to September 1,
1997.
55. COMMON AREA: USE, MAINTENANCE AND COSTS.
55.1 COMMON AREAS. Lessor owns and manages a parcel of real property known
as Tech Center East, Phase II, located at the southeast corner of the
intersection of Huntington Drive and California Avenue in Monrovia, California.
Said real property, including land, buildings, common areas, and all other
improvements thereon is herein called the "Entire Premises." Exhibit "A"
attached hereto depicts the Entire Premises. As used herein, "common areas"
shall mean all areas within the Entire Premises which are not specifically
leased or held for lease by Lessor, including, without limiting the foregoing,
parking areas, driveways, sidewalks, loading areas, access and egress roads,
corridors, landscaped and planted areas, and all other improvements provided by
Lessor for the common use of Lessees. Lessor may from time to time change the
size, location, nature, and use of any of the common areas including converting
common areas into leasable areas, and increasing or decreasing common area land
and/or facilities.
55.2 USE OF COMMON AREAS. Lessee, its employees, agents, customers, and
business invitees shall have the non-exclusive use (in common with other
Lessees) to use the common areas for the purpose intended, subject to such
reasonable rules and regulations relating to such use as Lessor may from time
to time establish. Lessee agrees after notice thereof to abide by such rules
and regulations and to use its best efforts to cause its officers, employees,
agents, customers, and business invitees to conform thereto. Lessor may at any
time temporarily close any common areas to effect construction, repairs, or
changes thereto, or prevent the acquisition of public rights in such areas, and
may do such other acts in and to the common areas as in its reasonable judgment
may be desirable to improve the convenience thereof. Lessee shall not at any
time interfere with rights of the Lessor, or other Lessees, or of any other
person entitled to use the common areas to use any part thereof.
55.3 MAINTENANCE OF COMMON AREAS. Lessor shall operate, manage, equip,
clean, sweep, remove refuse, light, patrol, repair, replace, and maintain the
common areas for their intended purposes.
55.4 COMMON AREA COSTS. Lessee shall pay to Lessor, in the manner provided
in Paragraph 55.5, Lessee's pro rata share of all common area costs. Common area
costs shall include all costs and expenses incurred by the Lessor for the
operation
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<PAGE> 15
and maintenance of the common areas during the lease term (including reasonable
appropriate reserves) including, without limiting the foregoing, costs and
expenses of garden and landscaping; water and sewage charges; maintenance of
signs (other than Lessee's signs); premiums for liability, property damage,
fire and other types of casualty, and workmen's compensation insurance; all
real property taxes and assessments levied on or attributable to the common
areas and all improvements therein; personal property taxes levied on or
attributable to personal property used in connection with the common areas; fees
for required licenses and permits; costs and expenses of repairs, resurfacing,
repaving, maintenance, painting, lighting, exterior light electricity,
cleaning, refuse removal, air conditioner servicing, parking lot sweeping,
window washing, security and similar items; and a reasonably allowance to
Lessor for Lessor's supervision of the common areas (but such allowance for
supervision shall not exceed in any calendar year five percent (5%) of the
total of the aforementioned costs and expenses excluding property taxes and
insurance premiums for such calendar year). Lessor may, however, cause any or
all such services to be provided by an independent contractor or contractors.
Common area costs shall not include depreciation or common area improvements.
55.5 LESSEE'S SHARE AND PAYMENT. Lessee's pro rata share of the common
area costs referred to in Paragraph 55.4 shall be a fraction of which the
numerator is the square foot area of the premises, as set forth in Paragraph
1.2, and the denominator is the aggregate number of square feet of floor area
on the Entire Premises upon the date the computation is made. The annual pro
rata charge to Lessee shall be paid in monthly installments on the first day of
each calendar month of the lease term after commencement thereof (prorated for
any fractional month) in advance, in an amount estimated by the Lessor.
Lessee's pro rata share of insurance charges are not included in the common area
charges and shall be charged annually, in advance, in accordance with
established policies and procedures of the Lessor. Within one hundred twenty
(120) days after the end of each calendar year of the lease term, Lessor shall
furnish to Lessee an accounting statement in reasonable detail, of the actual
costs and expenses paid or incurred by Lessor during the preceding calendar
year in respect of the common areas, prepared in accordance with generally
accepted accounting principles by Lessor's accountant, applied in accordance
with Paragraph 55.5, and thereupon there shall be an adjustment between Lessor
and Lessee, with payment to or credit given by lessor as the case may require,
to the end that lessor
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<PAGE> 16
shall receive the entire amount of Lessee's share of such costs and expenses
for such period.
56. CONDITION AND REPAIR OF PREMISES.
56.1 NORMAL WEAR AND TEAR DEFINITION. As defined in this Lease, normal
wear and tear is described as gradual physical deterioration of property due to
normal use, passage of time and weather.
56.2 RESOLVING CONDITION AND REPAIR OF PREMISES DISPUTES. If a dispute
arises concerning the extent of either Lessee's or Lessor's duty to keep the
Premises or the Common Areas in good order and repair or Lessee's duty to
surrender the Premises in the same condition as received except for ordinary
wear and tear, the parties agree of the following procedure to resolve such
dispute:
A. The parties will meet at the premises, within five (5) days of
telephone notice from either party, for the purpose of resolving
the dispute, including any dispute as to each party's
responsibility for any required repairs.
B. If either party refuses to meet or if the parties are unable to
resolve their dispute(s) within three (3) business days, then
either party may refer the dispute to binding arbitration.
C. Such arbitration shall be held at a time mutually convenient for
the parties at a location in Los Angeles County to be selected by
the arbitrator. The arbitrator shall be selected from the panel
of arbitrators maintained by the American Arbitration Association
in Los Angeles County. The rules of the American Arbitration
Association shall govern the proceeding. All cost of the
arbitration shall be borne by the parties equally. The prevailing
party in the arbitration shall be entitled to reimbursement of
his reasonable attorney's fees, if such party incurs attorney's
fees. The decision of the arbitrator shall be binding on all
parties and may be enforced by any court having jurisdiction.
D. Unless both parties agree, no other dispute concerning the Lease
shall be resolved by arbitration except when specifically
required under this Lease.
57. PARKING. Without any additional rent obligation on the part of the
Lessee, Lessee, its officers, employees, and agents shall be entitled to
parking space for
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<PAGE> 17
one hundred forty-nine (149) vehicles. Said parking spaces shall be located in
the parking areas for the Entire Premises as depicted on Exhibit "A" hereto and
shall be on an assigned or non-assigned basis as Lessor in its reasonable
discretion shall determine. Said parking spaces shall be limited to vehicles no
longer than standard sized automobiles or pick-up utility vehicles and Lessee
shall not park larger trucks or other large vehicles on the Entire Premises.
Lessee shall not use more than one hundred forty-nine (149) parking spaces; if
Lessee parks additional vehicles in the parking area, Lessor may, in addition
to other remedies under this Lease, require the payment of a reasonable daily
charge for each additional vehicle.
58. FINANCIAL STATEMENTS. Lessee to provide Lessor with annual
financial statements three (3) months prior to each anniversary date of lease.
59. RIGHT OF FIRST NEGOTIATION. If, as and when, Lessor receives a
written proposal to lease other space in the building, the terms of which are
acceptable to Lessor, Lessor will furnish a copy of same to Software
Technologies Corporation and Software Technologies Corporation will have five
(5) business days after receipt of same in which to decline the opportunity or
to agree to the basic terms contained in the proposal. Thereafter, the parties
would have five (5) business days in which to finalize the terms of an
amendment to this lease adding the additional space to the premises. If an
amendment is not executed during that five (5) business day period through no
fault of Lessor, thereafter, Lessor would be free to lease the vacant space to
the party that made the proposal, or to any other party, provided the terms and
conditions of that lease are no more generous to the tenant than those
contained in the original proposal and otherwise proposed to Software
Technologies Corporation by Lessor.
60. RIGHT TO SUBLEASE. The Lessee shall have the right to assign the
Lease (including the option to extend the term) or sublet its entire premises
subject to the Lessor's prior written approval which shall not unreasonably be
withheld, conditioned or delayed. In the unlikely event of any profit* as a
result of subletting or assignment, 50% (fifty percent) of that profit would be
remitted to the Lessor as additional rent. *(Profit to be defined as net of any
cost associated with the releasing of the space over the life of the remaining
term).
61. OPTION TO RENEW. Provided Lessee is not in default under any of the
terms and conditions of the Lease, and provided Lessee shall give Lessor
written notice of its election to do so not later than one hundred twenty (120)
days prior to the
5
<PAGE> 18
expiration of the Lease; Lessee shall have the option to extend the term of the
original Lease for an additional period of five (5) years upon the same terms
and conditions as the original lease except that the amount of rental for such
extended period shall be adjusted upwards to reflect 98% of the market rental
rate in 2003.
61.1 In the event that Lessor and Lessee cannot agree on the new base
rent and the other economic terms of the Lease, or any other new or changed
provision of this Lease, and Lessee has provided timely written notice to
Lessor of Lessee's desire to have the open issues determined through
arbitration, the matter shall be submitted for decision to a panel of three (3)
arbitrators. Lessor and Lessee shall each appoint one arbitrator who shall by
profession be a licensed commercial real estate broker or an MIA real estate
appraiser, and who shall be familiar with the building and have been active
(over the three (3) year period ending on the date of such appointment) in the
brokering or appraisal of properties in the Monrovia, California area. The
determination of the arbitrators shall be limited solely to the issue of
whether Lessor's or Lessee's proposed new base rent for the premises and the
other economic terms of the Lease is the closest to 98% of the actual fair
market base rent for the premises including the other economic terms of the
Lease that would be considered "market" by the arbitrators. For the purposes of
this Lease, the actual fair market base rent for the premises including other
economic terms of the Lease that should be considered "market" to the
arbitrators shall mean the annual current base rent per square foot that a
willing, comparably credit worthy, nonrenewal, nonsublease, nonequity,
nonexpansion, new tenant would pay, and a willing landlord of a comparable
building would accept, in an arms-length transaction, for the same amount of
space, giving appropriate consideration to the use by the parties of the AIR
net lease, to provisions reflecting free rent and/or possible rent abatement
during the lease term, brokerage commissions payable by landlord, if any,
length of the lease term, location of the property in which the premises are
being leased, the building standard work letter and/or tenant improvement
allowance provided, if any, the quality, age and configuration of any usable
existing tenant improvements already in the space, and other generally
applicable terms and conditions of a tenancy for the space in question. Each
such arbitrator shall be appointed within five (5) business days after Lessee's
notice to Lessor of its election to have new base rent and the other economic
terms of the Lease determined by this arbitration procedure. The two
arbitrators so appointed shall within five (5) business days of the date of the
appointment of the last appointed
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arbitrator agree upon and appoint a third arbitrator who shall be qualified
under the same criteria set forth hereinabove for qualification of the initial
two arbitrators. Failing such agreement, either Lessor of Lessee shall have the
right to petition for the appointment of a third arbitrator by the Presiding
Judge of the Superior Court of the County of Los Angeles. The three arbitrators
shall, within thirty (30) days of the appointment of the third arbitrator,
reach a decision as to whether Lessor's or Lessee's proposed new base rent and
other economic terms of the Lease is the closest to 98% of the actual fair
market base rent for the premises including the other economic terms of the
Lease that they consider to be "market," and shall notify Lessor and Lessee
thereof. The decision of the majority of the three arbitrators shall be binding
upon Lessor and Lessee. The cost of the arbitration shall be paid by Lessor and
Lessee, equally.
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EXHIBIT A
[SITE PLAN]
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EXHIBIT B
[GROUP FLOOR PLAN]
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EXHIBIT B
[SECOND FLOOR PLAN]
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[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, March 12, 1999, is made by and between BOONE/FETTER/OCCIDENTAL I
("LESSOR") and SOFTWARE TECHNOLOGIES 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 as 602 EAST HUNTINGTON DRIVE, SUITE "B", MONROVIA, located in the County
of Los Angeles, State of California, and generally described as (describe
briefly the nature of the property and, if applicable, the "PROJECT", if the
property is located within a Project) Approximately 7,484 rentable square feet
("PREMISES"). (See also Paragraph 2)
1.3 TERM: Four (4) years and five (5) months ("ORIGINAL TERM")
commencing April 1, 1999 ("COMMENCEMENT DATE") and ending August 31, 2003
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: Approximately("EARLY POSSESSION DATE"). (See
also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $8,606.60 per month ("BASE RENT"), payable on the
first (1st) day of each month commencing See Paragraphs 50 of Rider.
(See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted. (See Rider Paragraph 50)
1.6 BASE RENT PAID UPON EXECUTION: $8,606.60 as Base Rent for the
period April 1, 1999 to April 30, 1999.
1.7 SECURITY DEPOSIT: $-0- ("SECURITY DEPOSIT"). (See also Paragraph
5)
1.8 AGREED USE: Training center/general office (See also Paragraph
6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[ ] _________________________ represents Lessor exclusively ("LESSOR'S BROKER");
[X] CB Richard Ellis, Inc. represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _________________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of 5% of
the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _______________________________________________________________
_________________________________________ ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 59 and Exhibits "A" Lease Inserts, "B"
Common Area Expense, "C" Entire Premises, "D" Parking, 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 size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, 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, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof, (ii) twelve (12) months as to the HVAC systems, (iii)
sixty (60) days as to the remaining systems and other elements of the Building,
correction of such non-compliance shall be the obligation of Lessee at Lessee's
sole cost and expense. (See Rider Paragraph 59)
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start 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. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting 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 Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference
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between the actual cost thereof and the amount equal to six (6) months' Base
Rent. If Lessee elects termination, Lessee shall immediately cease the use of
the Premises which requires such Capital Expenditure and deliver to Lessor
written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); fails to
tender its share of any such Capital Expenditure, Lessee may advance such funds
and deduct same, with Interest, from Rent until Lessor's share of such costs
have been fully paid. If Lessee is unable to finance Lessor's share, or if the
balance of the Rent due and payable for the remainder of this Lease is not
sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the
right to terminate this Lease upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use; (b)
Lessee has made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises; and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3. (See Insert 3.1.)
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
(including, but not limited to, the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement 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
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent 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
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, 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, expense, loss or damage 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 monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, 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 potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
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theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "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 governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance 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, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. 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 or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations 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, removal, remediation,
restoration and/or abatement, and shall survive the expiration or 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, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
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 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 date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements 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 the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
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. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, or adjacent to the Premises. 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. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.
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(See Rider Paragraph 53)
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is 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, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on 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, 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 pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to 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) without such consent but upon notice to
Lessor, 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 this Lease as extended does not exceed $50,000 in
any one instance (See insert 7.3).
(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 detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing 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.
(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
mechanic's 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. If Lessee shall 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. If Lessor shall require, Lessee shall furnish a
surety bond 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. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Unless otherwise instructed per Paragraph 7.4(b) hereof,
all Lessee Owned Alterations and Utility Installations shall, at the expiration
or termination of this Lease, become the property of Lessor and be surrendered
by Lessee with the Premises. Notwithstanding the foregoing, Lessee shall have
the right (but not the obligation) to remove any such Lessee Owned Alterations
and Utility Installations, provided that Lessee repairs all damage caused by
such removal.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. 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. Notwithstanding the foregoing, Lessor shall not have the right to
require that Lessee remove any Lessee Owned Alterations, Utility Installations,
or other improvements existing in the Premises as of the Effective Date, nor any
Lessee Owned Alterations, Utility Installations or other improvements paid for
in whole or in part by the $35,000.00 Tenant Improvement Allowance provided by
Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom 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. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term 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.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
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 $2,000,000 per
occurrence with an "ADDITIONAL INSURED -- MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as 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 shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
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. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), 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 a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss 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 any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations,
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Trade Fixtures, and Lessee's personal property 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 debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered 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.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. 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 Rent 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
Rent 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 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.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable 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. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary
in this Lease, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to be
insured against herein. The effect of such releases and waivers is not limited
by the amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, 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,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice 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 defended or 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, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC 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. 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, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, 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 Requirements, 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. (See Rider Paragraph 54)
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, such shortage 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 such funds or
assurance are not received, Lessor may nevertheless elect by written notice to
Lessee within ten (10) days thereafter to: (i) 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, or have this Lease
terminate thirty (30) days thereafter. Lessee shall not be entitled to
reimbursement of
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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, 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.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. (See Rider Paragraph 55) Such
termination shall be effective sixty (60) days following the date of such
notice. In the event Lessor elects to terminate this Lease, Lessee shall have
the right within ten (10) days after receipt of the termination notice to give
written notice to Lessor of Lessee's commitment to pay for the repair of such
damage without reimbursement from Lessor. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within thirty (30) days after making
such 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 after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months 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 terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, 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, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
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 such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration 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 actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" 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 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or 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.
9.8 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 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. 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 during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes 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 an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All monies paid
to Lessor under this Paragraph may be intermingled with other monies of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may, at the option of Lessor,
be treated as an additional Security Deposit.
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 to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
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. When possible, Lessee shall cause such 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's property within ten (10) days
after receipt of a written statement.
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.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. (See Rider Paragraph 57)
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13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) 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 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,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
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 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 of any general arrangement or assignment for the benefit of creditors;
(ii) 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 13.1 (e) 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 that any financial statement of Lessee or of
any Guarantor given to Lessor 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 basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide 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
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execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, 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 upon receipt of 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 by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, 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:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) 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 any leasing commission paid by Lessor in connection with this Lease
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 immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, 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 and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. 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. Any agreement for free or abated rent or
other charges, 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. Upon
Breach of this Lease by Lessee, 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
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, 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 at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent 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 any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to five percent (5%) of each 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 such late
payment. 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 the exercise of 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 any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. 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, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender 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 are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
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
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
Premises, or more than twenty-five percent (25%) of the land area portion of the
Premises 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 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 proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant
to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease, or (d) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then,
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Lessor shall pay Brokers a fee in accordance with the schedule of said Brokers
in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. 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, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) 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 "ESTOPPEL CERTIFICATE" 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.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements 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. DEFINITION OF LESSOR. 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 the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. 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. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
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. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. 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.
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. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted
by this Lease shall be in writing and may be delivered in person (by hand or by
courier) 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 addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. 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 guarantee next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall be
deemed delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, 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. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies 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 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 termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
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.
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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 upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon 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 (1) 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 a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, 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. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
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
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' 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 attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' 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 as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
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, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect 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. Except 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' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment 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.
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. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent 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 and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
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 have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, 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 Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) 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 prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) 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 a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
Page 10 of 12
(C)1997 -- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-6-2/97E
REVISED
<PAGE> 33
grounds and including the parking, loading and unloading of vehicles, 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.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, 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. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence 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 either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered 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. 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 a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] IS [X] IS NOT attached to this Lease.
50. See Addendum 50.
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.
________________________________________________________________________________
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
________________________________________________________________________________
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: 602 E. Huntington Dr. Executed at:
------------------------- ---------------------------
on: 3/19/99 on:
---------------------------------- ------------------------------------
By LESSOR: By LESSEE: SOFTWARE TECHNOLOGIES CORP.
--------------------------- -----------------------------
- ------------------------------------- ---------------------------------------
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ WILLIAM OVERELL
---------------------------------- ------------------------------------
Name Printed: BOONE/FETTER/OCCIDENTAL Name Printed: SOFTWARE TECHNOLOGIES
I CORPORATION
------------------------ --------------------------
Title: Title: VP Finance & CFO
------------------------------- ---------------------------------
By: By:
---------------------------------- ------------------------------------
Name Printed: Name Printed:
------------------------ --------------------------
Title: Title:
------------------------------- ---------------------------------
Address: 602 E. Huntington Drive, Ste. Address:
----------------------------- -------------------------------
D, Monrovia, CA 91016
----------------------------- -------------------------------
Telephone: (626) 305-5530 Telephone: ( )
--------------------------- -----------------------------
Facsimile: (626) 305-5541 Facsimile: ( )
--------------------------- -----------------------------
Federal ID No. Federal ID No.
----------------------- -------------------------
Page 11 of 12
(C)1997 -- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-6-2/97E
REVISED
<PAGE> 34
NOTE: These forms are often modified to meet the 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, 700
So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777. Fax No. (213) 687-8616
<PAGE> 35
RIDER TO LEASE DATED MARCH 12,1999
BY AND BETWEEN
BOONE/FETTER/OCCIDENTAL I, AS LESSOR
AND
SOFTWARE TECHNOLOGIES CORPORATION
The following additional provisions are incorporated in the Lease dated
March 12,1999 by and between BOONE/FETTER/OCCIDENTAL I ("Lessor") and SOFTWARE
TECHNOLOGIES CORPORATION ("Lessee"). In the event of any conflicts between the
provisions of this Rider and Paragraphs 1 through 49 of the printed lease form,
the provisions of this Rider shall prevail.
<TABLE>
<S> <C> <C>
50. BASE RENT. Months 1 - 30 $1.15 N.N.N.
Months 31 - 53 $1.25 N.N.N.
</TABLE>
51. COMMON AREA: USE, MAINTENANCE AND COSTS.
51.1 COMMON AREAS. Lessor owns and manages a parcel of real property
known as Tech Center East, Phase I, located at the south-west corner of the
intersection of Huntington Drive and Shamrock Avenue in Monrovia, California.
Said real property, including land, buildings, common areas, and all other
improvements thereon is herein called the "Entire Premises." Exhibit "C"
attached hereto depicts the Entire Premises. As used herein, "common areas"
shall mean all areas within the Entire Premises which are not specifically
leased or held for lease by Lessor, including, without limiting the foregoing,
parking areas, driveways, sidewalks, loading areas, access and egress roads,
corridors, landscaped and planted areas, and all other improvements provided by
Lessor for the common use of lessees. Lessor may from time to time change the
size, location, nature, and use of any of the common areas including converting
common areas into leasable areas, and increasing or decreasing common area land
and/or facilities. (See Insert 51.1)
51.2 USE OF COMMON AREAS. Lessee, its employees, agents, customers, and
business invitees shall have the nonexclusive use (in common with other lessees
and all others to whom Lessor has granted or may hereafter grant such rights) to
use the common areas for the purpose intended, subject to such reasonable non
discriminatory rules and regulations relating to such use as Lessor may from
time to time establish. Lessee agrees after notice thereof to abide by such
rules and regulations and to use its reasonable efforts to cause its officers,
employees, agents,
<PAGE> 36
customers, and business invitees to conform thereto. Lessor may at any time
close any common areas to effect construction, repairs, or changes thereto, or
prevent the acquisition of public rights in such areas, and may do such other
acts in and to the common areas as in its judgment may be desirable to improve
the convenience thereof. (See Insert 51.2) Lessee shall not at any time
interfere with rights of the Lessor, or other lessees, or of any other person
entitled to use the common areas to use any part thereof.
51.3 MAINTENANCE OF COMMON AREAS. Lessor shall operate, manage, equip,
clean, sweep, remove refuse, light, patrol, repair, replace, and maintain the
common areas for their intended purposes in such a manner as Lessor shall
reasonably determine to be appropriate.
51.4 COMMON AREA COSTS. Lessee shall pay to Lessor, in the manner
provided in Paragraph 51.5, Lessee's pro rata share of all common area costs.
Common area costs shall include all costs and expenses incurred by the Lessor
for the operation and maintenance of the common areas during the lease term
(including appropriate reserves) including, without limiting the foregoing,
costs and expenses of garden and landscaping; water and sewage charges;
maintenance of signs (other than Lessee's signs); premiums for liability,
property damage, fire and other types of casualty, and workmen's compensation
insurance; all real property taxes and assessments levied on or attributable to
the common areas and all improvements therein; personal property taxes levied on
or attributable to personal property used in connection with the common areas;
fees for required licenses and permits; costs and expenses of repairs,
resurfacing, repaving, maintenance, painting, lighting, exterior light
electricity, cleaning, refuse removal, air conditioner servicing, parking lot
sweeping, window washing, security and similar items; and a reasonable allowance
to Lessor for Lessor's supervision of the common areas (but such allowance for
supervision shall not exceed in any calendar year five percent (5%) of the total
of the aforementioned costs and expenses for such calendar year). Lessor may,
however, cause any or all such services to be provided by an independent
contractor or contractors. Common area costs shall not include depreciation or
common area improvements. Notwithstanding anything to the contrary in this
Lease, (1) common area costs payable by Lessee during 1999 shall not exceed the
monthly amounts described on Exhibit "B" attached hereto and made a part hereof,
and (2) common area costs thereafter payable by Lessee shall not increase during
any calendar year by more than ten percent (10%) of the common area costs paid
by Lessee during the
<PAGE> 37
calendar year immediately preceding. The amount of real estate taxes and
premiums for property insurance shall not be subject to the limitation described
in the foregoing sentence and shall be excluded from the amount of common area
costs in each year for purposes of calculating the maximum increase in common
area costs for the next succeeding year; provided, however, that there shall in
any event be excluded from common area costs (a) insurance costs for earthquake
or flood coverage, insurance deductibles, and co-insurance payments. In
addition, if the cost of Lessor's property insurance payable by Lessee should
increase by more than ten percent (10%) from such costs paid by Lessee during
the year immediately preceding, then Lessor shall, upon Lessee request, obtain
at least three (3) competitive bids from qualified insurers and transfer
Lessor's property insurance to the insurer submitting the lowest cost bid,
providing the insurer has an "A" Rating.
51.5 LESSEE'S SHARE AND PAYMENT. Lessee's pro rata share of the common
area costs referred to in Paragraph 51.4 shall be a fraction of which the
numerator is the rentable square foot area of the premises, as set forth in
Paragraph 1.2, and the denominator is the aggregate number of square rentable
feet of the Entire Premises upon the date the computation is made. The annual
Pro rata charge to Lessee shall be paid in monthly installments on the first day
of each calendar month of the lease term after commencement thereof (prorated
for any fractional month) in advance, in an amount reasonably estimated by the
Lessor. Lessee's pro rata share of insurance charges are not included in the
common area charges and shall be charged annually, in advance, in accordance
with reasonable policies and procedures of the Lessor. Within one hundred and
twenty days (120) after the end of each calendar year of the lease term, Lessor
shall furnish to Lessee an accounting statement in reasonable detail, of the
actual costs and expenses paid or incurred by Lessor during the preceding
calendar year in respect of the common areas, prepared in accordance with
generally accepted accounting principles by Lessor's accountant, applied in
accordance with Paragraph 51.5, and thereupon there shall be an adjustment
between Lessor and Lessee, with payment to or credit given by Lessor as the case
may require, to the end that Lessor shall receive the entire amount of Lessee's
share of such costs and expenses for such period.
52. OPTION TO RENEW. Provided Lessee is not in breach under any of the
terms and conditions of the Lease, and provided Lessee shall give Lessor written
notice of its election to do so not later than one hundred twenty (120) days
prior to the expiration of the Lease; Lessee shall have the option to extend the
term of the original
<PAGE> 38
Lease for an additional period of five (5) years upon the same terms and
conditions as the original Lease except that the amount of rental for such
extended period shall be adjusted upwards to reflect 98% of the market rental
rate in 2003.
52.1 In the event that Lessor and Lessee cannot agree on the new base
rent, the matter shall be submitted for decision to a panel of three (3)
arbitrators. Lessor and Lessee shall each appoint one arbitrator who shall by
profession be a licensed commercial real estate broker or an MIA real estate
appraiser, and who shall be familiar with the building and have been active
(over the three (3) year period ending on the date of such appointment) in the
brokering or appraisal of properties in the Monrovia, California area. The
determination of the arbitrators shall be limited solely to the issue of whether
Lessor's or Lessee's proposed new base rent for the premises is the closest to
98% of the actual fair market base rent for the premises including the other
economic terms of the Lease that would be considered "market" by the
arbitrators. For the purposes of this Lease, the actual fair market base rent
for the premises including other economic terms of the Lease that should be
considered "market" to the arbitrators shall mean the annual current base rent
per square foot that a willing, comparably credit worthy, nonrenewal,
nonsublease, nonequity, nonexpansion, new tenant would pay, and a willing
landlord of a comparable building would accept, in an arms-length transaction,
for the same amount of space, giving appropriate consideration to the use by the
parties of the AIR net lease, to provisions reflecting free rent and/or possible
rent abatement during the lease term, brokerage commissions payable by landlord,
if any, length of the lease term, location of the property in which the premises
are being leased, the building standard work letter and/or tenant improvement
allowance provided, if any, the quality, age and configuration of any usable
existing tenant improvements already in the space, and other generally
applicable terms and conditions of a tenancy for the space in question. (See
Insert 52.1) Each such arbitrator shall be appointed within five (5) business
days after Lessee's notice to Lessor of its election to have new base rent and
the other economic terms of the Lease determined by this arbitration procedure.
The two arbitrators so appointed shall within five (5) business days of the date
of the appointment of the last appointed arbitrator agree upon and appoint a
third arbitrator who shall be qualified under the same criteria set forth
hereinabove for qualification of the initial two arbitrators. Failing such
agreement, either Lessor or Lessee shall have the right to petition for the
appointment of a third arbitrator by the Presiding Judge of the Superior Court
of the County of Los Angeles. The three arbitrators shall, within
<PAGE> 39
thirty (30) days of the appointment of the third arbitrator, reach a decision as
to whether Lessor's or Lessee's proposed new base rent and other economic terms
of the Lease is the closest to 98% of the actual fair market base rent for the
premises including the other economic terms of the Lease that they consider to
be "market," and shall notify Lessor and Lessee thereof. The decision of the
majority of the three arbitrators shall be binding upon Lessor and Lessee. The
cost of the arbitration shall be paid by Lessor and Lessee, equally.
53. REPLACEMENT & REPAIR. Notwithstanding anything to the contrary in
this Lease, but without relieving Lessee of liability resulting from Lessee's
failure to exercise and perform good maintenance practices, if any repairs or
replacements to the Premises could reasonably be capitalized under generally
accepted accounting principles, then Lessor shall perform such repairs and
replacements, and the cost thereof shall be pro rated between the parties and
Lessee shall only be obligated to pay, each month during the remainder of the
term of this Lease, on the date on which Base Rent is due, an amount equal to
the product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of months
of the useful life of such replacement as such useful life is specified pursuant
to Federal income tax regulations or guidelines for depreciation thereof
(including interest on the unamortized balance as is then commercially
reasonable in the judgment of Lessor's accountants), with Lessee reserving the
right to prepay its obligation at any time." (See Insert 53)
54. PARTIAL DAMAGE - INSURED LOSS. If (1) a Premises Partial Damage that
is an Insured Loss occurs, or (2) a Premises Partial Damage that is not an
Insured Loss occurs and the cost to restore the Premises to their prior
condition does not exceed $500,000, 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
any applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Lessor shall maintain a maximum deductible of $1,000 as long as
Lessor is providing insurance coverage.
55. PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs and the cost to restore the Premises to their
prior condition exceeds $500,000, then Lessor may either (1) repair such
<PAGE> 40
damage as soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect, or (2) terminate this Lease by
giving written notice to Lessee within thirty (30) days after receipt by Lessor
of knowledge of the occurrence of such damage.
56. PARKING. Without any additional rent obligation on the part of the
Lessee, Lessee, its officers, employees, and agents shall have the exclusive use
of all parking spaces located at the Project, which constitutes twenty five (25)
parking spaces. Said parking spaces shall be limited to vehicles no larger than
standard sized automobiles or pick-up utility vehicles, and Lessee shall not
park larger trucks or other large vehicles at the Project. Said parking spaces
shall be located in the parking areas for the Entire Premises as depicted on
Exhibit "D" hereto and shall be on an assigned or non-assigned basis as Lessor
in its reasonable discretion shall determine. Lessee shall not use more than
twenty five (25) parking spaces; if Lessee parks additional vehicles in the
parking area, Lessor may, in addition to other remedies under this Lease,
require the payment of a reasonable daily charge for each additional vehicle.
57. RIGHT TO SUBLEASE. The Lessee shall have the right to assign the
Lease (including the Option to extend the term) or sublet any or all of the
Premises subject to the Lessor's prior written approval which shall not
unreasonably be withheld, conditioned or delayed. In the unlikely event of any
profit* as a result of subletting or assignment, 50% (fifty percent) of that
profit would be remitted to the Lessor as additional rent. *(Profit to be
defined as net of any cost associated with the releasing of the space over the
life of the remaining term.) Notwithstanding the foregoing, Lessee may, without
Lessor's prior written consent and without payment of any amount to Lessor,
sublet any or all of the Premises or assign this Lease to (1) a subsidiary,
affiliate, division, other person or entity controlling, controlled by or under
common control with Lessee, (2) an entity related to Lessee by merger,
consolidation, nonbankruptcy reorganization or government action, or (3) a
purchaser of substantially all of Lessee's assets located in the Premises,
provided that any such entity or purchaser described in the foregoing clauses
(2) and (3) has, at the time of such transaction, a net worth at lease equal to
Lessee's net worth as of the date of this lease.
58. TENANT IMPROVEMENTS. Lessor to provide $35,000 tenant improvement
allowance. In addition, Lessor will replace ceiling in area currently used as
warehouse and reinstall glass insert in truck door. (See Insert 58)
<PAGE> 41
59. WARRANTIES. Lessor shall warrant the H.V.A.C. system for the first
twelve (12) months of the lease beginning (See Insert 59) provided they are not
problems created by Lessee's inappropriate usage or failure to maintain (i.e.,
In the case of HVAC, 24 hour per day usage requires higher frequency of
service). Warranty does not include the quarterly preventative maintenance
program. One (1) year on roof repair, but shall not include building annual
preventative roof maintenance program. All warranties of new equipment will be
passed through to Lessee.
<PAGE> 42
INSERTS TO THE LEASE BETWEEN BOONE/FETTER/OCCIDENTAL I
AND SOFTWARE TECHNOLOGIES CORPORATION
Insert 3.1: Notwithstanding anything to the contrary in this lease, if by April
15, 1999, Lessor has not (i) substantially completed all tenant improvements in
accordance with this Lease, (ii) delivered possession of the Premises to Lessee,
and (iii) obtained all approvals and permits by the appropriate governmental
authorities required for the legal occupancy of the Premises for Lessee's
intended use, then the Commencement Date shall be the later of (a) May 1, 1999,
or (b) the date by which the Lessor shall have performed all of the items
described in the foregoing clauses (i), (ii) and (iii).
Insert 7.3: Exclusive of all computer and communications cabling.
Insert 51.1: ;provided, however, that no such change shall materially decrease
Lessee's rights or access to the Premises.
Insert 51.2: In exercising any rights regarding the common areas, Lessor shall
use reasonable efforts to minimize any interference with Lessee's use and
enjoyment of, and conduct of business at the Premises.
Insert 52.1: Such market rental shall, however, be determined as if the Premises
had not been improved with any alterations or improvements paid for by Lessee.
Insert 53: Notwithstanding anything to the contrary in this Lease, Lessor shall
perform and construct, and Lessee shall have no responsibility to perform or
construct, any repair, maintenance or improvements (a) necessitated by the acts
or omissions of Lessor or any other occupant of the Entire Premises, or their
respective agents, employees or contractors, (b) occasioned by fire, acts of God
or other casualty or by the exercise of the power of eminent domain, (c)
required as a consequence of any violation of the Laws or construction defects
in the Premises, the Entire Premises or the Project as of the Commencement Date,
(d) for which Lessor has a right of reimbursement from others, (e) which could
be treated as a "capital expenditure" under generally accepted accounting
principles, (f) to the water, sewer, and plumbing systems serving the Premises,
the Entire Premises and the Project, and (g) to the common areas, to the
structural elements of the Entire Premises or the Project (including, but not
limited to, the foundation, exterior walls, interior load-bearing walls and
supports, and the roof) and to any portion of the Entire Premises or the Project
outside of the demising walls of the Premises.
Insert 58: The tenant improvement work shall be constructed by Lessor or its
contractor in a manner reasonably satisfactory to Lessee.
Insert 59: on the Commencement Date and all other building systems for sixty
(60) days.
Insert 60:
60. UNREASONABLE EXPENDITURES, Any expenditure by a party permitted or
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party or its representative during normal business hours.
61. SERVICES. Lessor shall provide reasonable heating, ventilation and
air conditioning required for the comfortable occupancy and operation of the
Premises during all hours of Lessee's operation and at such other times as
Lessee may reasonably request. Lessor shall also furnish such water, gas,
electricity, telephone, sewer and refuse pick-up services and utilities to the
Premises, the Entire Premises, and the Project are reasonable and customary for
tenants engaged in Lessee's business at the Premises. Lessor shall provide
Lessee with access to the Premises twenty-four (24) hours a day, seven days a
week.
<PAGE> 43
62. RIGHT OF FIRST NEGOTIATION. If, as and when, Lessor receives a
written proposal to lease other space in the building, the terms of which are
acceptable to lessor, Lessor will furnish a copy of same to Lessee and Lessee
will have (5) business days after receipt of same in which to decline the
opportunity or to agree to the basic terms contained in the proposal.
Thereafter, the parties would have five (5) business days in which to finalize
the terms of an amendment to this Lease adding the additional space to the
premises. If an amendment is not executed during that five (5) business day
period through no fault of Lessor, thereafter, Lessor would be free to lease the
vacant space to the party that made the proposal, or to any other party,
provided the terms and conditions of that lease are no more generous than those
contained in the original proposal and otherwise proposed to Lessee by Lessor.
<PAGE> 44
[FLOOR PLAN]
<PAGE> 45
[DIAGRAM]
<PAGE> 46
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is entered as of the 5th day of Aug, 1998,
by and between BOONE/FETTER/OCCIDENTAL I ("Lessor") and SOFTWARE TECHNOLOGIES
CORPORATION ("Lessee") with reference to the following facts and circumstances:
A. Lessor and Lessee entered that certain Standard Industrial/Commercial
Single-Tenant Lease -- Net dated June 6, 1997, regarding approximately 43,393
square feet of space (the "Existing Space") located at 404 East Huntington
Drive, Monrovia, Los Angeles County, California, as amended and supplemented by
that certain Rider to Lease dated June 6, 1997, between Lessor and Lessee (such
Lease, as so amended and supplemented, being referred to herein as the "Lease").
B. Lessor and Lessee mutually desire that the Premises subject to the
Lease be expanded to include the remaining space (the "Additional Space") in the
building located at the Project, which Additional Space contains approximately
16,874 square feet.
C. Lessor and Lessee also desire to modify and amend certain other terms
and conditions of the Lease as provided herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee hereby agree as follows:
1. Effective as of September 1, 1998 (the "Effective Date"), Paragraph
1.2 of the Lease is amended by deleting the term "43,393" and substituting
"60,267" in lieu thereof. Notwithstanding the foregoing sentence, if by
September 15, 1998, Lessor has not (i) substantially completed all tenant
improvements in accordance with this Amendment, (ii) delivered possession of the
Additional Space to Lessee, and (iii) obtained all approvals and permits by the
appropriate governmental authorities required for the legal occupancy of the
Additional Space for Lessee's intended use, then the Effective Date shall be
the later of (a) October 1, 1998, or (b) the date by which the Lessor shall have
performed all of the items described in the foregoing clauses (i), (ii) and
(iii). All terms and conditions of Paragraph 2.2 and of the first five sentences
of Paragraph 2.3 of the Lease shall apply with respect to the Additional Space
as of the Effective Date.
2. From and after the Effective Date, Base Rent per month under the
Lease shall equal the following:
Months 1 through 3 $45,563
Months 4 through 26 $63,280
Remainder of Original Term $69,307
<PAGE> 47
3. As of the Effective Date, Paragraphs 1.7 and 52 are amended to delete
the term "$91,126.00" and to substitute "$108,843" in lieu thereof. Lessee shall
deposit with Lessor, on the Effective Date, the sum of $17,717 to be held by
Lessor as an additional Security Deposit under the Lease.
4. As of the Effective Date, Lessor shall provide Lessee with a Tenant
Improvement Allowance of $151,866, which shall be separate from and in addition
to the tenant improvement allowance of $417,906.76 that Lessor has otherwise
agreed to provide Lessee under Paragraph 54 of the Lease. Such additional tenant
improvement work shall be constructed by Lessor or its contractor in a manner
reasonably satisfactory to Lessee. Lessor acknowledges that Lessor has
previously approved plans and specifications for such work as prepared by
Richard Chan Associates and modified by Lessee as of July 26, 1998. Lessor shall
cause such work to be performed by Heil Construction, Inc at a cost of
$261,175.94, subject to existing qualification and exclusions per the August 4,
1998 contract between Boone Fetter Occidental I and Heil Construction, and
change orders.
Paragraph 2.3(b) is amended by inserting a period after "Paragraph 7.1
(c)" in the third line and deleting the balance of the first sentence. Paragraph
2.3(b) is further amended by deleting the words "does not elect to terminate,
and" from the sixth line.
6. Paragraph 7. 1 (c) is deleted, and the following language is
substituted in lieu thereof.
"(c) REPLACEMENT. Notwithstanding anything to the contrary in
this Lease, but without relieving Lessee of liability resulting
from Lessee's failure to exercise and perform good maintenance
practices, if any repairs or replacements to the Premises could
reasonably be capitalized under generally accepted accounting
principles, then Lessor shall perform such repairs and
replacements, and the cost thereof shall be pro rated between the
parties and Lessee shall only be obligated to pay, each month
during the remainder of the term of this Lease, on the date on
which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the
number of months of the useful life of such replacement as such
useful life is specified pursuant to Federal income tax regulations
or guidelines for depreciation thereof (including interest on the
unamortized balance as is then commercially reasonable in the
judgment of Lessor's accountants), with Lessee reserving the right
to prepay its obligation at any time."
7. Paragraph 7.3(a) is amended by deleting the language "not exceed
$50,000 in the aggregate or $10,000 in any one year" from the last line
thereof and substituting "not exceed $50,000 in any one instance" in lieu
thereof.
8 . Paragraph 7.4(a) is amended by deleting the second sentence thereof
and adding the following sentence to the end of such Paragraph: "Notwithstanding
the foregoing, Lessee shall have the right (but not the obligation) to remove
any such Lessee Owned Alterations and Utility Installations, provided that
Lessee repairs all damage caused by such removal." In addition, Paragraph 7.4(b)
is amended by adding the following sentence to the end of such Paragraph:
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"Notwithstanding the foregoing, Lessor shall not have the right to require that
Lessee remove any Lessee Owned Alterations, Utility Installations, or other
improvements existing in the Premises as of the Effective Date, nor any Lessee
Owned Alterations, Utility Installations or other improvements paid for in whole
or in part by the $151,866 Tenant Improvement Allowance provided by Lessor."
9. Paragraph 8.6 is amended by deleting the language "Without affecting
any other rights or remedies," from the first line and substituting
"Notwithstanding anything to the contrary in this Lease," in lieu thereof.
10. Paragraph 9.2 is amended by deleting the first sentence thereof and
substituting the following language in lieu thereof:
"If (i) a Premises Partial Damage that is an Insured Loss occurs,
or (ii) a Premises Partial Damage that is not an Insured Loss
occurs and the cost to restore the Premises to their prior
condition does not exceed $500,000, 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 any applicable insurance proceeds
available to Lessee on a reasonable basis for that purpose."
11. Paragraph 9.3 is amended by deleting the first sentence thereof and
substituting the following language in lieu thereof:
"If a Premises Partial Damage that is not an Insured Loss occurs
and the cost to restore the Premises to their prior condition
exceeds $500,000, then Lessor may 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)
terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage."
12. Paragraph 55, entitled "Common Area: Use, Maintenance and Costs",
including all subparagraphs, is deleted in its entirety.
13. Paragraph 57 is deleted, and the following language is substituted
in lieu thereof:
"57. Without any additional rent obligation on the part of the
Lessee, Lessee, its officers, employees, and agents shall have the
exclusive use of all parking spaces located at the Project, which
constitutes approximately two hundred (200) parking spaces. Said parking
spaces shall be limited to vehicles no larger than standard sized
automobiles or pick-up utility vehicles, and Lessee shall not park
larger trucks or other large vehicles at the Project."
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14. Paragraph 60 is amended by deleting "its entire premises" from the
second line thereof and substituting "any or all of the Premises" in lieu
thereof. Paragraph 60 is further amended by inserting the following language
after the word "term" at the end of the Paragraph but within the parenthetical:
"and net of the unamortized value of any improvements and alterations previously
paid for by Lessee". Paragraph 60 is further amended by inserting the following
sentence at the end of the Paragraph:
"Notwithstanding the foregoing, Lessee may, without Lessor's prior
written consent and without payment of any amount to Lessor, sublet
any or all of the Premises or assign this Lease to (i) a
subsidiary, affiliate, division, other person or entity
controlling, controlled by or under common control with Lessee,
(ii) an entity related to Lessee by merger, consolidation,
nonbankruptcy reorganization or government action, or (iii) a
purchaser of substantially all of Lessee's assets located in the
Premises, provided that any such entity or purchaser described in
the foregoing clauses (ii) and (iii) has, at the time of such
transaction, a net worth at least equal to Lessee's net worth as of
the Effective Date."
15. Paragraph 61 is amended by deleting "default" from the first line
thereof and substituting "Breach" in lieu thereof.
16. Lessor acknowledges that Lessee is entering, concurrently with this
Amendment, that certain Parking Agreement (the "Parking Agreement") dated the
date hereof between Lessee and Pharmacia & Upjohn Company ("Pharmacia"). Lessor
represents that Lessor is the landlord under the "Pharmacia Lease" described in
the Parking Agreement, and Lessor hereby consents to the Parking Agreement.
Lessor further agrees that in the event of any termination of the Pharmacia
Lease or Pharmacia's rights to use the "Parking Spaces" described in the Parking
Agreement, (i) Lessee's exclusive use of such Parking Spaces shall not be
disturbed in any way, and (ii) the Parking Agreement shall not be terminated but
shall instead be deemed to be a direct agreement and lease of such Parking
Spaces from Lessor to Lessee on the terms and conditions of the Parking
Agreement. Lessor acknowledges that Lessee is relying upon Lessor's foregoing
consent and agreement in entering this Amendment and the Parking Agreement.
17. Except as expressly amended hereby, the Lease shall remain in full
force and effect. All capitalized terms used, but not defined, herein shall have
the meanings ascribed to them in the Lease. Unless expressly provided otherwise,
all paragraph references herein shall be to paragraphs of the Lease.
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IN WITNESS WHEREOF, Lessor and Lessee have executed this First Amendment
to Lease as of the day and year first above written.
LESSOR:
BOONE/FETTER/OCCIDENTAL I
By: /s/ BLAINE P. FETTER
------------------------------
Blaine P. Fetter,
General Partner
LESSEE:
SOFTWARE TECHNOLOGIES CORPORATION
By: WILLIAM OVERELL
-------------------------------
Title: VP Finance & CFO
---------------------------
5
<PAGE> 1
EXHIBIT 10.10
OFFICE LEASE
Lease Preparation Date: June 10, 1999
Lessor: FRANKLIN SELECT REALTY TRUST
a California Corporation
Lessee: SOFTWARE TECHNOLOGIES CORPORATION
a California Corporation
Trade Name: SAME
1 LEASE TERMS.
1.01 Premises. The Premises referred to in this Lease contain
approximately Ten Thousand Nine Hundred Seventy-Two (10,972) rentable square
feet and are located as shown on Exhibit "A" attached. The parties hereby agree
that the rentable area of the Premises and Base Monthly Rent schedule shall be
adjusted following the execution of this Lease to reflect measurements made of
the actual rentable area of the Premises determined in accordance with the most
recent BOMA Standards. The address of the Premises is: 100 Marine Parkway, Suite
500, Redwood City, CA 94065.
1.02 Project. The Project consists of approximately Eighty-One Thousand
Six Hundred Fifty-Seven (81,657) rentable square feet.
1.03 Lessee's Notice Address. Lessee's Notice Address is the address of
the Premises as defined in Section 1.01 unless otherwise specified here: _______
________________________________________________________________________________
________________________________________________________________________________
1.04 Lessor's Notice Address. Lessor's Notice address is: c/o
Continental Property Management Co., 3 Twin Dolphin Drive, Suite 195, Redwood
City, CA 94065.
1.05 Lessee's Permitted Use. GENERAL OFFICE USE ONLY
1.06 Lease Term. The Lease Term shall commence upon substantial
completion of tenant improvements, and shall terminate sixty (60) months
thereafter.
1.07 Base Monthly Rent. See Special Provisions Page 1 (Exhibit D)
($__________) in lawful money of the United States of America.
1.08 Security Deposit. See Special Provisions Page 1 (Exhibit D)
($__________) in lawful money of the United States of America.
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<PAGE> 2
1.09 Lease Documentation Fee. N/A Dollars ($ N/A ), in lawful money of
the United States of America.
1.10 Proportionate Share. Lessee's Proportionate Share is .1344.
1.11
1.12 Expense Base Year. The calendar year is 1999.
1.13 Expense Base Rate. The Expense Base Rate is $ N/A .
1.14 Tax Base Year. The calendar year is 1999.
2. DEMISE AND POSSESSION.
2.01 Lessor leases to Lessee and Lessee leases from Lessor the Premises
described in Section 1.01. By entering the Premises, Lessee acknowledges that it
has examined the Premises and accepts the Premises in their present condition
subject only to such additional work Lessor has agreed to do as set forth on
Exhibit "B" attached hereto.
Notwithstanding the foregoing, Lessor warrants and represents that, as of the
commencement date of this Lease, (i) the Premises, the Building, and the Project
will comply with all applicable laws, rules, regulations, codes, ordinances,
covenants, conditions and restrictions ("Laws"), (ii) the Premises will be in
good and clean operating condition and repair, (iii) the electrical, mechanical,
HVAC, plumbing, sewer, elevator and other systems serving the Premises and the
Building will be in good operating condition and repair, and (iv) the roof of
the Building will be in good condition and water tight. Lessor shall, promptly
after receipt of notice from Lessee, remedy any non-compliance with such
warranty at Lessor's sole cost and expense.
2.02 If for any reason Lessor cannot deliver possession of the Premises
due to the Premises not being Substantially Complete (as hereinafter defined) on
the date the Lease is to commence, as set forth in Section 1.06, Lessor shall
not be subject to any liability nor shall the validity of this Lease be affected
by the delay in delivery of possession. In the event the Premises are not
Substantially Complete on the date set forth in Section 1.06 and the delay is
not the fault of the Lessee, the Lease shall commence when the Premises is
deemed Substantially Complete and the new commencement and termination date
shall be set and agreed to by the Lessor and Lessee in writing and attached
hereto as Exhibit "B"; provided however, either Lessor or Lessee, unless such
party is the cause of the delay, has the right to cancel this Lease by written
notification if possession of the Premises is not delivered within one hundred
and twenty (120) days of the date the Lease Term is to commence as set forth in
Section 1.06. The Premises shall be deemed "Substantially Complete" when (i) the
Lessor has delivered the Premises to the Lessee, (ii) installation of the Tenant
Improvements has
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occurred subject to the completion of punchlist items or minor corrective work,
(iii) Lessee has direct access from the street to the elevator lobby on the
floor where the Premises are located, (iv) basic services are available to the
Premises, and (v) to the extent required for the lawful occupancy of the
Premises, a temporary occupancy permit has been issued by the appropriate
governmental authorities. If Premises are not Substantially Complete for any
reason, other than delays caused by Lessee, or governmental authorities, or acts
of God, or other circumstances not in control of Lessor, on or before ninety
(90) days after Lease execution, then, in addition to Lessee's other rights and
remedies, Lessee may terminate this Lease by written notice to Lessor, whereupon
any monies previously paid by Lessee to Lessor shall be reimbursed to Lessee and
Lessor shall return the Security Deposit to Lessee.
2.03 Lessee shall have the nonexclusive right, in common with others, to
use the Public Areas of the Project as specified herein. Lessee shall abide by
and conform to any and all Project Rules (as hereinafter defined) Lessor adopts
from time to time relating to the Public Areas of the Project. As used herein,
the "Public Areas" of the Project include all areas and facilities outside the
Premises and within the exterior boundary line of the Project that are provided
and designated by Lessor from time to time for the general nonexclusive use of
Lessor, Lessee and of other lessees of the Project and their respective
employees, suppliers, shippers, customers and invitees, including, but not
limited to, common entrances, lobbies, corridors, stairways, stairwells, public
restrooms, elevators, parking areas to the extent the use thereof is not
otherwise prohibited by this Lease, roadways, sidewalks, and decorative walls.
3. BASE MONTHLY RENT.
3.01 On the first day of each calendar month of the Lease Term, Lessee
shall pay in advance, without any deduction, counterclaim or offset, prior
notice or demand, Base Monthly Rent at the place designated by Lessor. However,
the first month's rent is due and payable upon execution of this Lease. In the
event that the Lease Term commences on a day other than the first day of a
calendar month, or ends on a day other than the last day of a calendar month,
then the Base Monthly Rent for the first and/or last fractional months of the
Lease Term shall be prorated on the basis of the number of days elapsed in the
subject month.
3.02 Intentionally Deleted.
3.03 Any installment of Rent (as hereinafter defined) or any other
charge payable by Lessee hereunder which is not paid within ten (10) days after
it becomes due shall be considered past due and Lessee shall pay to Lessor as
Additional Rent a late charge equal to ten percent (10%) of such installment or
the sum of twenty-five Dollars ($25.00), whichever is greater, for each month or
fractional month transpiring from the date due until paid. A twenty-five Dollar
($25.00) handling charge shall be paid by Lessee to Lessor for each returned
check and, if two checks are returned in any twelve month period, Lessee may, at
Lessor's sole discretion, be required to pay all future payments of Rent and
other charges due by Lessee hereunder by money order or cashier's check.
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<PAGE> 4
3.04 The amount of the Base Monthly Rent includes projected construction
of the Tenant Improvements as indicated on Exhibit "B" attached hereto. In the
event that Lessee requests Lessor to construct additional improvements and/or
final construction costs exceed original estimates, such costs or expenses, upon
itemized notice by Lessor, shall be paid by Lessee to Lessor, or Lessor may, at
its option, increase the Base Monthly Rent according to the terms and conditions
outlined on Exhibit "B", or elsewhere in this Lease.
4. ADDITIONAL RENT.
4.01 Additional Rent. All charges payable by Lessee other than Base
Monthly Rent is called "Additional Rent". Unless this Lease provides otherwise,
Additional Rent is to be paid with the next monthly installment of Base Monthly
Rent and is subject to the provisions of Section 3.03. The term "Rent" whenever
used in this Lease means Base Monthly Rent and Additional Rent.
4.02 Operating Expenses.
A. Definitions:
"Expense Comparison Year" is each calendar year after the Expense
Base Year.
"Operating Expenses" are all costs and expenses (excluding Real
Property Taxes) incurred by Lessor in connection with the ownership, operation,
maintenance, management, repair, security and insurance of the Project,
including, but not limited to, the following costs: all supplies, materials,
labor and equipment, used in or related to the operation and maintenance of the
Project; all utilities, including but not limited to, water, electricity, gas,
heating, lighting, sewer waste disposal, security, air-conditioning and
ventilating costs and all charges relating to the use, ownership or operation of
the Project; all maintenance expenses and management costs, including reasonable
management fees charged by a third party, an administrative fee equal to ten
percent (10%) of Operating Expenses, and costs payable under janitorial and
service agreements related to the Project; all legal expenses and accounting
costs; all insurance premiums and costs, including, but not limited to, the
premiums and costs of fire, casualty and liability coverage, rent abatement and
earthquake insurance and any other type of insurance related to the Project; all
maintenance costs relating to the public and service areas within and around the
Project, including, but not limited to, sidewalks, landscaping, service areas,
driveways, parking areas, walkways, building exteriors (including painting),
signs and directories, including, for example, cost of resurfacing and
restriping parking areas; amortization (along with reasonable financing charges)
of capital improvements made to the Project which may be required by any
government authority or which shall improve the operating efficiency of the
Project; all Lessor's costs in managing, maintaining, repairing, operating and
insuring the Project, including for example, clerical, supervisory and
janitorial staff; however, such costs shall not
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<PAGE> 5
include depreciation on the Project, loan payments, executive salaries, or real
estate brokerage commissions.
Notwithstanding anything to the contrary in this Lease, "Operating Expenses"
shall not include and Lessee shall in no event have any obligation to perform or
to pay directly, or to reimburse Lessor for, all or any portion of the following
repairs, maintenance, improvements, replacements, premiums, claims, losses,
fees, charges, costs and expenses (collectively, "Costs"): (a) Costs occasioned
by casualties or by the exercise of the power of eminent domain; (b) Costs to
correct any construction defect in the Premises or the Building or to comply
with any covenant, condition, restriction, underwriter's requirement or law
applicable to the Premises, the Building or the Project on the commencement of
this Lease; (c) Costs of any renovation, improvement, painting or redecorating
of any portion of the Building or the Project, which is a part of other Premises
in the Project, and not made available for Lessee's use; (d) Insurance
deductibles in excess of $10,000, and co-insurance payments; (e) Costs incurred
in connection with the presence of any Hazardous Material, except to the extent
caused by the release or emission of the Hazardous Material in question by
Lessee; (f) Costs in the nature of amortization or other expense reserves; and
(g) Costs which could properly be capitalized under generally accepted
accounting principles, except to the extent amortized over the useful life of
the capital item in question.
B. If the Operating Expenses incurred or paid by Lessor for any
Expense Comparison Year during the Lease Term are greater than the Operating
Expenses incurred or paid by Lessor for the Expense Base Year or Expense Base
Rate, as applicable, then Lessee shall pay as Additional Rent an amount equal to
the increase multiplied by Lessee's Proportionate Share as defined in Section
1.10. In the event of any partial Expense Comparison Year, Lessee shall pay the
increase, if any, based on the number of days of such Expense Comparison Year
included within the Lease Term.
C. As close as reasonably possible to the end of each calendar year,
Lessor shall provide Lessee with a statement of Lessor's best estimate of
Lessee's share of the increase in Operating Expenses for the coming year over
the cost for the Expense Base Year or Expense Base Rate, as applicable. This
amount shall be divided by twelve (12) and beginning with the next regular Base
Monthly Rent payment, Lessee shall pay one-twelfth (1/12th) of the increase
multiplied by the number of elapsed months from the commencement of the Expense
Comparison Year and thereafter shall continue to pay one twelfth (1/12th) of the
increase each month until Lessee receives the next Expense Comparison Year's
statement. As close as reasonably possible to the end of each calendar year,
Lessor shall provide Lessee a statement showing the total actual Operating
Expenses for the calendar year just ended, and Lessee's share of any increase
over the Expense Base Year or Expense Base Rate, as applicable. If Lessee's
estimates paid to date for the preceding calendar year are less than Lessee's
share of the increase, Lessee shall pay the difference concurrently with the
next payment of Base Monthly Rent. In the event that Lessee has paid more than
its share of estimates for the preceding calendar year, Lessor shall credit the
amount towards Lessee's future Operating Expense obligations.
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<PAGE> 6
D. Operating Expenses mean the total Operating Expenses for any
calendar year in which the Project is ninety-five percent (95%) occupied.
Operating Expenses for any year (including Lessee's Expense Base Year) during
which the average occupancy of the Project is less than ninety-five percent
(95%) shall be calculated based upon the Operating Expenses that would have been
incurred if the Project were ninety-five percent (95%) occupied during the
entire calendar year.
E. Lessee shall not be entitled to any reduction, refund, offset,
allowance or rebate in Base Monthly Rent or any other sums due if the Operating
Expenses for any Expense Comparison Year are less than those of the Expense Base
Year or the Expense Base Rate, as applicable, nor shall the failure by Lessor to
provide Lessee with a statement of Operating Expenses for any year of the Lease
Term constitute a waiver by Lessor of its right to collect Lessee's share of any
increase in Operating Expenses. In addition, if, for any reason Lessor should
not elect to bill Lessee for Operating Expense increases or estimates for a
particular Expense Comparison Year, Lessor's right to charge Lessee for such
expenses in subsequent years is not waived.
4.03 Taxes.
A. As Additional Rent, Lessee shall reimburse Lessor upon demand for
all taxes, payable by Lessor (other than net income taxes) as defined and stated
in the following paragraphs.
B. Definitions:
"Tax Base Year" is the tax fiscal year as indicated in Section 1.13.
However, if the Project in which the Premises are located is not yet fully
assessed or completed as improved real property by the tax fiscal year shown in
Section 1.13, the Tax Base Year is the year in which the first tax bill reflects
the full assessed value of the Project.
"Tax Comparison Year" is each tax fiscal year commencing on the
anniversary of the Tax Base Year and ending twelve (12) months thereafter.
"Real Property Taxes" are: (i) any fee, license fee, license tax,
business license fee, commercial rental tax, levy, charge, assessment, penalty
or tax imposed by any taxing authority against the Project; (ii) any tax or fee
on Lessor's right to receive, or the receipt of, rent or income from the Project
or against Lessor's business of leasing the Project or any gross tax receipts;
(iii) any tax or charge for fire protection, streets, sidewalks, road
maintenance, refuse or other services provided to the Project by any
governmental agency; (iv) any tax imposed upon this transaction, or based upon a
re-assessment of the Project due to a change in ownership or transfer of all or
part of Lessor's interest in the Project; and (V) any charge or fee replacing,
substituting for, or in addition to any tax previously included within the
definition of Real Property Taxes. Real Property Taxes do not, however, include
Lessor's federal or state income, franchise, inheritance or estate taxes, or any
tax or assessment expense or any increase therein (i) levied on Lessor's rental
income, unless such
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tax or assessment expense is imposed in lieu of real property taxes; (ii) in
excess of the amount which would be payable if such tax or assessment expense
were paid in installments over the longest possible term; (iii) imposed on land
and improvements other than the Project; (iv) attributable to Lessor's gift,
transfer, or state taxes; or (v) resulting from the improvement of any of the
Building or the Project for the sole use of other occupants.
C. If the Real Property Taxes incurred or paid by Lessor for any Tax
Comparison Year ending or commencing during the Lease Term, are greater than the
Real Property Taxes incurred or paid by Lessor for the Tax Base Year, then
Lessee shall pay Lessor an amount equal to the increase multiplied by Lessee's
Proportionate Share as indicated in Section 1.10. In the event of any partial
Tax Comparison Year, Lessee shall pay the increase, if any, based on the number
of days of such Tax Comparison Year included within the Lease Term.
D. Following the end of each Tax Comparison Year, Lessor shall
provide Lessee a statement of the amount of the increase, if any, in Real
Property Taxes, but failure to do so by Lessor does not constitute a waiver of
its right to collect Lessee's share of the increase in Real Property Taxes. Upon
receipt of the statement, Lessee shall pay in full the amount of its share of
any increase shown on such statement. In the event that any Tax Comparison Year
amount is less than the Tax Base Year amount, Lessee shall not be entitled to
any reduction in rent or to any refund, offset, allowance or rebate of any
nature. At Lessor's sole discretion, Lessor may charge Lessee estimated Real
Property Taxes and such estimates shall be calculated and paid in a similar
manner as described in Section 4.02C for Operating Expense estimates. If the
Lease Term expires before Lessor is able to determine the increase, if any, for
the Lessee's final Tax Comparison Year, Lessor shall estimate the increase and
Lessee shall pay the estimated amount upon demand by Lessor.
E. Lessee shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Lessee.
Lessee shall have personal property taxes billed separately from the Project. If
any of Lessee's personal property is taxed with the Project, Lessee shall pay
Lessor the taxes for the personal property upon demand by Lessor.
4.04 Based on Lessee's Proportionate Share as defined in Section 1.10,
Lessee shall pay as Additional Rent to Lessor Lessee's share of any parking
charges, utility surcharges, occupancy taxes, or any other costs resulting from
any statutes or regulations, or interpretations thereof, enacted by any
governmental authority in connection with the use or occupancy of the Project or
the parking facilities serving the Project, or any part thereof.
5. SECURITY DEPOSIT.
If Lessee defaults with respect to any provision of this Lease, Lessor
may retain, use or apply all or any part of the Security Deposit specified in
Section 1.08 to compensate Lessor for any loss or damage suffered by Lessee's
default including but not limited to, the payment of Base Monthly Rent,
Additional Rent or other sums due hereunder, and for payment of
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amounts Lessor is obligated to expend by reason of Lessee's default. If any
portion is so retained, used or applied, Lessee, upon demand, shall deposit with
Lessor, an amount sufficient to restore the Security Deposit to its original
amount, as adjusted per Section 3.02, except as otherwise provided by applicable
law. Lessor shall not be required to keep the Security Deposit separate from its
general funds, and Lessee shall not be entitled to interest on the Security
Deposit. Within sixty (60) days after the expiration or earlier termination of
the Lease Term and after Lessee has vacated the Premises, Lessor shall return to
Lessee the entire Security Deposit except for amounts that Lessor has deducted
therefrom that are needed by Lessor to cure defaults of Lessee under the Lease
or compensate Lessor for damages for which Lessee is liable pursuant to this
Lease. In no event shall Lessee have the right to apply any part of the Security
Deposit to any Rent payable under this Lease. No trust relationship is created
herein between Lessor and Lessee with respect to the Security Deposit.
6. LEASE DOCUMENTATION FEE.
7. USE OF PREMISES; QUIET CONDUCT.
7.01 The Premises may be used and occupied only for Lessee's Permitted
Use as shown in Section 1.05 and for no other purpose, without obtaining
Lessor's prior written consent, which consent Lessor may withhold in its sole
and absolute discretion. Lessee shall comply with all covenants, conditions and
restrictions affecting the Premises. Lessee shall promptly comply with all laws,
ordinances, orders and regulations affecting the Premises. Lessee shall not
perform any act or carry on any practices that may injure the Project or the
Premises or be a nuisance or menace, or disturb the quiet enjoyment of other
lessees in the Project, including, but not limited to, equipment which causes
vibration, use or storage of chemicals, or heat or noise which is not properly
insulated. Lessee shall not cause, maintain or permit any outside storage on or
about the Premises. In addition, Lessee shall not allow any condition or thing
to remain on or about the Premises which diminishes the appearance or aesthetic
qualities of the Premises and/or the Project or the surrounding property.
Additionally, Lessee shall not cause any nuisance or waste on the Premises
and/or the Project.
Notwithstanding anything to the contrary in this Lease, Lessee shall not be
required to comply with or cause the Premises to comply with any laws,
ordinances, order and regulations unless such compliance is necessitated due to
Lessee's particular use of the Premises.
7.02 California Health and Safety Code Section 25359.7(b) requires any
lessee of real property who knows, or has reasonable cause to believe, that any
release of a hazardous
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substance has come to be located on or beneath such real property to give
written notice of such condition to the owner. Lessee shall comply with the
requirements of Section 25359.7(b) and any successor statute thereto and with
all other statutes, laws, ordinances, rules, regulations and orders of
governmental authorities with respect to hazardous substances. Lessor shall have
the right to pursue all legal and equitable remedies available to it in the
event of failure of Lessee to comply with the requirements of this Section 7.02.
8. TENANT IMPROVEMENTS.
Tenant Improvements to be performed in the Premises by Lessor prior to
the commencement of the Lease Term shall be performed in accordance with the
terms and provisions entitled "Lessor's Work" as noted on Exhibit B. Thereafter
during the Lease Term, Lessor shall be under no obligation to alter, change,
decorate or improve the Premises.
9. PARKING.
Lessee and Lessee's customers, suppliers, employees, and invitees have
the nonexclusive right to their prorata share of parking, based on 2.9 stalls
per 1,000 rentable square feet of office space (which equates to approximately
32 parking stalls), and shall park in common with other lessees in the parking
facilities of the Project as designated by Lessor. Lessee agrees not to
overburden the parking facilities and agrees to cooperate with Lessor and other
lessees in the use of the parking facilities. Lessor reserves the right to, on
an equitable basis, assign specific spaces with or without charges to Lessee as
Additional Rent, make changes in the parking layout from time to time, and to
establish reasonable time limits on parking.
10. UTILITIES AND SERVICES.
10.01 Description of Services. During the hours of 8:00 a.m. to 6:00
p.m. ("Business Hours") on weekdays except public holidays ("Business Days"),
and subject to the Project Rules (as hereinafter defined), Lessor shall furnish
to the Premises "Project Standard" amounts of electricity (not less than four
(4) watts per rentable square foot), water, heat, airconditioning, and elevator
service consisting of either attended or non-attended automatic elevators. On
Business Days, subject to Project Rules, Lessor shall furnish to the Premises
and its attendant restrooms and other public areas, Project Standard janitorial
service, window washing, fluorescent tube replacement and toilet room supplies;
provided, however, that Lessor shall not be required to provide janitorial
services for portions of the Premises used for preparing or consuming food or
beverages or for similar purposes. Lessor reserves the right to modify the
services as long as the services remain consistent with those provided in
comparable projects in the area. During non-Business Hours, Lessor shall furnish
the Premises with water and elevator service, and, subject to the provisions of
Section 10.02 ("Payment for Additional Utilities and Services"), electricity
and, upon twenty-four (24) hours prior notice from Lessee (notice may not be
required if the Premises are equipped with an over-ride meter), reasonable heat
and air-conditioning. Any additional utilities or services that Lessor may
agree to provide at Lessee's request shall be at Lessee's sole cost and
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expense. Lessee shall also be responsible for and shall pay lessor any
additional costs (including, without limitation, the costs of installation of
additional heating, air-conditioning or ventilation equipment ("HVAC"), if
required by Lessor) incurred because of the failure of the HVAC system to
perform its function due to (1) arrangement of partitioning in the Premises or
changes or alterations thereto, (2) or from any use of heat-generating machinery
or equipment, or (3) from occupancy of the Premises exceeding one person per one
hundred (100) rentable square feet, or (4) from failure of Lessee to keep all
HVAC vents within the Premises free of obstruction. Lessee at all times agrees
to cooperate fully with Lessor and to abide by the reasonable regulations and
requirements which Lessor may prescribe for the proper functioning and
protection of the HVAC system. Lessor, its contractors and agents throughout the
Lease Term, shall have free access to any and all mechanical installations of
Lessor or Lessee, including, but not limited to, air-cooling, fan, ventilating
and machine rooms and electrical and telephone closets; and Lessee agrees there
shall be no construction of partitions or other obstructions which may interfere
with Lessor's free access thereto, or interfere with the moving of Lessor's
equipment to and from the enclosures containing such installations. Lessee
further agrees that neither Lessee, nor its agents, employees or contractors
shall at any time enter such enclosures or tamper with, adjust or touch or
otherwise in any manner affect such mechanical installations.
10.02 Payment for Additional Utilities and Services.
A. Lessee shall pay for heat and air-conditioning furnished at
Lessee's request during non-Business Hours on an hourly basis at one hundred
percent (100%) of the actual cost charged by the utility for such services,
including without limitation the cost of providing such services to the other
parts of the Project which are heated or air-conditioned in common with the
Premises.
B. In the event Lessee's use of electricity, water or any other
utility exceeds the Project Standard use of such utility, Lessor may determine
the amount of such excess use by any reasonable means (including, but not
limited to, the installation at Lessor's request but at Lessee's expense of a
separate meter, submeter or other measuring device) and charge Lessee for the
cost thereof. In addition, Lessor may impose a reasonable charge for the use of
any additional or unusual janitorial services required by Lessee because of any
above-Project Standard tenant improvements in the Premises, the carelessness of
Lessee or the nature of Lessee's business (including hours of operation).
C. All sums payable hereunder by Lessee for additional services or
for excess utility usage shall be payable as Additional Rent within ten (10)
days after notice from Lessor of the amounts due; except that Lessor may require
Lessee to pay monthly for the estimated cost of Lessee's excess utility usage if
such usage occurs on a regular basis, and such estimated amounts shall be
payable in advance on the first day of each month.
10.03 Interruption of Services. In the event of an interruption in, or
failure, or inability to provide any of the above described services or
utilities, such interruption, failure or inability shall not constitute an
eviction of Lessee, constructive or otherwise, or impose
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upon Lessor any liability whatsoever, including, but not limited to, liability
for consequential damages or loss of business by Lessee. If such interruption
continues for more than sixty (60) days, and the Premises are thereby rendered
untenantable for Lessee's use, Lessee may abate its Rent for the period of such
interruption. Lessee hereby waives the provisions of California Civil Code
Section 1932(l) or any other applicable existing or future law, ordinance or
governmental regulation permitting the termination of this Lease due to such
interruption, failure or inability.
10.04 Governmental Controls. In the event any governmental authority
having jurisdiction over the Project promulgates or revises any law, ordinance
or regulation or building, fire or other code or imposes mandatory or voluntary
controls or guidelines on Lessor or the Project relating to the use or
conservation of energy or utilities or the reduction of automobile or other
emissions (collectively "Controls") or in the event Lessor is required or elects
to make alterations to the Project in order to comply with such mandatory or
voluntary Controls Lessor may, in its sole discretion, comply with such
Controls, or make such alterations to the Project related thereto. Such
compliance and the making of such alterations shall not constitute an eviction
of Lessee, constructive or otherwise, or impose upon Lessor any liability for
consequential damages or loss of business by Lessee.
11. ALTERATIONS, MECHANICS LIENS.
11.01 Lessee shall not make any alterations to the interior of the
Premises without Lessor's prior written consent, which consent shall not be
unreasonably withheld. If Lessor gives its consent, no such alterations shall
proceed without Lessor's prior written approval of (i) Lessee's contractor, (ii)
certificates of insurance by Lessee's contractor for public liability and
automobile liability and property damage insurance with limits not less than
$1,000,000.00/$250,000.00/$500,000.00, respectively, endorsed to show Lessor as
an additional insured and for worker's compensation as required, and (iii)
detailed plans and specifications for such work and as built plans upon
completion of such work. Lessee agrees that it shall keep the Premises and the
Project free of all mechanic's liens and any mechanics lien placed against the
Project shall be removed within ten (10) days of receipt of notice of intent to
file lien. In addition, before alterations may begin, valid building permits or
other permits or licenses required must be furnished to Lessor, and, once the
alterations begin, Lessee shall diligently and continuously pursue their
completion. At Lessor's option, any alterations may become part of the realty
and belong to Lessor. If required by Lessor, Lessee shall pay, prior to the
commencement of construction, an amount determined by Lessor as necessary to
cover the costs of demolishing such alterations and/or the cost of returning the
Premises to their condition before any such alterations. Lessor may also require
Lessee to provide Lessor, at Lessee's sole cost and expense, a payment and
performance bond in form acceptable to Lessor, in a principal amount not less
than one and one-half times the estimated cost of such alterations, to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work.
Notwithstanding anything to the contrary in this Section 1 1.01, Lessee shall
have the right to construct non-structural alterations and improvements to the
Premises without Lessor's prior
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approval, if the cost of any alteration project does not exceed $10,000,
provided Lessee secures all necessary permits, licenses, and required
governmental approvals and "Copies of such are provided to Lessor. Upon Lessee's
request from time to time, Lessor shall advise Lessee in writing whether Lessor
will require Lessee to remove any alterations or improvements upon termination
of this Lease. Lessee's trade fixtures, furniture, equipment and other personal
property installed in the Premises shall at all times be Lessee's property, and
Lessee may remove any or all of such property from the Premises at any time and
from time to time provided that Lessee repairs all damage caused by such
removal. Lessor shall have no lien or other interest whatsoever in any item of
such property.
11.02 Notwithstanding anything in 1 1.01, Lessee may, with written
consent of Lessor, install trade fixtures, equipment, and machinery in
conformance with the ordinances of the applicable city and county, and they may
be removed upon termination of this Lease provided the Premises are not damaged
by their removal.
11.03 All private telephone systems and/or other related
telecommunications equipment and lines may not be installed without Lessor's
prior written consent. In addition, if Lessor gives consent, all equipment must
be installed within the Premises and, upon termination of this Lease must be
removed and the Premises restored to the same condition as before such
installation.
11.04 Lessee shall pay all costs for alterations and shall keep the
Premises, the Project and the underlying real property free from any liens
arising out of work performed for, materials furnished to or obligations
incurred by Lessee.
11.05 Lessor shall have the right to construct or permit construction of
tenant improvements in or about the Project for existing and new lessees and to
alter any Public Areas in and around the Project. Notwithstanding anything that
may be contained in this Lease, Lessee acknowledges the existence of this right
of Lessor and agrees that such construction shall not be deemed to constitute a
default of this Lease by Lessor and Lessee waives any such claim which it might
have arising from such construction. Lessor shall not exercise any rights under
Section 11.05 or 14.03, if such exercise would unreasonably interfere with
Lessee's use of or access to the Premises or materially increase the obligations
or decrease the rights of Lessee under the Lease. Lessor shall use its best
efforts to minimize any disruption to Lessee.
11.06 Lessee shall indemnify Lessor against any and all loss, cost,
damage, injury and expense arising out of or in any way related to claims for
work or labor performed, or materials or supplies furnished, to or at the
request of Lessee or in connection with performance of any work done for the
account of Lessee in the Premises, the Public Areas or the Project, whether or
not Lessee obtained Lessor's permission to have such work done, labor performed,
or materials or supplies furnished.
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12. FIRE INSURANCE; HAZARDS AND LIABILITY INSURANCE.
12.01 Except as expressly provided as Lessee's Permitted Use, or as
otherwise consented to by Lessor in writing, Lessee shall not do or permit
anything to be done within or about the Premises which shall increase the
existing rate of insurance on the Project or cause cancellation of any insurance
policy covering the Project, nor shall Lessee keep, use or sell, or permit
anyone to keep, use or sell, any article in or about the Premises, which may be
prohibited by the standard form of fire and other insurance policies. Lessee
shall, at its sole cost and expense, comply with any requirements pertaining to
Lessee's particular use of the Premises or any insurance organization insuring
the Project and Project-related apparatus. Lessee agrees to pay to Lessor, as
Additional Rent, any increases in premiums on policies resulting from Lessee's
Permitted Use or other use consented to by Lessor which increases Lessor's
premiums or requires extended coverage by Lessor to insure the Premises.
12.02 Lessee, at all times during the term of this Lease and at Lessee's
sole expense, shall maintain a policy of standard fire and extended coverage
insurance with "all risk" coverage on all Lessee's improvements and alterations
in or about the Premises (including the Tenant Improvements constructed by
Lessor in accordance with Exhibit "B" hereto) and on all personal property and
equipment to the extent of at least ninety percent (90%) of their full
replacement value. The proceeds from this policy shall be used by Lessee for the
replacement of personal property and equipment and the restoration of Lessee's
improvements and/or alterations.
12.03 Lessee, at all times during the Lease Term and at Lessee's sole
expense, shall maintain a policy of commercial general liability coverage with
limits of not less than One Million Dollars ($1,000,000.00) combined single
limit for bodily injury and property damage insuring against all liability of
Lessee and its authorized representatives arising out of or in connection with
Lessee's use or occupancy of the Premises. This policy of insurance shall name
Lessor as an additional insured and shall release Lessor from any claims for
damage to any person, to the Premises, and to the Project, and to Lessee's
personal property, equipment, improvements and alterations in or on the Premises
or the Project, caused by or resulting from risks which are to be insured
against by Lessee under this Lease.
12.04 All insurance required to be provided by Lessee under this Lease
shall (a) be issued by an insurance company authorized to do business in the
State of California and which is satisfactory to Lessor, (b) be primary and
noncontributing with any insurance carried by Lessor, and (c) contain an
endorsement requiring at least thirty (30) days prior written notice of
cancellation to Lessor before cancellation or change in coverage, scope or limit
of any policy. Lessee shall deliver a certificate of insurance or a copy of the
policy to Lessor within thirty (30) days of execution of this Lease and shall
provide evidence of renewed insurance coverage at each anniversary, prior to the
expiration of any current policies. Lessee's failure to provide evidence of this
coverage to Lessor may, in Lessor's sole discretion, constitute a default under
this Lease.
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12.05 Notwithstanding anything in this Lease to the contrary, Lessor and
Lessee mutually release and discharge each other and waive any rights of
subrogation accruing from all claims and liabilities in connection with property
on, or activities conducted in, the Premises or in the Project to the extent
such claims or liability is required to be covered by insurance under this
Lease. Each insurance policy Lessor or Lessee is required to maintain under this
Lease shall include a waiver of the insured's rights of subrogation against the
other party. During the Lease Term, Lessor shall maintain a policy of "all risk"
property insurance covering the Project for full replacement costs thereof, the
premium for which shall be part of Operating Expenses. Lessor shall have the
right to satisfy the requirements of this Section 12.05 through the utilization
of blanket policies of insurance.
13. WAIVER OF CLAIMS AND INDEMNIFICATION.
13.01 Neither Lessor nor any shareholders, partners, officers or
directors comprising Lessor (collectively, the "Indemnitees") shall be liable or
responsible in any way for, and Lessee hereby waives all claims against the
Indemnitees with respect to or arising out of: (a) any death or any injury of
any nature whatsoever that may be suffered or sustained by Lessee or any
employee, licensee, invitee, guest, agent or customer of Lessee or any other
person, from any causes whatsoever; or (b) for any loss or damage or injury to
any property outside or within the Premises belonging to Lessee or its
employees, agents, customers, licensees, invitees, guests or any other person,
unless such injury or damage is caused by the negligence or willful misconduct
of the Indemnitees or the breach of this Lease by the Indemnitees. Without
limiting the generality of the foregoing, except as to claims caused by the
negligence or willful misconduct of the Indemnitees, or the breach of this Lease
by the Indemnitees, none of the Indemnitees shall be liable for any damage or
damages of any nature whatsoever to persons or property caused by explosion,
fire, theft or breakage, by sprinkler, drainage or plumbing systems, by failure
for any cause to supply adequate drainage, by the interruption of any public
utility or service, by steam, gas, water, rain or other substances leaking,
issuing or flowing into any part of the Premises, by natural occurrence, acts of
the public enemy, riot, strike, insurrection, war, court order, requisition or
order of governmental body or authority, or for any damage or inconvenience
which may arise through repair, maintenance or alteration of any part of the
Project, or by anything done or omitted to be done by any lessee, occupant or
person in the Project. In addition, none of the Indemnitees shall be liable for
any loss or damage for which Lessee is required to insure, nor for any loss or
damage resulting from any construction, alterations or repair.
In addition, none of the Indemnitees shall be liable for any loss or
damage for which Lessee is required to insure, nor for any loss or damage
resulting from any construction, alterations or repairs, contracted for by
Lessee.
13.02 Except to the extent caused by the negligence or willful
misconduct of the Indemnitees or the breach of this Lease by the Indemnitees,
Lessee shall hold the Indemnitees harmless and defend the Indemnitees from and
against any and all losses, damages, claims, or liability for any damage to any
property or injury, illness or death of any person: (a) occurring in, on, or
about the Premises, or any part thereof, arising at any time
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and from any cause whatsoever other than solely by reason of the gross
negligence or willful misconduct of the Indemnitees, their employees or agents;
and (b) occurring in, on, or about any part of the Project other than the
Premises, when such damage, injury, illness or death shall be caused in whole or
in part by the negligence or willful misconduct of Lessee, its agents, servants,
employees, invitees or licensees (including, without limitation, when such
damage, injury, illness or death shall have been caused in part by the
Indemnitees, their employees or agents). The provisions of this Article 13 shall
survive the termination of this Lease with respect to any damage, injury,
illness or death occurring prior to such termination. References herein to the
Indemnitees shall include their respective agents and employees. Lessor shall
hold Lessee harmless and indemnify, protect and defend Lessee from and against
any and all losses, damages, claims or liability for any damage to any property
or injury, illness or death of any person to the extent arising from Lessor's
negligence or willful misconduct.
14. MAINTENANCE AND REPAIRS.
14.01 During the Lease Term, Lessee shall take good care of the
Premises, and, at Lessee's expense, but under the direction of Lessor, shall
repair and maintain the Premises, including the interior walls and ceilings of
the Premises and improvements and alterations on the Premises, in a first class
condition, and keep the Premises in a clean and orderly condition. As a material
part of the consideration for this Lease, Lessee hereby waives the provisions of
California Civil Code Section 1932(l), 1941 and 1942 or any other applicable
existing or future law, ordinance or governmental regulation permitting Lessee
to make repairs at the Lessor's expense.
Notwithstanding anything to contrary in this Lease, Lessor shall perform and
construct, and Lessee shall have no responsibility to perform or construct, any
repair, maintenance, or improvements (i) necessitated by the acts or omissions
of Lessor or any other occupant of the Project or their respective agents,
contractors or Invitees, (ii) occasioned by fire, acts of God or other casualty
or by the exercise of the power of eminent domain, (iii) required as a
consequence of any violation of applicable Laws or construction defects in the
Premises, the Building or the Project as of the commencement of this Lease, (iv)
for which Lessor has a right of reimbursement from others, (v) which could be
treated as a capital expenditure under generally accepted accounting principles,
(vi) to the electrical, mechanical, plumbing, water, sewer and HVAC systems
serving the Premises, the Building and the Project, and (vii) to any portion of
the Building or the Project outside the demising walls of the Premises.
14.02 Lessor shall maintain or cause to be maintained in reasonably good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the Project, the equipment and facilities by which
utilities and services are provided and the Public Areas of the Project, such as
elevators, stairs, corridors and restrooms; provided, however, that Lessee shall
pay the cost of repairs for damage occasioned by Lessee's use of the Premises or
the Project or any act or omission of Lessee or Lessee's employees, agents,
contractors and licensees, or Lessee's customers, guest or invitees. Lessor
shall be under no
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obligation to inspect the Premises. Lessee shall promptly report in writing to
Lessor any defective condition known to it, which Lessor is required to repair.
14.03 Lessor hereby reserves the right, at any time and from time to
time, without the same constituting an actual or constructive eviction, to make
alterations, additions, repairs, improvements to or in or to decrease the size
of area of, all or any part of the Project, the fixtures, and equipment therein,
the heating, ventilation, air-conditioning, plumbing, electrical, fire
protection, life safety, security and all mechanical systems of the Project, the
Public Areas and all other parts of the Project, and to change the arrangement
and/or location of entrances or passageways, doors and doorways, corridors,
elevators, stairs, toilets and other public parts of the Project.
15. AUCTIONS, SIGNS, LANDSCAPING.
Lessee shall not conduct or permit to be conducted any sale by auction
on the Premises. Lessor shall have the right to control landscaping and approve
the placement, size, and quality of signs. Lessee shall comply with the terms
and conditions regarding sign criteria set forth in the "Project Rules". Lessee
shall not make alterations or additions to the landscaping and shall not place
signs which are visible from the exterior of the Project without the prior
written consent of Lessor, which consent Lessor may withhold in its sole and
absolute discretion. Any signs not in conformity with this Lease may be removed
by Lessor at Lessee's expense.
16. ENTRY BY LESSOR.
Lessee shall permit Lessor and Lessor's agents to enter the Premises at
all reasonable times for the purpose of inspecting the same, or for the purpose
of maintaining the Project, or for the purpose of making repairs, alterations or
additions to any portion of the Project, including the erection and maintenance
of such scaffolding, canopies, fences and props as may be required, or for the
purpose of posting notices of non-responsibility for alterations, additions or
repairs, or for the purpose of showing the Premises to prospective lessees
during the last six months of the Lease Term, or placing upon the Project any
usual or ordinary "for sale" signs, without any rebate or abatement of Rent and
without any liability to Lessee for any loss of occupation or quiet enjoyment of
the Premises thereby occasioned. Lessee shall permit Lessor at any time within
one hundred eighty (180) days prior to the expiration of this Lease, to place
upon the Premises any usual or ordinary "to let" or "to lease" signs. For each
of the above purposes, Lessor shall at all times have and retain a key which to
unlock all of the doors in, upon and about the Premises, excluding Lessee's
vaults, safes and filing cabinets. Lessee shall not alter any lock or install a
new or additional lock or any bolt on any door of the Premises without the prior
written consent of Lessor, which shall not be unreasonably withheld. If Lessor
gives its consent, such work shall be undertaken by Lessor's locksmith or a
locksmith approved by Lessor, at Lessee's sole cost, and Lessee shall furnish
Lessor with a key. Lessor retains the right to charge Lessee for restoring any
altered doors to their condition prior to the installation of the new or
additional locks.
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17. ABANDONMENT.
Lessee shall not abandon the Premises at any time during the Lease Term.
If Lessee abandons the Premises, or is dispossessed by process of law, or
otherwise, any personal property belonging to Lessee left in or about the
Premises will, at the option of Lessor be deemed abandoned and may be disposed
of by Lessor in the manner provided for by the laws of the State of California.
18. DESTRUCTION.
18.01 Should the Premises or the Project be partially destroyed by any
cause, this Lease shall continue in full force and effect and Lessor, at
Lessor's own cost and expense, shall promptly commence the work of repairing and
restoring the Premises to their prior condition providing that the work can be
accomplished under all applicable government laws and regulations within six (6)
months from the date of damage at a cost not exceeding twenty-five percent (25%)
of the total replacement cost of the Premises or the Project, as the case may
be. Within thirty (30) days of the occurrence of partial destruction, Lessor may
terminate this Lease as of the date of the occurrence if nine (9) months or less
remain in the Lease Term.
18.02 Should the Premises or the Project be so far destroyed that they
cannot be repaired or restored to their former condition within six (6) months
of the date of damage or at a cost exceeding twenty-five percent (25%) of the
total replacement cost of the Premises or the Project, as the case may be,
Lessor may at Lessor's option either:
A. Continue this Lease in full force and effect by repairing and
restoring, at Lessor's own cost and expense, the Premises to their former
condition; or
B. Terminate this Lease by giving Lessee written notice of such
termination.
18.03 Any insurance proceeds received by Lessor because of the total or
partial destruction of the Premises or the Project shall be the sole property of
Lessor, free from any claims of Lessee, and may be used by Lessor for whatever
purposes Lessor may desire.
18.04 Should Lessor elect to repair and restore the Premises to their
former condition, there shall be a proportional abatement in the amount of Rent
payable during the period of repair and restoration. The Rent due under the
terms of this Lease shall be reduced between the date of destruction and the
date of completion of restoration and repair based on the extent to which
destruction interferes with Lessee's use of the Premises, as reasonably
determined by Lessor.
18.05 Lessee hereby waives California Civil Code Sections 1932(2) and
1934(4) providing for termination of hiring upon destruction of the thing hired.
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18.06 If the Premises are condemned or damaged by any peril and Lessor
does not elect to terminate the Lease or is not entitled to terminate the Lease
pursuant to its terms, then Lessee shall have the option to terminate the Lease
if the Premises cannot be, or are not in fact, fully restored by Lessor to their
prior condition within one hundred eighty (180) days after the condemnation or
damage.
19. ASSIGNMENT, SUBLETTING AND TRANSFERS OF OWNERSHIP.
19.01 Lessee shall not, without Lessor's prior written consent, assign,
sell, mortgage, encumber, convey, or otherwise transfer all or any part of
Lessee's leasehold estate, or permit the Premises to be occupied by anyone other
than Lessee and Lessee's employees or sublet the Premises or any portion thereof
(a "Transfer"). Lessee must supply Lessor with any and all documents deemed
necessary by Lessor to evaluate any proposed Transfer at least thirty (30) days
in advance of Lessee's proposed Transfer date.
19.02 Lessor, within thirty days after receipt of such documents, may
terminate this Lease on the date the Transfer was to have taken effect; in this
event, Lessor may, but is not obligated to, effect a transfer directly with the
transferee. In the case of a sublease, Lessor shall also have the right to
terminate this Lease with respect to that portion of the Premises proposed to be
subleased or that portion of the Lease Term during which the proposed sublease
is to be in effect, in which event, Lessee's liability and this Lease shall
remain in full force and effect for the remainder of the Lease Term as to the
balance of the Leased Premises.
Notwithstanding the above, in the case of a Sublease, Lessor shall not terminate
this Lease with respect to (i) any permitted Transfer under Section 19.06 or
(ii) that portion of the Premises proposed to be subleased or that portion of
the lease Term during which the proposed sublease is to be in effect, if not
more than fifty percent (50%) of the Premises is being sublet. If more than
fifty percent (50%) of the Premises is being sublet, and Lessor elects to
exercise their right of termination, Lessee's rent, security deposit and prorata
share shall be adjusted accordingly to reflect the remaining Premises.
19.03 If Lessor does not elect to terminate this Lease, in whole or in
part, as stated in Section 19.02, Lessor shall not unreasonably withhold its
consent except that such consent need not be granted if: (a) in the reasonable
judgement of Lessor the transferee is of a character or is engaged in a business
which is not in keeping with the standards of Lessor for the Project; (b) in the
reasonable judgement of Lessor any purpose for which the transferee intends to
use the Premises is not in keeping with the standards of Lessor for the Project;
provided in no event may any purpose for which transferee intends to use the
Premises be in violation of this Lease; (c) the portion of the Premises subject
to the Transfer is not regular in shape with appropriate means of entering and
exiting, including adherence to any local, county or other governmental codes,
or is not otherwise suitable for the normal purposes associated with such a
Transfer; or (d) Lessee is in default under this Lease or any other lease with
Lessor.
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19.04 In the event Lessor consents to a Transfer, Lessee shall pay
Lessor fifty percent (50%) of the excess (after deduction of reasonable broker
commissions payable by Lessee in connection with such Transfer), if any, of the
Rent and other charges reserved in the Transfer over the allocable portion of
the Rent and other charges hereunder for the portion of the Premises subject to
the Transfer. For the purposes of this Section 19.04, the Rent reserved in the
Transfer shall be deemed to include any lump sum payment or other consideration
given to Lessee in consideration for the Transfer. Lessee shall pay or cause the
transferee to pay to the Lessor such sums as Additional Rent together with the
monthly installments of Rent due.
19.05 Any consent to any Transfer which may be given by Lessor, or the
acceptance of any Rent, charges or other consideration by Lessor from Lessee or
any third party, shall not constitute a waiver by Lessor of the provisions of
this Lease, or a release of Lessee from the full performance by it of the
covenants stated herein; and any consent given by Lessor to any transfer shall
not relieve Lessee (or any transferee of Lessee) from the above requirements for
obtaining the written consent of Lessor to any subsequent Transfer.
19.06 As long as Lessee is the Lessee in possession of the Premises and
no default then exists with respect to the payment when due of Base Monthly Rent
or Additional Rent, Lessee shall have the right subject to the terms and
conditions hereinafter set forth, without the consent of Lessor but with prompt
written notice to Lessor thereafter, to assign its interest in this Lease or
Sublease any of the Premises (a) to any corporation which is a successor to
Lessee either by merger or consolidation, or (b) to a purchaser of substantially
all of Lessee's assets, or (c) to a corporation or other entity which shall
control, be under control of, or be under common control with Lessee (the term
"control" as used herein shall be deemed to mean ownership of more than fifty
percent (50%) of the outstanding voting stock of a corporation, or other
majority equity and control interest if Lessee is not a corporation).
20. DEFAULT BY LESSEE.
20.01 Lessee shall be in default of this Lease if at any time during the
Lease Term (and regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceedings in law, in equity or before any
administrative tribunal which have or might have the effect of preventing Lessee
from complying with the terms of this Lease):
A. Lessee fails to make payment of any installment of Base Monthly
Rent, Additional Rent, or of any other sum herein specified to be paid by
Lessee, and such failure is not cured within three (3) days after Lessor's
notice to Lessee of such failure of payment which notice shall constitute the
statutory three (3) day notice to pay rent or quit pursuant to Section I 1 61 of
the California Code of Civil Procedure; or
B. Lessee fails to observe or perform any of its other covenants,
agreements or obligations hereunder, and such failure is not cured within thirty
(30) days after Lessor's written notice to Lessee of such failure; provided,
however, that if the nature of Lessee's obligation is such that more than thirty
(30) days are required for performance, then Lessee
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shall not be in default if Lessee commences performance within such thirty (30)
day period and thereafter diligently prosecutes the same to completion; or
C. Lessee becomes insolvent, makes a transfer in fraud of its
creditors, makes a transfer for the benefit of its creditors, voluntarily files
for bankruptcy, is adjudged bankrupt or insolvent in proceedings filed against
Lessee, a receiver, trustee, or custodian is appointed for all or substantially
all of Lessee's assets, fails to pay its debts as they become due, convenes a
meeting of all or a portion of its creditors, or performs any acts of bankruptcy
or insolvency, including the selling of its assets to pay creditors; or
D. Lessee has abandoned the Premises as defined in Article 17
above.
21. REMEDIES OF LESSOR.
21.01 Repossession of Premises. Upon any termination of this Lease,
whether by lapse of time or upon termination of Lessee's right to possession of
the Premises without termination of the Lease, Lessee shall surrender possession
and vacate the Premises immediately and deliver possession to Lessor. Lessee
releases Lessor of any liability for any damage resulting therefrom and waives
any right to claim damages for such re-entry. Lessee also agrees that Lessor's
right to re-lease or any other right given to Lessor hereunder or by operation
of law is not relinquished.
21.02 Termination of Lease after Default. If Lessee defaults under this
Lease before the end of the Lease Term, or if Lessee's right to possession is
terminated by Lessor because of Lessee's default of this Lease, then this Lease
may be terminated by Lessor at its option. On such termination Lessor may
recover from Lessee, in addition to the remedies permitted by law:
A. The worth, at the time of the award, of the unpaid Base Monthly
Rent and Additional Rent which had been earned at the time of the termination of
this Lease;
B. The worth, at the time of the award, of the amount by which the
unpaid Base Monthly Rent and Additional Rent which would have been earned after
the date of termination of this Lease until the time of award exceeds the amount
of the loss of rents that Lessee proves could have been reasonably avoided;
C. The worth, at the time of the award, of the amount by which the
unpaid Base Monthly Rent and Additional Rent for the balance of the Lease Term
after the time of award exceeds the amount of such rental loss for such period
that Lessee proves could be reasonably avoided; and
D. Any other amount, and court costs, necessary to compensate
Lessor for all detriment proximately cause by Lessee's default of its
obligations under this Lease, or which in the ordinary course of events would be
likely to result therefrom. The detriment proximately caused by Lessee's default
shall include, without limitation, (i) expenses for
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cleaning, repairing or restoring the Premises, (ii) expenses for altering,
remodeling or otherwise improving the Premises for the purpose of reletting,
(iii) broker's 'fees and commissions, advertising costs and other expenses of
reletting the Premises, (iv) cost of carrying the Premises such as taxes,
insurance premiums, utilities and security precautions, (v) expenses in retaking
possession of the Premise, (vi) attorney's fees and court costs, (vii) any
unearned brokerage commissions paid in connection with this Lease, (viii)
parking fees or occupancy taxes due under this Lease, (ix) reimbursement of any
previously waived Base Monthly Rent, Additional Rent, free rent, or reduced
rental rate, and (x) any concession made or paid by Lessor to the benefit of
Lessee in consideration of this Lease including, but not limited to, any moving
allowances, contributions or payments by Lessor for Tenant improvements or
build-out allowances, or the assumption by Lessor of any of Lessee's previous
lease obligations.
21.03 Continuation of Lease after Default. Notwithstanding the
foregoing, in the event Lessee has defaulted under this Lease and abandoned the
Premises, this Lease, at Lessor's option, shall continue in full force and
effect so long as Lessor does not terminate Lessee's right to possession of the
Premises, and in such event Lessor may enforce all of its rights and remedies
under this Lease, including the right to recover Rent as it becomes due. In
addition, Lessor shall not be liable in any way whatsoever for its failure or
refusal to relet the Premises. For purposes of this Section 21.03, the following
acts by Lessor shall not constitute the termination of Lessee's right to
possession of the Premises:
A. Acts of maintenance or preservation or efforts to relet the
Premises, including but not limited to alterations, remodeling, redecorating,
repairs, replacements and/or painting as Lessor shall consider advisable for the
purpose of reletting the Premises or any part thereof; or
B. The appointment of a receiver upon the initiative of Lessor to
protect Lessor's interest under this Lease or in the Premises.
21.04 Bankruptcy. In the event of bankruptcy, Lessee assigns to Lessor
all its rights, title and interest in the Premises as security for its
obligations and covenants set forth in this Lease.
21.05 Definitions and Incidental Rights.
A. "The worth at the time of the award" of the amounts referred to
in Sections 21.02A and 21.02B, shall be computed by allowing interest at the
rate of ten percent (10%) per annum. "The worth at the time of the award" of the
amount referred to above in Section 21.02C shall be computed by discounting the
amount at the discount rate of the Federal Reserve Bank of San Francisco in
effect at the time of the award, plus one percent (11 V.
B. Any efforts by Lessor to lessen the damages caused by Lessee's
default of this Lease shall not waive Lessor's right to recover the damages set
forth above.
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C. Nothing herein shall be construed to affect other provisions of
this Lease regarding Lessor's right to indemnification from Lessee for liability
arising prior to the termination of this Lease for personal injuries or property
damage.
D. No right or remedy conferred upon or reserved to Lessor in this
Lease is intended to be exclusive of any other right or remedy granted to Lessor
by statute or common law, and each and every such right and remedy shall be
cumulative.
22. SURRENDER OF LEASE NOT MERGER.
The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger and will, at the option of Lessor,
terminate all or any existing transfers, or may, at the option of Lessor,
operate as an assignment to it of any or all of such transfers.
23. ATTORNEY'S FEES/COLLECTION CHARGES.
23.01 In the event of any legal action or proceeding between the parties
hereto, actual attorneys' fees and expenses of the prevailing party in any such
action or proceeding shall be added to the judgement therein. Should Lessor be
named as defendant in any suit brought against Lessee in connection with or
arising out of Lessee's occupancy hereunder, Lessee shall pay to Lessor its
costs and expenses incurred in such suit, including actual attorneys' fees.
23.02 If Lessor utilizes the services of any attorney for the purpose of
collecting any Rent due and unpaid by Lessee after three (3) days' written
notice to Lessee of such nonpayment of Rent or in connection with any other
default of this Lease by Lessee, Lessee agrees to pay Lessor actual attorneys'
fees as determined by Lessor for such services, regardless of the fact that no
legal action may be commenced or filed by Lessor.
24. CONDEMNATION.
If twenty-five percent (25%) or more of the Premises is taken for any public or
quasi-public purpose by any lawful government power or authority, by exercise of
the right of appropriation, reverse condemnation, condemnation or eminent
domain, or sold to prevent such taking, either Lessee or Lessor may, at its
option, terminate this Lease as of the effective date thereof. Lessee shall not
because of such taking assert any claim against Lessor or the taking authority
for any compensation because of such taking, and Lessor shall be entitled to
receive the entire amount of any award without deduction for any estate of
interest of Lessee. If less than twenty-five percent (25%) of the Premises is
taken, Lessor shall promptly proceed to restore the Premises to substantially
its same condition prior to such partial taking, allowing for any reasonable
effects of such taking, and a proportionate allowance shall be made to Lessee
for the Rent corresponding to the time during which, and to the part of the
Premises which, Lessee is deprived on account of such taking and restoration.
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25. PROJECT RULES.
25.01 Lessee shall faithfully observe and comply with the Project Rules
attached to this Lease as Exhibit "C" and Lessor reserves the right to modify
and amend such Project Rules as it deems necessary. Lessor shall not be
responsible to Lessee for the nonperformance by any other lessee or occupant of
the Project of any of such Project Rules.
25.02 In the event that Lessee fails to cure any violations of such
Project Rules within the cure period provided in Section 20.01B, such failure to
cure shall be deemed a material default of this Lease by Lessee.
26. ESTOPPEL CERTIFICATE.
Lessee shall execute and deliver to Lessor, upon not less than ten (10) days
prior written notice, a statement in writing certifying that this Lease is in
full force and effect, (or, if modified, stating the nature of such
modification) and the date to which Rent and other charges are paid in advance,
if any, and acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder or specifying such defaults if they are
claimed. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises. Lessee's failure to deliver such
statement within such time shall be conclusive upon Lessee that (1) this Lease
is in full force and effect, without modification except as may be represented
by Lessor; (2) there are no uncured defaults in Lessor's performance; and (3)
not more than one (1) month's Rent has been paid in advance.
27. SALE BY LESSOR.
In the event of a sale or conveyance by Lessor of the Project the same shall
operate to release Lessor from any liability upon any of the covenants or
conditions, expressed or implied, herein contained in favor of Lessee accruing
after the date of such sale, and in such event Lessee agrees to look solely to
the responsibility of the successor in interest of Lessor in and to this Lease.
This Lease shall not be affected by any such sale, and Lessee agrees to attorn
to the purchaser or assignee.
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28. NOTICES.
All notices, statements, demands, requests, consents, approvals,
authorizations, offers, agreements, appointments, or designations under this
Lease by either party to the other shall be in writing and shall be considered
sufficiently given and served upon the other party if sent by certified or
registered mail, return receipt request, postage prepaid, or by Federal Express
or other nationally recognized overnight carrier, and addressed as indicated in
Sections 1.03 and 1.04.
29. NO WAIVER.
The failure of Lessor to insist in any one or more cases upon the strict
performance of any term, covenant or condition of this Lease or in the Project
Rules shall not be construed as a waiver of a subsequent default of the same or
any other covenant, term or condition; nor shall any delay or omission by Lessor
to seek a remedy for any default of this Lease be deemed a waiver by Lessor of
its remedies or rights with respect to such a default. The subsequent acceptance
of Rent by Lessor shall not be deemed to be a waiver of any preceding breach by
Lessee of any term, covenant or condition of this Lease other than the failure
of Lessee to pay the particular Rent so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such Rent.
30. LESSEE'S INTENT.
If Lessee intends to vacate the Premises on the expiration of the Lease
Term, Lessee shall give Lessor ninety (90) days prior written notice of such
intent to vacate the Premises. If Lessee remains in the Premises after the
expiration of the Lease Term, and has not given prior written notice to Lessor,
such continuance of possession by Lessee shall be deemed to be a month-to-month
tenancy at the sufferance of Lessor terminable on thirty (30) day notice at any
time by either party. All provisions of this Lease, except those pertaining to
term and rent, shall apply to the month-to-month tenancy. Lessee shall pay Base
Monthly Rent in an amount equal to one hundred fifty percent (150%) of the Rent
payable for the last full calendar month of the Lease Term.
31. Intentionally Deleted.
32. DEFAULT OF LESSOR/LIMITATION OF LIABILITY.
32.01 In the event of any default by Lessor hereunder, Lessee agrees to
give notice of such default, by registered mail, to Lessor at Lessor's Notice
Address as stated in Section 1.04 and to offer Lessor a reasonable opportunity
to cure the default.
32.02 In the event of any actual or alleged failure or default hereunder
by Lessor, Lessee's sole and exclusive remedy shall be against Lessor's interest
in the Project, and no partner of Lessor shall be sued, be subject to service of
process, or have a judgement obtained against him in connection with any alleged
default, and no writ of execution shall
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be levied against the assets of any partner, shareholder or officer of Lessor.
The covenants and agreements set forth herein are enforceable by Lessor and also
by any partner, shareholder or officer of Lessor.
33. EXPANSION CLAUSE.
If during the Lease Term, Lessee executes a lease within the Project for
space larger than the present Premises with a lease term equal to that which
remains on this Lease or one (1) year, whichever is greater, with a Base Monthly
Rent amount at least equal to the present Base Monthly Rent of this Lease, this
Lease shall, at Lessee's sole option, be terminated upon the commencement date
of the lease for such substitute space. Notwithstanding the above, Lessee shall
remain obligated to pay for any adjustments in Rent pursuant to Articles 3 and 4
due Lessor as a result of Lessee's tenancy hereunder and this obligation shall
survive the termination of this Lease pursuant to this Article 33.
34. SUBORDINATION.
Without the necessity of any additional document being executed by
Lessee for the purpose of effecting a subordination, and at the election of
Lessor or any mortgagee with a lien on the Project or any ground lessor with
respect to the Project, this Lease shall be subject and subordinate at all times
to (a) all ground leases or underlying leases which may now exist or hereafter
be executed affecting the Project, and (b) the lien of any mortgage or deed of
trust which may now exist or hereafter be executed in any amount for which the
Project or Lessor's interest or estate therein is security. In the event that
any ground lease or underlying lease terminates for any reason or any mortgage
or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Lessee will, notwithstanding any subordination, attorn to and
become the Lessee of the successor in interest to Lessor, at the option of such
successor in interest. Lessee covenants and agrees to execute and deliver, upon
demand by Lessor and in the form requested by Lessor any additional documents
evidencing the priority or subordination of this Lease with respect to any such
ground lease or underlying leases or the lien of any such mortgage or deed of
trust.
Notwithstanding anything to the contrary in this Article 34, the subordination
of Lessee's rights and interest under the Lease to any mortgage or deed of trust
shall be contingent upon Lessee's having received from any such mortgagee or
beneficiary of any deed of trust a written recognition agreement in form
reasonably satisfactory to Lessee providing that Lessee's rights and interest
shall not be disturbed in the event of any foreclosure of any such mortgage or
deed of trust and confirming that Lessee shall receive all of the rights and
services provided for under the Lease.
35. DEPOSIT AGREEMENT.
Lessor and Lessee hereby agree that Lessor shall be entitled to
immediately endorse and cash Lessee's good faith rent and the Security Deposit
check(s) accompanying this Lease. It is further agreed and understood that such
action shall not guarantee acceptance of this
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Lease by Lessor, but, in the event Lessor does not accept this Lease, such
deposits shall be refunded in full to Lessee. This Lease shall be effective only
after Lessee has received a copy fully executed by Lessor.
36. GOVERNING LAW.
This Lease is governed by and construed in accordance with the laws of
the State of California, and venue of any suit shall be in the county where the
Premises are located.
37. NEGOTIATED TERMS.
This Lease is a result of the negotiations of the parties and has been
agreed to by both Lessor and Lessee after prolonged discussion.
38. SEVERABILITY.
If any provision of this Lease is found to be unenforceable, all other
provisions shall remain in full force and effect.
39. BROKER ACKNOWLEDGEMENT.
Lessee warrants that it has not had any dealings with any real estate
brokers, leasing agents, salesmen, or incurred any obligations for the payment
of real estate brokerage commissions or finder's fees which would be earned or
due and payable by reason of the execution of this Lease other than to CB
Richard Ellis, Inc. and Trammell Crow Company, who will be paid commissions by
Lessor pursuant to a separate agreement between CB Richard Ellis, Inc. and
Lessor. Each party agrees to indemnify, hold harmless, and defend the other
party against any claims or demands for any brokerage commissions, finder's fees
or other charges incurred or alleged to have been incurred by the party by
reason of the execution of this Lease.
40. ATTORNEYS' FEES.
In the event of any action or proceeding brought by either party against
the other under this Lease, the prevailing party shall be entitled to recover
court costs and the fees of its attorneys in such action or proceeding (whether
at the administrative, trial or appellate levels) in such amount as the court or
administrative body may adjudge reasonable.
41. MISCELLANEOUS PROVISIONS.
41.01 Whenever the singular number is used in this Lease and when
required by the context, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and the word "person"
shall include corporations, firms, partnerships, or associations. If there be
more than one Lessee, the obligations imposed upon Lessee under this Lease shall
be joint and several.
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41.02 The section headings or titles of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part of this Lease.
41.03 This instrument contains all of the agreements and conditions made
between the parties to this Lease and may not be modified orally or in any other
manner than by an agreement in writing signed by all parties to this Lease.
Lessee acknowledges that neither Lessor nor Lessor's agents have made any
representation or warranty as to the suitability of the Premises and/or the
Project to the conduct of Lessee's business. Any agreements, warranties or
representations not expressly contained herein shall in no way bind either
Lessor or Lessee, and Lessor and Lessee expressly waive all claims for damages
by reason of any statement, representation, warranty, promise or agreement, if
any, not contained in this Lease.
41.04 Time is of the essence of each term and provision of this Lease.
41.05 Except as otherwise expressly stated, each payment required to be
made by Lessee is in addition to and not in substitution for other payments to
be made by Lessee.
41.06 Subject to Article 19, the terms and provisions of this Lease are
binding upon and inure to the benefit of the heirs, executors, administrators,
successors and assigns of Lessor and Lessee.
41.07 Except as otherwise expressly provided in this Lease, all
covenants and agreements to be performed by Lessee under any of the terms of
this Lease shall be performed at Lessee's sole cost and expense and without any
abatement of Rent.
41.08 There are no light, air or view easements being granted with this
Lease. Any diminution or shutting off of light, air or view by any structure
which may be erected by Lessor or others shall in no way affect this Lease or
impose any liability on Lessor.
41.09 Lessee shall, to the reasonable satisfaction of Lessor, upon Lease
expiration, surrender the Premises to Lessor in the same condition as received
on the commencement of this Lease (reasonable wear and tear, acts of God,
casualties, condemnation and Hazardous Materials (other than those released or
emitted by Lessee), and Alterations or other Interior Improvements which Lessee
is not required to remove at the termination of the Lease, excepted) with all
originally painted interior walls washed, or repainted if marked or damaged and
other interior walls cleaned and repaired or replaced, all carpets cleaned and
in good condition, and all floors cleaned and waxed. Lessee shall remove all of
Lessee's personal property and trade fixtures from the Premises and all such
property not so removed shall be deemed abandoned by Lessee. Furthermore, Lessee
shall immediately repair all damage to the Premises, Project and Public Areas
caused by any such removal. Lessee shall indemnify Lessor against any loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including without limitation, any claims made by any succeeding lessee based
upon delay in the availability of the Premises.
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42. SPECIAL PROVISIONS.
Special provisions of this Lease, Articles 43 through 46, are attached hereto
and made apart hereof. If none, so state in the following space:_______________.
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IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and
year indicated by Lessor's execution date as written below.
Lessee warrants that the individual(s) signing on behalf of Lessee have the
authority to bind their principals. In the event that Lessee is a corporation,
Lessee shall deliver to Lessor, concurrently with the execution and delivery of
this Lease, a certified copy of corporate resolutions adopted by Lessee
authorizing said corporation to enter into and perform the Lease and authorizing
the execution and delivery of the Lease on behalf of the corporation by the
parties executing and delivering this Lease. THIS LEASE WHETHER OR NOT EXECUTED
BY LESSEE, IS SUBJECT TO ACCEPTANCE AND EXECUTION BY LESSOR, ACTING ITSELF OR BY
ITS AGENT ACTING THROUGH ITS SENIOR VICE PRESIDENT, VICE PRESIDENT, REGIONAL
VICE PRESIDENT, REGIONAL MANAGER, ASSISTANT REGIONAL MANAGER, OR AREA MANAGER AT
ITS HOME OFFICE.
LESSOR: LESSEE:
FRANKLIN SELECT REALTY TRUST, SOFTWARE TECHNOLOGIES CORPORATION
a California Corporation a California Corporation
BY: /s/ Mark Tenboer BY: /s/ William Overell
----------------------------- -----------------------------
WILLIAM L. OVERELL
MARK A TENBOER VICE PRESIDENT FINANCE AND CFO
- -------------------------------- -----------------------------
(Print Name) (Print Name)
TITLE: Vice President Finance TITLE:
------------------------- --------------------------
DATE: 6/18/99 DATE: 6/18/99
--------------------------- ---------------------------
(Execution Date)
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EXHIBIT "B"
LESSOR'S WORK
A. Lessor shall construct the Premises to the specifications outlined by
Lessee's architect (the "Tenant Improvements") in accordance with the
preliminary space plan (the "Preliminary Plans") attached hereto as Exhibit B-1,
and shall provide a tenant improvement allowance (the "Allowance") not to exceed
$8.00 per rentable square foot. Such allowance shall include all costs related
to the improvements (i.e. materials, labor, permit fees, architectural fees,
life-safety costs, etc.). Any cost exceeding said allowance shall be at Lessee's
sole cost and expense. Lessor shall amortize up to an additional $5.00 per
rentable square foot of tenant improvement costs over the term of the Lease at a
rate of ten percent (10%) annually.
B. Lessor shall cause three (3) general contractors to bid for
construction of the Tenant Improvements. If Lessee so desires, Lessee may also
select a general contractor, reasonably acceptable to lessor, to bid the work.
All bids will be opened and reviewed together with Lessee. Lessor shall select
the general contractor to construct the Tenant Improvements (the "General
Contractor"), subject to reasonable approval by Lessee if the Contractor's bid
exceeds the Allowance. The General Contractor is the contractor of Lessor only,
and Lessee shall have no liability to the General Contractor under the
construction contract, subject to the provisions of Section A above.
C. Lessor shall cause to be prepared, as quickly as possible: (i) final
plans, specifications and working drawings of the Tenant Improvements ("Final
Plans"), and (ii) a detailed work cost estimate ("Work Cost Estimate") for the
construction of the Tenant Improvements, all of which shall conform to and
represent logical evolutions of or developments from the Preliminary Plans. The
Final Plans and Work Cost Estimate shall be delivered to Lessee immediately upon
completion. Within ten (10) working days after receipt thereof, Lessee may, at
its election (i) approve the Final Plans and Work Cost Estimate, (ii) deliver to
Lessor specific written changes to such plans as are necessary, in Lessee's
opinion, to conform such plans to the preliminary space plans or to reduce
costs. If Lessee desires to make changes to such plans, Lessor shall not
unreasonably withhold its approval of such changes and the parties shall confer
and negotiate in good faith to reach agreement on modifications to the Final
Plans and Work Cost Estimate as a consequence of such changes. As soon as
approved by Lessor and Lessee, Lessor shall submit the Final Plans to all
appropriate governmental agencies and thereafter Lessor shall use its best
efforts to obtain all required governmental approvals as soon as possible.
D. Lessor shall pay, and Lessee shall have no responsibility for, the
following costs associated with the Tenant Improvements: (i) costs attributable
to improvements installed outside the demising walls of the Premises; (ii) costs
incurred to remove Hazardous Materials from the Premises, the Building, or the
Project; (iii) Lessor's attorneys fees incurred in connection with the
negotiation of construction contracts and attorneys'
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and experts' fees and other costs in connection with disputes with third parties
(including, without limitation, the General Contractor); (vi) costs incurred as
a consequence of delay (unless the delay is caused by Lessee), construction
defects or defaults by any contractor; (v) costs recoverable by Lessor on
account of warranties or insurance; (vi) restoration costs in excess of
insurance proceeds as a consequence of casualties; (vii) penalties and late
charges attributable to Lessor's failure to pay construction costs; (viii) costs
to bring the Building and the Project into compliance with applicable Laws,
including, without limitation, the Americans with Disabilities Act and Hazardous
Materials Laws; (ix) wages, labor and overhead for overtime and premium time;
(x) off-site management or other general overhead costs incurred by Lessor; (xi)
construction management, profit and overhead charges; and (xii) interest and
other costs of financing construction.
E. Effective upon delivery of the Premises to Lessee, Lessor warrants
that (i) construction of the Tenant Improvements was performed in accordance
with all Laws and the Final Plans and in a good and workmanlike manner, and (ii)
all material and equipment installed in the Premises conformed to the Final
Plans and was new and otherwise of good quality.
F. So long as such occupancy does not interfere with Lessor's
construction of the Tenant Improvements, Lessee shall have the right to enter
the Premises prior to the completion of the Tenant Improvements for the purposes
of installing Lessee's equipment, data and telecommunications systems, and trade
fixtures. Such occupancy shall be subject to all of the terms of the Lease,
except the obligation to pay Rent.
2
<PAGE> 32
EXHIBIT "C"
PROJECT RULES
The following Project Rules are additional provisions of the foregoing
Lease to which they are attached.
1. Use of Public Areas. Lessee will not obstruct sidewalks, halls,
passages, exits, entrances, elevators or stairways of the Project (the "Public
Areas"), and Lessee will not use the Public Areas for any purpose other than
ingress and egress to and from the Premises. The Public Areas, except for the
sidewalks, are not open to the general public and Lessor reserves the right to
control and prevent access to the Public Areas of any person whose presence, in
Lessor's opinion, would be prejudicial to the safety, reputation and interests
of the Project and the other lessees thereof.
2. No Access to Roof. Lessee has no right of access to the roof of the
Project and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Project, without
the prior written consent of Lessor. Any such device installed without such
written consent is subject to removal at Lessee's expense without notice at any
time. In such event Lessee will be liable for any damages or repairs incurred or
required as a result of its installation, use or removal of such devices on the
roof.
3. Signage. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the Project will be inscribed, painted, affixed or
otherwise displayed by Lessee on or in any part of the Project without the prior
written consent of Lessor. Lessor reserves the right to adopt and furnish Lessee
with general guidelines relating to signs in or on the Project. All approved
signage will be inscribed, painted or affixed at Lessee's expense by a person
approved by Lessor, which approval will not be unreasonably withheld.
4. Prohibited Uses. The Premises will not be used for manufacturing, for
the storage of merchandise held for sale to the general public, for lodging or
for the sale of goods to the general public. Lessee will not permit any food
preparation on the Premises except that Lessee may use Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar beverages
so long as such use is in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations.
5. Janitorial Services. Lessee will not employ any person for the
purpose of cleaning the Premises or permit any person to enter the Project for
such purpose other than the Lessor's janitorial service, except with Lessor's
prior written consent. Lessee will not necessitate, and will be liable for the
cost of, any undue amount of janitorial labor by reason of Lessee's carelessness
in or indifference to the preservation of good order and cleanliness on the
Premises. Janitorial service will not be furnished to areas in the Premises on
nights when such areas are occupied after 9:30 p.m., unless such service is
extended by written agreement to a later hour in specifically designated areas
of the Premises.
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<PAGE> 33
6. Keys and Locks. Lessor will furnish Lessee, free of charge, two keys
to each door or lock in the Premises and two keys to access the Building. Lessor
may make a reasonable charge for any additional or replacement keys. Lessee will
not duplicate any keys, alter any locks or install any new or additional lock or
bolt on any door of its Premises or on any other part of the Project without the
prior written consent of Lessor except in the event of a banking or commercial
emergency such as a theft or other invasion of the Lessee's records, and, in any
event, Lessee will immediately provide Lessor with a key for any such lock. On
the termination of the Lease, Lessee will deliver to Lessor all keys to any
locks or doors in the Project and Premises that have been obtained by Lessee and
that have been signed for per the terms and conditions of the Key Receipt
Acknowledgement form (Exhibit E).
7. Freight. Upon not less than twenty-four (24) hours prior notice to
Lessor, which notice may be verbal, an elevator will be made available for
Lessee's use for transportation of freight, subject to such scheduling as Lessor
in its discretion deems appropriate. Lessee shall not transport freight in loads
exceeding the weight limitations of such elevator. Lessor reserves the right to
prescribe the weight, size and position of all equipment, materials, furniture
or other property brought into the Project, and no property will be received in
the Project or carried up or down the freight elevator or stairs except during
such hours and along such routes and by such persons as may be designated by
Lessor. Lessor reserves the right to require that heavy objects will stand on
wood strips of such length and thickness as is necessary to properly distribute
the weight. Lessor will not be responsible for loss of or damage to any such
property from any cause, and Lessee will be liable for all damage or injuries
caused by moving or maintaining such property.
8. Nuisances and Dangerous Substances. Lessee will not conduct itself or
permit its agents, employees, contractors or invitees to conduct themselves, in
the Premises or anywhere on or in the Project in a manner which is offensive or
unduly annoying to any other lessee or Lessor's property managers. Lessee will
not install or operate any phonograph, radio receiver, musical instrument, or
television or other similar device in any part of the Public Areas and shall not
operate any such device installed in the Premises in such a manner as to disturb
or annoy other lessees of the Project. Lessee will not use or keep in the
Premises or the Project, any kerosene, gasoline or other combustible fluid or
material other than limited quantities thereof reasonably necessary for the
maintenance of office equipment, or, without Lessor's prior written approval,
use any method of heating or air conditioning other than that supplied by
Lessor. Lessor will not use or keep any foul or noxious gas or substance in the
Premises or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Lessor other occupants of the Project by reason of
noise, odors or vibrations, or interfere in any way with other lessees or those
having business therein. Lessee will not bring or keep any animals in or about
the Premises or the Project.
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<PAGE> 34
9. Project Name and Address. Without Lessor's prior written consent,
Lessee will not use the name of the Project in connection with or in promoting
or advertising Lessee's business except as Lessee's address.
10. Project Directory. A directory for the Project will be provided for
the display of the name and location of Lessee. Lessor reserves the right to
approve any additional names Lessee desires to place in the directory and, if so
approved, Lessor may assess a reasonable charge for adding such additional
names.
11. Window Coverings. No curtains, draperies, blinds, shutters, shades,
awnings, screens or other coverings, window ventilators, hangings or decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Project without the prior written consent of Lessor, and
Lessor shall have the right to control all lighting within the Premises that may
be visible from the exterior of the Project.
12. Floor Coverings. Lessee will not lay or otherwise affix linoleum,
tile, carpet, or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Lessor. Lessee will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Lessee or its contractors, employees or
invitees.
13. Electrical Installations. Lessor will direct Lessee's electricians
as to where and how telephone, telegraph and electrical wires are to be
installed. No boring or cutting for wires will be allowed without the prior
written consent of Lessor. The location of burglar alarms, smoke detectors,
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the written approval of Lessor.
14. Office Closing Procedures. Lessee will see that the doors of the
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Lessee or its employees leave the Premises, so as
to prevent waste or damage. Lessee will be liable for all damage or injuries
sustained by other lessees or occupants of the Project or Lessor resulting from
Lessee's carelessness in this regard or violation of this rule. Lessee will keep
the doors to the Project corridors closed at all times except for ingress and
egress.
15. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Lessee will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by the Lessee, its employees or
invitees.
16. Use of Hand Trucks. Lessee will not use or permit to be used in the
Premises or in the Public Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Lessor may
approve.
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<PAGE> 35
17. Refuse. Lessee will store all its trash and garbage within the
Premises. No material will be placed in the trash boxes or receptacles if such
material may not be disposed of in the ordinary and customary manner of removing
and disposing of trash and garbage in the city in which the Project is located
without being in violation of any law or ordinance governing such disposal. All
trash and garbage removal will be only through such Public Areas for such
purposes and at such times as Lessor may designate.
18. Soliciting. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Project are prohibited, and
Lessee will cooperate to prevent the same.
19. Parking. Lessee will use, and will cause its agents, employees,
contractors and invitees to use, the parking spaces to which it is entitled
under the Lease in a manner consistent with Lessor's directional signs and
markings in the Parking Facility. Specifically, but without limitation, Lessee
will not park, or permit its agents, employees, contractors or invitees to park,
in a manner that impedes access to and from the Project or the Parking Facility
or that violates space reservations for handicapped drivers registered as such
with the California Department of Motor Vehicles. Lessor may use such reasonable
means as may be necessary to enforce the directional signs and markings in the
Parking Facility, including but not limited to towing services, and Lessor will
not be liable for any damage to vehicles towed as a result of noncompliance with
such parking regulations.
20. Fire, Security and Safety Regulations. Lessee will comply with all
safety, security, fire protection and evacuation measures and procedures
established by Lessor or any governmental agency.
21. Responsibility for Theft. Lessee assumes any and all responsibility
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
22. Sales and Auctions. Lessee will not display or sell merchandise
outside the exterior walls and doorways of the Premises nor use such areas for
storage. Lessee will not install any exterior lighting, amplifiers or similar
devices or use in or about the Premises any advertising medium which may be
heard or seen outside the Premises, including flashing lights, searchlights,
loudspeakers, phonographs or radio broadcasts. Lessee will not conduct or permit
to be conducted any sale by auction in, upon or from the Premises or elsewhere
in the Project, whether said auction to be voluntary, involuntary, pursuant to
any assignment for the payment of creditors or pursuant to any bankruptcy or
other insolvency proceeding.
23. Enforcement. Lessor may waive any one or more of these Project Rules
for the benefit of any particular lessee or lessees, but no such waiver by
Lessor will be construed as a waiver of such Project Rules in favor of any other
lessee or lessees, nor prevent Lessor from thereafter enforcing these Project
Rules against any or all of the lessees of the Project.
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<PAGE> 36
24. Effect on Lease. These Project Rules are in addition to, and shall
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Project
Rules constitutes a failure to fully perform the provisions of the Lease as
referred to in Section 6.1 ("Events of Default").
25. Additional and Amended Rules. Lessor reserves the right to rescind
or amend these Project Rules and/or adopt any other and reasonable rules and
regulations as in its judgement may from time to time be needed for the safety,
care and cleanliness of the Project and for the preservation of good order
therein.
26. Hazardous Materials. If Lessee stores or uses any toxic or hazardous
materials on the Premises, Lessee shall institute a plan for the removal of such
toxic or hazardous materials and any containers in which such materials are
stored or packaged. This plan must be in accordance with all governmental
regulations regarding the use, storage and disposal of such materials as
evidenced by Lessee obtaining a written statement from the appropriate
governmental authority. Lessee shall provide Lessor with a copy of the plan and
approval statement.
27. No Smoking Building. Lessor has declared said Project a smoke-free
environment. There is no smoking permitted in any area of the building (i.e.
restrooms, hallways, stairwells, lobby, etc.), up to and including Lessee's
Premises.
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<PAGE> 37
EXHIBIT "D"
SPECIAL PROVISIONS
43. BASE MONTHLY RENT.
The Base Monthly Rent shall be as follows:
Months 1 thru 12 $3.75/rsf/mo.
Months 13 thru 24 $3.86/rsf/mo.
Months 25 thru 36 $3.98/rsf/mo.
Months 37 thru 48 $4.10/rsf/mo.
Months 49 thru 60 $4.22/rsf/mo.
44. SIGNAGE:
Lessor, at Lessor's sole cost and expense, shall provide building standard
signage for the Premise and the lobby directory.
45. OPTION TO EXTEND LEASE TERM:
45.01 Option. Lessee is given the option to extend the Lease Term, on
all the provisions contained in this Lease, for one additional five (5) year
period (the "Option Term") following expiration of the initial Lease Term stated
in Section 1.06 (the "Initial Term"), by giving written notice of exercise of
the option (the "Option Notice") to Lessor at least nine (9) months but not more
than one (1) year before the expiration of the Initial Term. Notwithstanding the
foregoing, if Lessee is in default on the date of giving the Option Notice,
Lessee shall have no right to extend the Lease Term and this Lease shall expire
at the end of the Initial Term; or if Lessee is in default on the date the
Option Term is to commence, the Option Term shall not commence and this Lease
shall expire at the end of the Initial Term. The Base Monthly Rent for the
Option Term shall be in an amount equal to the fair market rental ("Fair Market
Rental" as hereinafter defined) of the Premises at the commencement of the
Option Term (the "Adjustment Date"). The Expense Base Year shall be the calendar
year in which the Adjustment Date occurs, and the Tax Base Year shall be the
fiscal year in effect on the Adjustment Date..
45.02 Fair Market Rental.
A. "Fair Market Rental" shall mean the rate being paid by tenants
executing leases for comparable space in similar buildings in Redwood Shores,
with similar amenities, taking into consideration: size, location, floor level,
leasehold improvements or allowances provided or to be provided, proposed term
of the lease, extent of services to be provided, the time that the particular
rate under consideration became or is to become
1
<PAGE> 38
effective, and any other relevant terms or conditions. Landlord leasing costs,
not charged to tenants, shall not be considered when determining Fair Market
Rental, nor shall the value of any alterations or improvements paid for by
Lessee. Fair Market Rental as of the Adjustment Date shall be determined by
Lessor with written notice (the "Notice") given to Lessee not later than thirty
(30) days after receipt of the Option Notice, subject to Lessee's right to
arbitration as hereinafter provided. Failure on the part of Lessee to demand
arbitration within thirty (30) days after receipt of the Notice from Lessor
shall bind Lessee to the Fair Market Rental as determined by Lessor. Should
Lessee elect to arbitrate and should the arbitration not have been concluded
prior to the Adjustment Date, Lessee shall pay the Base Monthly Rent to Lessor
after the Adjustment Date, adjusted to reflect the Fair Market Rental as Lessor
has so determined. If the amount of the Fair Market Rental as determined by
arbitration is greater than or less than Lessor's determination, then any
adjustment required to adjust the amount previously paid shall be made by
payment by the appropriate party within ten (10) days after such determination
of Fair Market Rental.
B. If Lessee disputes the amount claimed by Lessor as Fair Market
Rental, Lessee may require that Lessor submit the dispute to arbitration. The
arbitration shall be conducted and determined in the County of San Mateo in
accordance with the then prevailing rules of the American Arbitration
Association or its successor for arbitration of commercial disputes, except that
the procedures mandated by such rules shall be modified as follows:
(i) Lessee shall make demand for arbitration in writing within thirty
(30) days after service of the Notice, specifying therein the name and address
of the person to act as the arbitrator on Lessee's behalf. The arbitrator shall
be a real estate appraiser with at least five (5) years full-time commercial
appraisal experience who is familiar with the Fair Market Rental of first-class
commercial office space in Redwood Shores. Failure on the part of Lessee to make
the timely and proper demand for such arbitration shall constitute a waiver of
the right thereto. Within ten (10) business days after the service of the demand
for arbitration, Lessor shall give notice to Lessee specifying the name and
address of the person designated by Lessor to act as arbitrator on its behalf,
which arbitrator shall be similarly qualified. If Lessor fails to notify Lessee
of the appointment of its arbitrator, within or by the time specified, then the
arbitrator appointed by Lessee shall be the arbitrator to determine the Fair
Market Rental for the Premises.
(ii) If two arbitrators are chosen pursuant to Section 45.02(b)(i)
above, the arbitrators so chosen shall meet within ten (10) business days after
the second arbitrator is appointed and shall appoint a third arbitrator, who
shall be a competent and impartial person with qualifications similar to those
required of the first two arbitrators pursuant to Section 45.02(b)(i) above. If
they are unable to agree upon such appointment within five (5) business days
after expiration of such ten (10) day period, the third arbitrator shall be
selected by the parties themselves. If the parties do not so agree, then either
party, on behalf of both, may request appointment of such a qualified person by
the then president of the Real Estate Board for the County of San Mateo. The
three arbitrators shall decide the
2
<PAGE> 39
dispute, if it has not been previously resolved, by following the procedures set
forth in Section 45.02(b)(iii) below.
(iii) The Fair Market Rental shall be fixed by the three arbitrators in
accordance with the following procedures. Each of the arbitrators selected by
the parties shall state, in writing, his determination of the Fair Market Rental
supported by the reasons therefor and shall make counterpart copies for each of
the other arbitrators. The arbitrators shall arrange for a simultaneous exchange
of such proposed resolutions. The role of the third arbitrator shall be to
select which of the two proposed resolutions most closely approximates his
determination of Fair Market Rental. The third arbitrator shall have no right to
propose a middle ground or any modification of either of the two proposed
resolutions. The resolution he chooses as that most closely approximating his
determination of the Fair Market Rental shall constitute the decision of the
arbitrators and shall be final and binding upon the parties.
(iv) In the event of a failure, refusal or inability of any arbitrator
to act, his successor shall be appointed by him, but in the case of the third
arbitrator, his successor shall be appointed in the same manner as that set
forth herein with respect to the appointment of the original third arbitrator.
The arbitrators shall attempt to decide the issue within ten (10) business days
after the appointment of the third arbitrator. Any decision in which the
arbitrator appointed by Lessor and the arbitrator appointed by Lessee concur
shall be binding and conclusive upon the parties, except that such arbitrators
shall not attempt by themselves to mutually ascertain the Fair Market Rental and
any such determination, in a manner other than that provided for in Section
45.02(b)(iii) hereof, shall not be binding on the parties. Each party shall pay
the fees and expenses of its respective arbitrator and both shall share the fees
and expenses of the third arbitrator. Attorneys' fees and expenses of counsel
and of witnesses for the respective parties shall be paid by the respective
party engaging such counsel or calling such witnesses.
(v) The arbitrators shall have the right to consult experts and
competent authorities for factual information or evidence pertaining to a
determination of Fair Market Rental, but any such consultation shall be made in
the presence of both parties with full right on their part to cross-examine. The
arbitrators shall render the decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease.
46. SECURITY DEPOSIT:
Lessee shall provide Lessor a security deposit in an amount equal to six (6)
month's rent or a letter of credit in a mutually acceptable form upon execution
of the Lease Agreement.
3
<PAGE> 40
EXHIBIT A
[BUILDING MAP]
<PAGE> 41
EXHIBIT B-1
[BUILDING MAP]
<PAGE> 42
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (the "First Amendment") made on July 12, 1999, is
made by and between Franklin Select Realty Trust, a California Corporation
("Lessor"), and Software Technologies Corporation, a California Corporation
("Lessee").
RECITALS
Lessor and Lessee entered into that certain lease dated June 10, 1999 (the
"Lease"), pursuant to which Lessor leased to Lessee, and Lessee leased from
Lessor, those certain premises (the "Existing Premises") comprising
approximately Ten Thousand Nine Hundred Seventy-Two (10,972) rentable square
feet commonly known as 100 Marine Parkway, Suite 500, Redwood City, California,
as more particularly described in the Lease and subsequent Amendments thereof.
NOW, THEREFORE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE
LEASE, LESSOR AND LESSEE AGREE TO AMEND THE RESPECTIVE SECTIONS OF SAID LEASE
AND ALL AMENDMENTS AND EXHIBITS THERETO, AS FOLLOWS:
1.01 Premises. In addition to the Existing Premises identified in the Lease,
Lessor leases to Lessee, and Lessee leases from Lessor, Suite 525, consisting
of approximately Six Thousand Four Hundred Thirty-Four (6,434) rentable square
feet of office space (the "Expansion Premises," and, together with the
Existing Premises, the "Premises"), as shown on Exhibit A attached hereto and
made a part of this First Amendment. Therefore, the entire Premises now
consists of Seventeen Thousand Four Hundred and Six (17,406) rentable square
feet.
1.06 Lease Term. The Lease Term shall commence upon the earlier of October 1,
1999 or upon substantial completion of the tenant improvements by Lessor and
shall terminate September 30, 2004. Pursuant to the additional terms of
Paragraph 2.02 of the Lease, within five (5) business days following full
execution and delivery to Lessee of this First Amendment, Lessee shall provide
Lessor with a final revised space plan as approved by Lessee to replace Exhibit
B-1 (the "Revised Space Plan"), which Revised Space Plan is subject to Lessor's
final approval. Any delays beyond said five (5) business day period or any
changes or modifications made by Lessee to the approved Revised Space Plan or
subsequent working drawings thereafter shall be considered a delay caused by
Lessee. All such resulting delays that cause the tenant improvements to be
substantially completed later than October 1, 1999, except for delays caused
solely by Lessor, its agents or contractors, shall not delay the commencement
of the Lease Term including the payment of rent by Lessee.
1.07 Base Monthly Rent. The Base Monthly Rent for the Premises shall be subject
to the terms and conditions of the Lease, Exhibit D, Section 43 based upon the
size of the Premises as revised under Section 1.01 above.
Page 1 of 2
<PAGE> 43
1.08 Security Deposit: The Security Deposit for the Premises shall be subject
to the terms and conditions of the Lease, Exhibit D, Section 46 based upon the
size of the Premises as revised under Section 1.01 above.
1.10 Proportionate Share. Lessee's Proportionate Share is 21.32%.
Exhibit "B"; Lessor's Work; paragraph "A". The Allowance for tenant
improvements for the Premises shall be subject to the terms and conditions of
the Lease, Exhibit B based upon the size of the Premises as revised under
Section 1.01 above.
Defined Terms. All defined terms as used in this First Amendment shall have the
same meanings as set forth in the Lease, unless otherwise expressly set forth
herein.
All other terms and conditions not amended herein remain unchanged.
IN WITNESS WHEREOF, Lessor and Lessee have executed this First Amendment to
Lease as of the day and year indicated by Lessor's execution date as written
below.
Lessee warrants that the individual(s) signing on behalf of Lessee have the
authority to bind their principals. In the event that Lessee is a corporation,
Lessee shall deliver to Lessor, concurrently with the execution and delivery of
this First Amendment to Lease, a certified copy of corporate resolutions
adopted by Lessee authorizing said corporation to enter into and perform this
First Amendment to Lease and authorizing the execution and delivery of this
First Amendment to Lease on behalf of the corporation by the parties executing
and delivering this First Amendment to Lease. THIS FIRST AMENDMENT TO LEASE
WHETHER OR NOT EXECUTED BY LESSEE, IS SUBJECT TO ACCEPTANCE AND EXECUTION BY
LESSOR, ACTING ITSELF OR BY ITS AGENT ACTING THROUGH ITS SENIOR VICE PRESIDENT,
VICE PRESIDENT, REGIONAL VICE PRESIDENT, REGIONAL MANAGER, ASSISTANT REGIONAL
MANAGER, OR AREA MANAGER AT ITS HOME OFFICE.
LESSOR: LESSEE:
Franklin Select Realty Trust, Software Technologies Corporation,
a California Corporation a California Corporation
BY: /s/ MARK TENBOER BY: /s/ JAMES T. DEMETRIADES
- ------------------------------- -------------------------------
(Authorized Signature) (Authorized Signature)
Vice President Chairman, CEO & President
- ------------------------------- -------------------------------
DATE: 7/26/99 DATE: 7-13-99
- ------------------------------- -------------------------------
(Execution Date)
Page 2 of 2
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
- ------------------------------
Software Technologies Corporation Australia, Proprietary Limited
Software Technologies Corporation (UK) Limited
Software Technologies Corporation (Deutschland) GmbH
Software Technologies Corporation - Benelux (Belgium)
Software Technologies Corporation France Sarl
Software Technologies Corporation Japan KK
<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 Note 10, as to which the date
is February , 2000) in the Registration Statement and related Prospectus of
Software Technologies Corporation dated February 17, 2000.
Ernst & Young LLP
Woodland Hills, California
February 17, 2000
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 10 to the financial
statements.
/s/ Ernst & Young LLP
Woodland Hills, California
February 17, 2000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,572,000
<SECURITIES> 0
<RECEIVABLES> 19,577,000
<ALLOWANCES> (1,055,000)
<INVENTORY> 0
<CURRENT-ASSETS> 21,675,000
<PP&E> 11,161,000
<DEPRECIATION> (3,955,000)
<TOTAL-ASSETS> 29,852,000
<CURRENT-LIABILITIES> 23,592,000
<BONDS> 10,000,000
0
24,681,000
<COMMON> 19,164,000
<OTHER-SE> (47,585,000)
<TOTAL-LIABILITY-AND-EQUITY> 29,852,000
<SALES> 0
<TOTAL-REVENUES> 55,171,000
<CGS> 0
<TOTAL-COSTS> 25,181,000
<OTHER-EXPENSES> 55,286,000
<LOSS-PROVISION> 685,000
<INTEREST-EXPENSE> 515,000
<INCOME-PRETAX> (25,811,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<NET-INCOME> (25,811,000)
<EPS-BASIC> (.61)
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