<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMBARCADERO TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 511210 68-0310015
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
EMBARCADERO TECHNOLOGIES, INC.
425 MARKET STREET, SUITE 425
SAN FRANCISCO, CA 94105
(415) 834-3131
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
STEPHEN R. WONG
CHAIRMAN
EMBARCADERO TECHNOLOGIES, INC.
425 MARKET STREET, SUITE 425
SAN FRANCISCO, CA 94105
(415) 834-3131
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN C. FERRUOLO KENNETH J. BARONSKY
HELLER EHRMAN WHITE & MCAULIFFE LLP MILBANK, TWEED, HADLEY & MCCLOY LLP
4250 EXECUTIVE SQUARE 601 SOUTH FIGUEROA STREET
7TH FLOOR 30TH FLOOR
LA JOLLA, CALIFORNIA 92037 LOS ANGELES, CALIFORNIA 90017-5741
TELEPHONE: (858) 450-8400 TELEPHONE: (213) 892-4000
FACSIMILE: (858) 450-8499 FACSIMILE: (213) 629-5063
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVENESS 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, please check the
following box and list the Securities Act registration 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value............................. $57,500,000 $15,180.00
</TABLE>
(1) Estimated only for the purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION -- , 2000.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 2000
[LOGO]
SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
EMBARCADERO TECHNOLOGIES, INC.: THE OFFERING:
- -We provide software products that - We are offering shares of
enable organizations to build and our common stock.
manage e-business applications and - The underwriters have an option to
their underlying databases. purchase up to additional
- - Embarcadero Technologies, Inc. shares from Embarcadero to cover
425 Market Street, Suite 425 over-allotments.
San Francisco, California 94105 - This is the initial public offering
(415) 834-3131 of our common stock.
- We plan to use the net proceeds from
PROPOSED SYMBOL AND MARKET: this offering for working capital
- - EMBT/Nasdaq National Market and other general corporate
purposes.
- Closing: , 2000.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
<S> <C> <C>
Per Share Total
- ---------------------------------------------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Embarcadero:
- ---------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
WIT SOUNDVIEW
DLJDIRECT INC.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or any sale of the common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 7
Special Note Regarding Forward-
Looking Statements.............. 13
Use of Proceeds................... 13
Dividend Policy................... 13
Corporate Information............. 13
Capitalization.................... 14
Dilution.......................... 15
Selected Financial Data........... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 17
</TABLE>
<TABLE>
Business.......................... 24
<CAPTION>
Page
<S> <C>
Management........................ 36
Certain Transactions.............. 44
Principal Stockholders............ 45
Description of Capital Stock...... 46
Shares Eligible for Future Sale... 48
Underwriting...................... 50
Legal Matters..................... 52
Experts........................... 52
Change in Accountants............. 52
Additional Information............ 53
Index to Financial Statements..... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING EMBARCADERO AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING IN OUR FINANCIAL STATEMENTS AND THE RELATED NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS.
EMBARCADERO TECHNOLOGIES, INC.
We provide software products that enable organizations to build and manage
e-business applications and their underlying databases. Our products employ a
common graphical user interface to simplify the process of building and managing
software applications to meet the rigorous requirements of today's e-business
environment. Our suite of products enables organizations to increase the
utilization of their existing database infrastructure and the productivity of
their information technology professionals.
In today's highly competitive markets, a growing number of organizations are
using the Internet to conduct business electronically. This e-business model has
led to the proliferation of new Internet-based, or e-business, software
applications. Businesses are becoming increasingly reliant on these e-business
applications to run critical parts of their operations and to collect important
customer and market information. Organizations must ensure that these
applications are up-and-running with optimal performance. A poorly designed or
poorly performing application can have a significant operational and financial
impact on e-business organizations.
Software applications for e-business are designed to provide reliable
storage and flexible access to critical business information. Databases, which
are a proven technology for storing and accessing information, provide the
essential infrastructure for e-business applications. The proliferation of
software applications from Internet and e-business initiatives has increased the
demands on databases as organizations face numerous business and technology
challenges, including storing massive amounts of customer data, handling
increasing numbers of users and utilizing information from disparate systems. To
help address these challenges, organizations need an integrated solution that
allows them to manage the database life cycle. The database life cycle includes
the design, development and administration phases.
Our suite of products provides an integrated solution to manage the database
life cycle and enables organizations to build and manage e-business applications
from a graphical user interface. Our primary products include:
- ER/STUDIO, which addresses the design phase, enables organizations to
capture business requirements and translate them into database
applications;
- RAPID SQL, which addresses the development phase, enables organizations to
streamline the process of developing complex database code; and
- DBARTISAN, which addresses the administration phase, enables organizations
to ensure the availability, performance, security and recoverability of
databases.
We believe our suite of products enables organizations to:
- DEVELOP AND SUPPORT E-BUSINESS APPLICATIONS. Our products are designed to
work individually and together to provide rapid development and continuous
availability of critical applications as enterprises deploy and extend
their information technology infrastructure.
- INCREASE UTILIZATION OF EXISTING DATABASE TECHNOLOGY. Most companies'
infrastructure consists of an assortment of databases from various
vendors. We believe our suite of products, with its multi-vendor support,
provides the only integrated solution for designing, developing and
administering a variety of databases.
3
<PAGE>
- LEVERAGE CONSTRAINED INFORMATION TECHNOLOGY RESOURCES. We design our
products to be easy to use so that experienced database professionals can
do more in less time and less experienced professionals can become
proficient sooner.
- FACILITATE RAPID ADOPTION. Customers can download our products from our
website, install them within minutes and typically become productive
within one hour. As a result, we believe our customers can realize a
faster return on investment than with traditional solutions, which often
involve a lengthy and expensive deployment process.
Our objective is to be the leading provider of software solutions that
enable organizations to build and manage e-business applications and their
underlying databases. The key elements of our strategy include exploiting the
growing development of e-business applications, extending our product
leadership, leveraging our installed customer base and expanding our direct
sales and marketing efforts and international distribution.
We sell our software through a direct telesales organization in North
America and indirectly through our distribution partners worldwide, including an
affiliated distributor in Europe. During 1999, we issued new licenses or
maintenance renewals for over 21,000 users worldwide. We have thousands of
customers across a range of industries, including technology, telecommunications
and financial services. Our customers include AT&T, Aetna, America Online, Bell
Mobility, Fidelity, Hewlett-Packard, IBM and Williams Communications.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................... shares
Common stock to be outstanding after
the offering......................... shares
Use of proceeds........................ We plan to use the net proceeds from this offering for
general corporate purposes, including working capital,
expanding our sales and marketing efforts, research and
development, capital expenditures and possible acquisitions
and investments.
Proposed Nasdaq National Market
symbol............................... EMBT
</TABLE>
Unless otherwise indicated, all information in this prospectus:
- assumes no exercise of the underwriters' option to purchase an
over-allotment of up to additional shares; and
- gives effect to a two-for-one split of our common stock effected in
February 2000.
The number of shares of our common stock to be outstanding after this offering
includes:
- 21,195,564 shares of our common stock outstanding as of February 22, 2000;
and
- 253,893 shares to be issued upon the conversion of all shares of our
Series A preferred stock upon the closing of this offering.
The number of shares of our common stock to be outstanding after this offering
excludes:
- 3,873,800 shares issuable upon exercise of options outstanding as of
February 22, 2000; and
- 3,030,636 shares available for future issuance under our stock plans as of
February 22, 2000.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table should be read in conjunction with our financial
statements and related notes appearing elsewhere in this prospectus. The pro
forma information in the table below gives effect to the tax effect of our
conversion from an S corporation to a C corporation for income tax purposes as
if the conversion had taken place on January 1, 1999. The weighted average
number of common shares used in the pro forma net loss per share calculation
includes the number of shares which, based on the initial public offering
estimated price, are equivalent to the excess of 1999 distributions to
stockholders over 1999 net income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License................................................. $ 3,434 $ 6,510 $13,739
Maintenance............................................. 1,152 2,609 5,446
------- ------- -------
Total revenues........................................ 4,586 9,119 19,185
Gross profit.............................................. 4,254 8,547 18,104
Income from operations.................................... 251 2,013 2,280
Net income................................................ 301 2,028 2,186
Pro forma net loss........................................ (410)
Pro forma net loss per share, basic and diluted........... $ (0.02)
=======
Shares used in pro forma net income per share calculation,
basic and diluted....................................... 20,363
</TABLE>
The pro forma column of the table below gives effect to:
- the sale of 253,893 shares of our Series A preferred stock in
February 2000 for an aggregate purchase price of approximately $1.8
million;
- our conversion from an S corporation to C corporation; and
- the repayment of notes payable to stockholders, which will take place
prior to the closing of this offering.
The pro forma as adjusted column of the table below gives effect to:
- the sale in this offering of shares of common stock at an assumed
initial public offering price of $ per share, less underwriting
discounts and estimated offering expenses payable by Embarcadero.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $1,804 $2,632 $
Working capital........................................... (256) 1,298
Total assets.............................................. 6,648 7,720
Notes payable to stockholders............................. 1,000 --
Total stockholders' equity................................ 748 2,302
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
BEFORE BUYING SHARES IN THIS OFFERING. THESE RISKS AND UNCERTAINTIES ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE
UNAWARE OF OR CURRENTLY DEEM IMMATERIAL MAY ALSO BECOME IMPORTANT FACTORS THAT
MAY HARM OUR BUSINESS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE
TO ANY OF THESE RISKS AND UNCERTAINTIES, AND YOU MAY LOSE PART OR ALL OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND, AS A
RESULT, OUR STOCK PRICE MAY FLUCTUATE OR DECLINE.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including the following:
- increased sales and marketing, product development or administration
expenses;
- market acceptance of new products we introduce and enhancements to our
existing products;
- delays in introducing new products or new releases of existing products;
- new product introductions by competitors;
- seasonal variations in orders for our products;
- changes in our pricing policies or the pricing policies of our
competitors;
- costs related to acquisitions of technologies or businesses; and
- the timing of releases of new versions of third-party software products
that our products support.
Fluctuations in operating results are likely to cause corresponding
volatility in our stock price, particularly if our operating results vary
significantly from analysts' expectations.
A LARGE PORTION OF OUR REVENUES IS DERIVED FROM SALES OF DBARTISAN.
A large portion of our revenues currently comes from sales of our DBArtisan
product. In 1997, 1998 and 1999, DBArtisan accounted for approximately 66.5%,
56.3% and 48.3%, respectively, of our license revenues. We expect that sales of
DBArtisan will continue to represent a substantial portion of our license
revenues for the foreseeable future. In addition, most of our customers initiate
a relationship with Embarcadero by purchasing DBArtisan and it is a major source
of customer loyalty and goodwill. If sales of DBArtisan fall significantly, our
business and operating results would be materially adversely affected.
OUR MANAGEMENT TEAM HAS RECENTLY UNDERGONE SIGNIFICANT CHANGES AND THE EFFECT OF
SUCH CHANGES ON OUR FINANCIAL PERFORMANCE IS DIFFICULT TO PREDICT.
Our management team has changed significantly in the past six months. Ellen
Taylor joined us in October 1999 as our President and also succeeded Stephen
Wong, our Chairman, as our Chief Executive Officer. Raj Sabhlok joined us in
January 2000 as Senior Vice President of Finance and Corporate Development.
Walter Scott joined us in January 2000 as Vice President of Sales. Susan Fleck
joined us as our Vice President of Customer Care in February 2000. We intend to
hire other executive officers in the near future. The members of our management
team have not previously worked together, and we cannot be sure that they will
be able to work together effectively as we expand our operations. If these
employees cannot work together effectively, our business and operating results
could be materially adversely affected.
7
<PAGE>
OUR PAST AND FUTURE GROWTH MAY STRAIN OUR INFRASTRUCTURE.
We have recently experienced a period of significant expansion in our
operations. For instance, to support our expanding operations, we have increased
the number of our full-time employees from 33 as of December 31, 1997 to 57 as
of December 31, 1998 to 105 as of December 31, 1999; we expect to hire
additional employees in all areas to manage our expanding operations. This
growth may strain our management, administrative, operational and financial
infrastructure. Our ability to manage growth requires that we continue to
improve our operational, financial and management controls and procedures. If we
are unable to manage this growth effectively, our business and operating results
could be materially adversely affected.
WE EXPECT TO INCUR SIGNIFICANT INCREASES IN OUR OPERATING EXPENSES IN THE
FORESEEABLE FUTURE, WHICH MAY AFFECT OUR PROFITABILITY.
We intend to substantially increase our operating expenses for the
foreseeable future as we increase our sales and marketing, research and
development activities and customer support operations. In connection with these
expanded operations, we will need to significantly increase our revenues in
order to maintain profitability. However, these increased expenses will be
incurred before we realize increased revenues, if any, related to this spending.
If we do not significantly increase revenues from these efforts, our business
and operating results would be materially adversely affected.
THE PLANNED EXPANSION OF OUR INTERNATIONAL OPERATIONS EXPOSES US TO RISKS.
One aspect of our growth strategy is to expand our international operations.
As a result, we could face a number of risks from our international operations,
including:
- staffing and managing foreign operations;
- increased financial accounting and reporting complexities;
- potentially adverse tax consequences;
- the loss of revenues resulting from currency fluctuations;
- compliance with a wide variety of complex foreign laws and treaties;
- reduced protection for intellectual property rights in some countries; and
- licenses, tariffs and other trade barriers.
The expansion of our international operations may require significant
management attention and financial resources and may place burdens on our
management, administrative, operational and financial infrastructure. Our
possible investments in establishing facilities in other countries may not
produce desired levels of revenue or profitability.
OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED AND INFRINGEMENT CLAIMS OR
INDEPENDENT DEVELOPMENT OF COMPETING TECHNOLOGIES COULD HARM OUR COMPETITIVE
POSITION.
We rely on copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to establish and protect our proprietary
rights. We also enter into confidentiality agreements with employees and
consultants and attempt to restrict access to proprietary information on a
need-to-know basis. Despite such precautions, unauthorized third parties may be
able to copy aspects of our products or obtain and use information that we
consider as proprietary.
We license our software products primarily under shrink-wrap licenses
included as part of product packaging. Shrink-wrap licenses are not negotiated
with or signed by individual licensees and purport to take effect upon the
opening of the product package or downloading of the product from the Internet.
8
<PAGE>
These measures afford only limited protection. Policing unauthorized use of our
products is difficult and we are unable to determine the extent to which piracy
of our software exists. In addition, the laws of some foreign countries do not
protect our proprietary rights as well as United States laws.
We may have to enter into litigation to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others with respect to our rights. Litigation is generally very expensive and
can divert the attention of management from daily operations. Accordingly,
intellectual property litigation could materially adversely affect our business
and operating results.
We are not aware of any case in which we are infringing the proprietary
rights of others. However, third parties may bring infringement claims against
us. Any such claim is likely to be time consuming and costly to defend, could
cause product delays and could force us to enter into unfavorable royalty or
license agreements with third parties. A successful infringement claim against
us could require us to enter into a license or royalty agreement with the
claimant or develop alternative technology. However, we may not be able to
negotiate favorable license or royalty agreements, if any, in connection with
such claims and we may fail to develop alternative technology on a timely basis.
Accordingly, a successful product infringement claim against us could materially
adversely affect our business and operating results.
OUR BUSINESS WILL SUFFER IF OUR SOFTWARE CONTAINS UNDETECTED ERRORS.
Errors may be found in current versions, new versions or enhancements of our
products after we make commercial shipments. We could face possible claims and
higher development costs if our software contains undetected errors or if we
otherwise fail to meet our customers' expectations. These risks may result in:
- loss of revenues, market share or customers;
- reputational harm;
- diversion of resources;
- increased service and warranty costs;
- legal actions by customers against us; and
- increased insurance costs.
ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR
BUSINESS.
We plan to make strategic acquisitions of companies, products or
technologies as necessary in order to implement our business strategy. If we are
unable to fully integrate acquired businesses, products or technologies with our
existing operations, we may not receive the intended benefits of such
acquisitions. In addition, acquisitions may subject us to unanticipated
liabilities or risks. Any acquisition may temporarily disrupt our operations and
divert management's attention from day-to-day operations.
We may incur debt or issue equity securities to finance future acquisitions.
The issuance of equity securities for any acquisition could be substantially
dilutive to our stockholders. In addition, our profitability may suffer due to
acquisition-related expenses or amortization costs for acquired goodwill and
other intangible assets.
RISKS RELATED TO OUR INDUSTRY
THE DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO ADAPT TO RAPID
TECHNOLOGICAL CHANGE.
The market for our products is characterized by rapid technological change,
frequent product introductions and enhancements, uncertain product life cycles
and changes in customer demands and
9
<PAGE>
industry standards. Our success depends on our ability to continue to enhance
our current products and to introduce new products that keep pace with
technological developments and satisfy increasingly complicated customer
requirements. However, due to the nature of computing environments and the
performance demanded by customers for database management software, new products
and product enhancements could require longer development and testing periods
than anticipated.
The introduction of new technologies and the emergence of new industry
standards may render our existing products obsolete and unmarketable. Delays in
the general availability of new releases or problems in the installation or
implementation of new releases could materially adversely affect our business
and operating results. We may not be successful in developing and marketing, on
a timely and cost-effective basis, new products or new product enhancements that
respond to technological change, evolving industry standards or customer
requirements, or in achieving market acceptance for our products and product
enhancements.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL.
Our success depends on the continued service of our executive officers and
other key administrative, sales and marketing and support personnel, many of
whom, including our President and Chief Executive Officer, Senior Vice President
of Finance and Corporate Development, Vice President of Sales, and Vice
President of Customer Care have recently joined our company. We intend to hire a
significant number of additional sales, marketing, administrative and research
and development personnel over the next several months. However, there has in
the past been and there may in the future be a shortage of personnel that
possess the technical background necessary to sell, support and develop our
products effectively. Some of our current employees and those that we seek to
hire may be subject to non-competition or non-solicitation covenants that could
further limit our ability to attract or retain qualified personnel. Competition
for qualified employees is intense and we may not be able to attract, assimilate
or retain highly qualified personnel in the future. Our business may not be able
to grow if we cannot attract and retain qualified personnel.
WE MAY LOSE MARKET SHARE AND BE REQUIRED TO REDUCE PRICES AS A RESULT OF
COMPETITION FROM OUR EXISTING COMPETITORS, INDEPENDENT SOFTWARE VENDORS AND
MANUFACTURERS OF COMPATIBLE SOFTWARE.
The market for our products is highly competitive, dynamic and subject to
rapidly changing technology. We compete primarily against other providers of
database management utilities, which include Computer Associates, Quest Software
and other independent software vendors.
Our products also compete with products offered by the manufacturers of the
database software with which they are compatible, including Oracle, Microsoft
and IBM. Some of these competing products are provided at no charge to their
customers. We expect that companies such as Oracle, Microsoft and IBM will
continue to develop and incorporate into their products applications which
compete with our products and may take advantage of their substantial technical,
financial, marketing and distribution resources in those efforts. We may not be
able to compete effectively with such products, which would materially adversely
affect our business and operating results.
We presently compete on numerous factors, including product functionality
and heterogeneity, reliability, ease-of-use, performance, scalability, time to
market, customer support and total cost of ownership. We believe that we
currently compete favorably overall. However, the market for our products is
dynamic and we may not compete successfully in the future with respect to these
factors.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing and other resources, and greater name
recognition than we do. They also may be able to respond more quickly than we
can to changes in technology or customer requirements. Competition
10
<PAGE>
could seriously impede our ability to sell additional products on acceptable
terms. Our competitors may:
- develop and market new technologies that render our products obsolete,
unmarketable or otherwise less competitive;
- make strategic acquisitions or establish cooperative relationships among
themselves or with other companies, thereby enhancing the functionality of
their products or increasing their operating margins; or
- establish or strengthen cooperative relationships with channel or
strategic partners which limit our ability to sell or to co-market
products through these channels.
Competitive pressures could reduce our market share or require us to reduce our
prices, either of which would materially adversely affect our business and
operating results.
RISKS RELATED TO THIS OFFERING
OUR OFFICERS AND DIRECTORS WILL BE ABLE TO EXERT SIGNIFICANT CONTROL ON THE
COMPANY AFTER THIS OFFERING.
Executive officers, directors and their respective affiliates will own, in
the aggregate, approximately % of our common stock outstanding following this
offering. These stockholders, if acting together, will be able to decide all
matters which require stockholder approval, including the election of directors
and the approval of mergers or other business combination transactions.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND THE TRADING PRICE OF
THE COMMON STOCK MAY BE CONSIDERABLY LOWER THAN THE OFFERING PRICE.
Prior to this offering, there was no public market for our common stock. An
active public market for our common stock may not develop or be sustained after
this offering. The market price of our common stock may fall below the initial
public offering price. Moreover, the initial public offering price has been
determined based on negotiations between us and the representatives of the
underwriters, based on factors that may not be indicative of future market
performance or the price at which our stock trades after the completion of this
offering.
WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE.
The market price of our common stock may fluctuate significantly in response
to a number of factors, some of which are beyond our control, including:
- quarterly variations in our operating results;
- changes in financial estimates by securities analysts;
- changes in market valuation of software and Internet companies;
- announcements we make related to significant contracts, acquisitions or
product introductions or enhancements;
- additions or departures of key personnel;
- future sales of common stock; and
- stock market price and volume fluctuations, which are particularly
volatile among securities of software and Internet companies.
11
<PAGE>
A LARGE NUMBER OF SHARES OF OUR COMMON STOCK WILL BE ELIGIBLE FOR SALE SHORTLY
AFTER THE OFFERING, WHICH COULD RESULT IN A DECLINE IN OUR STOCK PRICE.
Sales in the market of a substantial number of shares of our common stock
after the offering could adversely affect the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. On completion of this offering, we will have
shares of common stock outstanding, or shares if the underwriters'
option to purchase additional shares is exercised in full. The
shares sold in this offering, which will be shares if the
underwriters' option to purchase additional shares is exercised in full, will be
freely tradable without restriction or further registration under the federal
securities laws unless purchased by our "affiliates" as that term is defined in
Rule 144 of the Securities Act. The remaining 21,449,557 shares of common stock
outstanding on completion of this offering will be "restricted securities" as
that term is defined in Rule 144.
Substantially all of the holders of our common stock and stock options are
subject to agreements that limit their ability to sell common stock. These
holders cannot sell or otherwise dispose of any shares of common stock for a
period of at least 180 days after the date of this prospectus without the prior
written approval of Donaldson, Lufkin & Jenrette. However, if the average price
of our shares appreciates by a specified amount following the date of this
prospectus, those holders who are not officers, directors or affiliates of
Embarcadero may be eligible to sell up to 25% of their shares either 90 days
after the date of this prospectus or on the second business day following the
release of our next quarterly financial statements, whichever day comes first.
Under these agreements, such holders may also be eligible to sell an additional
25% of their shares 135 days after the date of this prospectus if the average
price of our shares continues to equal or exceed the targeted amount. When these
agreements expire, all of the shares of common stock and the shares underlying
the options will become eligible for sale, in most cases only pursuant to the
volume, manner of sale and notice requirements of Rule 144. See "Shares Eligible
for Future Sale" and "Underwriting."
WE HAVE SUBSTANTIAL DISCRETION AS TO HOW TO USE THE PROCEEDS FROM THIS OFFERING.
Our management has broad discretion as to how to spend the proceeds from
this offering and may spend the proceeds in ways with which our stockholders may
not agree. We cannot predict that investments of the proceeds will yield a
favorable or any return. See "Use of Proceeds."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of the common stock is substantially
higher than the pro forma net tangible book value per share of the outstanding
common stock. As a result, you will incur immediate and substantial dilution of
$ per share based upon an initial public offering price of $ per
share. In the event we issue additional shares of common stock in the future,
you may experience further dilution. Furthermore, we have issued options to
purchase common stock at prices significantly below the initial public offering
price. To the extent such options are exercised, you will experience further
dilution.
PROVISIONS OF OUR CHARTER AND BYLAWS AND DELAWARE LAW COULD DETER TAKEOVER
ATTEMPTS.
Provisions of our Certificate of Incorporation and Bylaws as well as
Delaware law could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders. We are subject to the
provisions of Delaware law which restrict certain business combinations with
interested stockholders, which may have the effect of inhibiting a
non-negotiated merger or other business combinations. See "Description of
Capital Stock."
12
<PAGE>
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," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. All forward-looking statements contained in this prospectus are
subject to numerous risks and uncertainties. Actual events or results may differ
materially. In evaluating these statements you should specifically consider
various factors, including the risks outlined under "Risk Factors." 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.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of
common stock we are selling in this offering will be approximately $
million, at an assumed initial public offering price of $ per share,
after deducting estimated offering expenses of approximately $
million and underwriters' discounts and commissions payable by
Embarcadero. If the underwriters' option to exercise their over-allotment option
in full, then the net proceeds will be approximately $ million.
We plan to use the net proceeds from this offering for general corporate
purposes, including working capital, expanding our sales and marketing efforts,
capital expenditures and research and development. A portion of the net proceeds
may be used to acquire or make investments in complementary businesses,
technologies, product lines or products. We are considering using a portion of
the proceeds of this offering to exercise our option to acquire the remaining
capital stock of our affiliated distributor, Embarcadero Europe Ltd. If we
exercise this option within the next six months, we expect the cost of this
acquisition would be approximately $3 million. Otherwise, we have no current
plans, agreements or commitments with respect to any such acquisitions or
investments. Our management will have broad discretion concerning the use of the
net proceeds of this offering. We intend to invest these proceeds in
investment-grade, interest-bearing securities pending their use.
DIVIDEND POLICY
In February 2000, we converted from an S corporation to a C corporation for
income tax purposes, effective as of January 1, 2000. As an S corporation, we
paid distributions to our S corporation stockholders in amounts generally
consistent with their allocated share of taxable income. We do not intend to
declare or pay any cash dividends on our common stock in the foreseeable future.
We currently intend to retain all available funds for use in the operation and
expansion of our business. Any future determination to pay dividends will be at
the discretion of our board of directors and will depend on our results in
operations, financial condition, contractual and legal restrictions and other
factors the board deems relevant.
CORPORATE INFORMATION
We were incorporated in the State of California as Client Worx, Inc. on
July 22, 1993 and changed our name to Embarcadero Technologies, Inc. on
October 29, 1993. We reincorporated in Delaware on February 15, 2000. Our
principal executive offices are located at 425 Market Street, Suite 425,
San Francisco, California 94105 and our telephone number is (415) 834-3131.
"DBArtisan," "Rapid SQL" and "ER/Studio" are our registered trademarks.
"Embarcadero Technologies" is our trademark. This prospectus also contains
trademarks of other companies. Unless otherwise indicated, all information in
this prospectus assumes the effectiveness of our amended and restated
certificate of incorporation in the State of Delaware upon the completion of
this offering.
13
<PAGE>
CAPITALIZATION
The following table sets forth our cash position, current notes payable to
stockholders and total capitalization as of December 31, 1999.
The pro forma column of the table gives effect to:
- the sale of 253,893 shares of our Series A preferred stock in
February 2000 for an aggregate purchase price of approximately $1.8
million;
- our conversion from an S corporation to a C corporation;
- the repayment of notes payable to stockholders, which will take place
prior to the closing of this offering; and
- the authorization of 5,000,000 shares of preferred stock with a par value
of $0.001 and an increase in authorized common stock to 60,000,000 shares
with a par value of $0.001 per share upon our reincorporation in Delaware
on February 15, 2000.
The pro forma as adjusted column of the table gives effect to:
- the sale in this offering of shares of common stock at an assumed
initial price of $ per share, less underwriting discounts and
estimated offering expenses payable by Embarcadero; and
- the conversion of all outstanding shares of our Series A preferred stock
into shares of common stock upon the closing of this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 1,804 $ 2,632 $
======= ======= =======
Notes payable to stockholders............................... $ 1,000 $ -- $ --
======= ======= =======
Stockholders' equity:
Preferred stock, $0.001 par value, no shares authorized or
outstanding, actual; 5,000,000 shares authorized and
253,893 shares outstanding, pro forma; 5,000,000 shares
authorized and no shares outstanding, pro forma as
adjusted................................................ $ -- $ -- $ --
Common stock, no par value, 40,000,000 shares authorized,
21,175,564 shares issued and outstanding, actual; $0.001
par value, 60,000,000 shares authorized and 21,175,564
shares outstanding, pro forma; $0.001 par value,
60,000,000 shares authorized and shares
outstanding, pro forma as adjusted...................... -- 21
Additional paid-in capital................................ 14,663 13,549
Deferred stock-based compensation......................... (10,049) (10,049)
Accumulated deficit....................................... (3,866) (1,219)
------- -------
Total stockholders' equity.............................. 748 2,302
------- -------
Total capitalization.................................. $ 748 $ 2,302 $
======= ======= =======
</TABLE>
This table does not include:
- 3,873,800 shares issuable upon exercise of options outstanding on
February 22, 2000;
- 20,000 shares issued upon exercise of options since December 31, 1999; and
- 3,030,636 shares reserved for future insurance under our stock plans as of
February 22, 2000.
14
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of
December 31, 1999 was $2.3 million, or approximately $0.11 per share. Pro forma
net tangible book value per share represents the total pro forma stockholders'
equity less pro forma intangible assets divided by the number of shares of
common stock outstanding, giving effect to the issuance and conversion of all
outstanding shares of our preferred stock.
After giving effect to our sale of shares of common stock
offered by this prospectus at an initial public offering price of $ per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us, our pro forma net tangible book
value would have been $ million, or approximately $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $ per share to new investors of common
stock in this offering. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999................................................ $
Increase per share attributable to new investors in this
offering................................................
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution to new investors................................... $
======
</TABLE>
The following table sets forth, 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 stockholders and by the new investors purchasing shares of common stock
in this offering, before deducting underwriting discounts and commissions and
estimated offering expenses payable by us, at an assumed initial public offering
price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... % $ % $
New investors...................................
------- ------- ------- -------
Total......................................... % $ %
======= ======= ======= =======
</TABLE>
To the extent that any shares are issued upon exercise of options that were
outstanding at December 31, 1999 or that additional options are granted after
that date, or reserved for future issuance under our stock plans, there will be
further dilution to new investors. See "Capitalization."
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31,
1998 and 1999 are derived from our financial statements included elsewhere in
this prospectus. The statement 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 our financial statements for the years then
ended.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License (including sales to affiliate of $1,806 in
1999)................................................. $1,881 $2,650 $ 3,434 $ 6,510 $13,739
Maintenance............................................. 79 338 1,152 2,609 5,446
------ ------ ------- ------- -------
Total revenues........................................ 1,960 2,988 4,586 9,119 19,185
Cost of revenues:
License................................................. 60 197 200 321 460
Maintenance (exclusive of non-cash compensation expense
of $26 in 1999)....................................... 42 116 132 251 621
------ ------ ------- ------- -------
Total cost of revenues................................ 102 313 332 572 1,081
------ ------ ------- ------- -------
Gross profit.............................................. 1,858 2,675 4,254 8,547 18,104
Operating expenses:
Research and development (exclusive of non-cash
compensation expense of $18, $63 and $550 in 1997,
1998 and 1999, respectively).......................... 514 1,152 1,874 2,732 4,265
Sales and marketing (exclusive of non-cash compensation
expense of $16, $27 and $277 in 1997, 1998 and 1999,
respectively)......................................... 733 1,007 1,515 2,707 5,721
General and administrative (exclusive of non-cash
compensation expense of $9 and $3,408 in 1998 and
1999, respectively)................................... 109 237 580 996 1,577
Amortization of deferred stock-based compensation....... -- -- 34 99 4,261
------ ------ ------- ------- -------
Total operating expenses.............................. 1,356 2,396 4,003 6,534 15,824
------ ------ ------- ------- -------
Income from operations.................................... 502 279 251 2,013 2,280
Interest income........................................... 42 -- 52 52 88
------ ------ ------- ------- -------
Income before income taxes................................ 544 279 303 2,065 2,368
Provision for income taxes................................ (7) (5) (2) (45) (82)
------ ------ ------- ------- -------
Income before share in affiliated company profit (loss)... 537 274 301 2,020 2,286
Share in profit (loss) of affiliated company.............. -- -- -- 8 (100)
------ ------ ------- ------- -------
Net income................................................ $ 537 $ 274 $ 301 $ 2,028 $ 2,186
====== ====== ======= ======= =======
NET INCOME PER SHARE:
Basic................................................... $ 0.03 $ 0.02 $ 0.02 $ 0.12 $ 0.11
====== ====== ======= ======= =======
Diluted................................................. $ 0.03 $ 0.01 $ 0.01 $ 0.10 $ 0.10
====== ====== ======= ======= =======
SHARES USED IN PER SHARE CALCULATION:
Basic................................................... 16,800 16,800 16,800 16,810 20,070
Diluted................................................. 17,080 20,727 21,078 21,230 21,372
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 327 $ 215 $ -- $ 13 $ 1,804
Working capital........................................... 537 699 1,192 (578) (256)
Total assets.............................................. 754 921 1,590 2,706 6,648
Notes payable to stockholders............................. -- -- -- -- 1,000
Total stockholders' equity (deficit)...................... 604 479 351 (216) 748
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS
AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES
AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING,
BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We provide software products that enable organizations to build and manage
e-business applications and their underlying databases.
We were incorporated in California as Client Worx, Inc. in July 1993 and
changed our name to Embarcadero Technologies, Inc. in October 1993. We
reincorporated in Delaware in February 2000. At our inception, we focused on
developing and marketing software for use with Sybase and Microsoft SQL Server
databases. In December 1993, we introduced Rapid SQL for Sybase and Microsoft
SQL Server database development. In July 1994, we introduced DBArtisan for the
administration of Sybase and Microsoft SQL Server databases. In March 1996, we
released ER/Studio, our database design solution, which was our first product to
offer support for IBM DB2 Universal Database, Informix and Oracle, as well as
Sybase and Microsoft SQL Server. The success of ER/Studio's multi-vendor support
led us to add support for other major databases to our other products. We added
Oracle support to DBArtisan in April 1997 and to Rapid SQL in January 1998. We
added support for IBM DB2 Universal Database to both products in mid-1998. Also
in 1998, we began to enhance our products with add-ons and companion products.
In October 1998, we offered our first standalone companion product, ER/Studio
Viewer, which complemented the ER/Studio product. In April 1999, we introduced
DBArtisan Schema Manager as a standalone companion product and changed the
product name to DBArtisan Change Manager in January 2000. In January 2000, we
introduced PL/SQL Debugger and SQL Profiler add-ons to extend the functionality
of Rapid SQL and DBArtisan.
We derive all of our revenues from the sale of software licenses and related
annual maintenance fees. Our total revenues have increased over each of the past
five years from $2.0 million in 1995 to $19.2 million in 1999. License revenues
are derived from our direct product sales to customers and sales through our
distributors. Pricing of our software licenses is primarily based on the number
of users of our products. Maintenance revenues are derived from the sales of
annual maintenance contracts related to the sale of our products, which include
technical support and product upgrades. Annual maintenance contracts may be
purchased separately by customers at their discretion.
We generally recognize software license revenues upon shipment, provided
that a signed contract exists, the fee is fixed and determinable and collection
of the resulting receivable is probable. We recognize maintenance revenues,
including amounts allocated from product revenues for ongoing customer support
and product updates, ratably over the period of the maintenance contract, which
is typically one year. Payments for maintenance fees are generally made in
advance and are non-refundable.
We market our software and related maintenance services directly through our
telesales organization in the United States and Canada, and indirectly through
our distribution partners worldwide. International revenues from licenses and
maintenance sold to customers outside of North America were $224,000 in 1998 and
$2.4 million in 1999, representing 2.5% and 12.4% of total revenues in those
years. We intend to expand our international sales activities in an effort to
increase revenues from foreign sales. To date, our primary international
distributor has been our affiliate,
17
<PAGE>
Embarcadero Europe Ltd., which has distribution rights in Europe, the Middle
East and Africa. We have recently entered into an agreement with a distributor
covering Japan.
All of our revenues are denominated in U.S. dollars, except those from
Embarcadero Europe, the revenues of which are denominated in pounds sterling.
Our business with Embarcadero Europe exposes us to currency fluctuations and
currency transaction losses or gains, which are outside of our control.
Historically, fluctuations in foreign currency exchange rates have not had a
material effect on our business. We have not conducted any hedging transaction
to reduce our risk to currency fluctuations, though we may do so as our revenues
from Embarcadero Europe increase.
In February 2000, we converted from an S corporation to a C corporation for
income tax purposes, effective as of January 1, 2000. As an S corporation, we
paid distributions to our S corporation stockholders in amounts generally
consistent with their allocated share of taxable income.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License................................................... 74.9% 71.4% 71.6%
Maintenance............................................... 25.1 28.6 28.4
------- ------- -------
Total revenues.......................................... 100.0 100.0 100.0
Cost of revenues:
License................................................... 4.4 3.5 2.4
Maintenance............................................... 2.9 2.8 3.2
------- ------- -------
Total cost of revenues.................................. 7.2 6.3 5.6
------- ------- -------
Gross profit................................................ 92.8 93.7 94.4
Operating expenses:
Research and development.................................. 40.9 30.0 22.2
Sales and marketing....................................... 33.0 29.7 29.8
General and administrative................................ 12.6 10.9 8.2
Amortization of deferred stock-based compensation......... 0.7 1.1 22.2
------- ------- -------
Total operating expenses................................ 87.3 71.7 82.5
------- ------- -------
Income from operations...................................... 5.5 22.1 11.9
Interest income............................................. 1.1 0.6 0.5
------- ------- -------
Income before income taxes.................................. 6.6 22.7 12.3
Provision for income taxes.................................. (0.0) (0.5) (0.4)
------- ------- -------
Income before share in affiliated company profit (loss)..... 6.6 22.2 11.9
Share in profit (loss) of affiliated company................ -- 0.1 (0.5)
------- ------- -------
Net income.................................................. 6.6% 22.2% 11.4%
======= ======= =======
</TABLE>
18
<PAGE>
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUES
TOTAL REVENUES. Total revenues were $4.6 million, $9.1 million and
$19.2 million in 1997, 1998 and 1999, representing increases of 98.8% from 1997
to 1998 and 110.4% from 1998 to 1999.
LICENSE. License revenues were $3.4 million, $6.5 million and
$13.7 million in 1997, 1998 and 1999, representing increases of 89.6% from 1997
to 1998 and 111.0% from 1998 to 1999. The increase in license revenues from 1997
to 1998 and from 1998 to 1999 was primarily due to our ability to attract new
customers and to sell additional licenses and products to our existing
customers. These increases were enhanced by the introduction of new versions of
our products during 1998 and 1999.
MAINTENANCE. Maintenance revenues were $1.2 million, $2.6 million and
$5.4 million in 1997, 1998 and 1999, representing increases of 126.5% from 1997
to 1998 and 108.7% from 1998 to 1999. The increase in maintenance revenues from
1997 to 1998 and from 1998 to 1999 was primarily due to our ability to attract
new customers, to sell additional licenses and products to existing customers
requiring maintenance and to obtain maintenance renewals on outstanding
licenses.
COST OF REVENUES
LICENSE. Cost of license consists primarily of product media and packaging,
shipping fees, royalties and duplication services. Cost of license was $200,000,
$321,000 and $460,000 in 1997, 1998 and 1999, representing increases of
$121,000, or 60.5%, from 1997 to 1998 and $139,000, or 43.3%, from 1998 to 1999.
The increase in cost of license was primarily due to an increase in license
revenues. Cost of license represented 5.8%, 4.9% and 3.3% of license revenues in
the respective periods. The decrease in cost of license as a percentage of
license revenues from 1998 to 1999 was primarily due to an increase in sales of
suites of our products, which have higher gross margins than sales of individual
products. The cost of license as a percentage of license revenues may vary in
the future depending on the mix of internally developed versus externally
licensed products and product components. The licensing of third-party products
or product components could result in royalty payments and a corresponding
increase in cost of license as a percentage of license revenues.
MAINTENANCE. Cost of maintenance consists of salaries and related costs for
customer support personnel. Cost of maintenance was $132,000, $251,000 and
$621,000 in 1997, 1998 and 1999, representing increases of $119,000, or 90.2%,
from 1997 to 1998 and $370,000 or 147.4%, from 1998 to 1999. The increase in
cost of maintenance was primarily due to an increase in the number of customer
support personnel hired to service our expanding customer base. Cost of
maintenance represented 11.5%, 9.6% and 11.4% of maintenance revenues in the
respective periods. We expect the cost of maintenance to increase in future
periods as we hire more support personnel to serve our expanding customer base.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel and related expenses, including payroll, employee
benefits, fees paid to independent contractors and equipment and software
required to develop, test and enhance products. Research and development
expenses were $1.9 million, $2.7 million and $4.3 million in 1997, 1998 and
1999, representing increases of $858,000, or 45.8%, from 1997 to 1998 and
$1.5 million, or 56.1%, from 1998 to 1999. The increase in research and
development expenses was primarily due to increases in our product development
staff and related compensation expenses. Research and development expenses
represented 40.9%, 30.0% and 22.2% of total revenues in 1997, 1998 and 1999. We
expect research and development expenses to increase in future periods as
additional development personnel are hired and as we expand our product
development activities.
19
<PAGE>
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions earned by sales personnel, recruiting costs, trade show,
travel and other marketing communication costs, such as advertising and
promotion. Sales and marketing expenses were $1.5 million, $2.7 million and
$5.7 million in 1997, 1998 and 1999, representing increases of $1.2 million, or
78.7%, from 1997 to 1998 and $3.0 million, or 111.3%, from 1998 to 1999. The
increase in sales and marketing expenses was primarily due to increased
staffing, higher total commissions paid, heavier advertising spending and
increased participation in trade shows and user groups. Sales and marketing
expenses represented 33.0%, 29.7% and 29.8% of total revenues in the respective
periods. We plan to invest substantial resources to expand our selling efforts
and to execute marketing programs that build the awareness and brand equity of
our products. As a result, we expect sales and marketing expenses to increase in
future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related expenses and costs related to our
infrastructure expansion. General and administrative expenses were $580,000,
$996,000 and $1.6 million in 1997, 1998 and 1999, representing increases of
$416,000, or 71.7%, from 1997 to 1998 and $581,000, or 58.3%, from 1998 to 1999.
This increase in general and administrative expenses was primarily due to
increased staffing costs and associated expenses necessary to support our
expanded operations. General and administrative expenses represented 12.6%,
10.9% and 8.2% of total revenue in the respective periods. We expect total
general and administrative expenses to increase as we expand our administrative
staff and facilities to support larger operations.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. We recorded $34,000, $99,000
and $4.3 million of stock-based compensation expenses in operating expenses in
1997, 1998 and 1999.
INTEREST INCOME. Interest income was $52,000, $52,000 and $88,000 in 1997,
1998 and 1999, representing no change from 1997 to 1998 and an increase of
$36,000 from 1998 to 1999. The increase in interest income from 1998 to 1999
resulted primarily from an increase in our average cash balances.
PROVISION FOR INCOME TAXES. Provision for income taxes was $2,000, $45,000
and $82,000 in 1997, 1998 and 1999 representing increases of $43,000 from 1997
to 1998 and $37,000 from 1998 to 1999. The effective income tax rate was 0.7%,
2.2% and 3.5% in 1997, 1998 and 1999. In February 2000, we converted to a C
corporation for income tax purposes, effective January 1, 2000. Accordingly, we
are now subject to regular federal and state income taxes.
SHARE IN PROFIT (LOSS) OF AFFILIATED COMPANY. In 1998, we established
Embarcadero Europe Ltd., which became our affiliated distributor. Our share in
profit (loss) of Embarcadero Europe was $8,000 in 1998 and ($100,000) in 1999.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the unaudited statements of operations data
for the eight quarters in the period ended December 31, 1999, as well as such
data expressed as a percentage of total revenues for the periods indicated. This
data has been derived from our unaudited financial statements that have been
prepared on the same basis as the audited financial statements included in this
prospectus, and, in the opinion of our management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the information when read in conjunction with the financial statements and the
notes thereto included in this prospectus. Our quarterly operating results have
varied substantially in the past and may vary substantially in the future. You
should not draw any conclusions about our future results for any period from the
results of operations for any particular quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
License..................... $1,522 $1,649 $1,611 $1,728 $1,406 $3,163 $4,166 $5,004
Maintenance................. 471 592 687 859 1,032 1,219 1,583 1,612
------ ------ ------ ------ ------ ------ ------ ------
Total revenues............ 1,993 2,241 2,298 2,587 2,438 4,382 5,749 6,616
Cost of revenues:
License..................... 70 84 64 103 89 102 162 107
Maintenance(1).............. 47 55 63 86 108 129 197 187
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues.... 117 139 127 189 197 231 359 294
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 1,876 2,102 2,171 2,398 2,241 4,151 5,390 6,322
Operating expenses:
Research and
development(1)............ 610 709 658 755 667 936 946 1,716
Sales and marketing(1)...... 453 767 673 814 1,035 1,207 1,508 1,971
General and
administrative(1)......... 209 198 195 394 238 277 386 676
Amortization of deferred
stock-based
compensation.............. 27 21 21 30 29 464 1,345 2,423
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses................ 1,299 1,695 1,547 1,993 1,969 2,884 4,185 6,786
------ ------ ------ ------ ------ ------ ------ ------
Income from operations........ 577 407 624 405 272 1,267 1,205 (464)
Interest income............... 10 16 12 14 16 16 20 36
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes.... 587 423 636 419 288 1,283 1,225 (428)
Provision for income taxes.... (12) (8) (11) (14) (24) (24) (31) (3)
------ ------ ------ ------ ------ ------ ------ ------
Income before share in
affiliated company profit
(loss)...................... 575 415 625 405 264 1,259 1,194 (431)
Share in profit (loss) of
affiliated company.......... -- -- -- 8 (21) (23) (23) (33)
------ ------ ------ ------ ------ ------ ------ ------
Net income.................... $ 575 $ 415 $ 625 $ 413 $ 243 $1,236 $1,171 $ (464)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ------------------------------
(1) Amounts exclude amortization of deferred stock-based compensation, which is
reported above as a separate operating expense, for the quarters ended:
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cost of maintenance........... $ -- $ -- $ -- $ -- $ 2 $ 2 $ 2 $ 20
Research and development...... 17 13 15 18 17 65 256 212
Sales and marketing........... 8 5 4 10 9 7 6 255
General and administrative.... 2 3 2 2 1 390 1,081 1,936
------ ------ ------ ------ ------ ------ ------ ------
$ 27 $ 21 $ 21 $ 30 $ 29 $ 464 $1,345 $2,423
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
21
<PAGE>
As a percentage of total revenue:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License..................... 76.4% 73.6% 70.1% 66.8% 57.7% 72.2% 72.5% 75.6%
Maintenance................. 23.6 26.4 29.9 33.2 42.3 27.8 27.5 24.4
------ ------ ------ ------ ------ ------ ------ ------
Total revenues............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License..................... 3.5 3.7 2.8 4.0 3.7 2.3 2.8 1.6
Maintenance................. 2.4 2.5 2.7 3.3 4.4 3.0 3.4 2.8
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues.... 5.9 6.2 5.5 7.3 8.1 5.3 6.2 4.4
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 94.1 93.8 94.5 92.7 91.9 94.7 93.8 95.6
Operating expenses:
Research and development.... 30.6 31.6 28.6 29.2 27.4 21.4 16.5 25.9
Sales and marketing......... 22.7 34.2 29.3 31.5 42.4 27.5 26.2 29.8
General and
administrative............ 10.5 8.8 8.5 15.2 9.8 6.3 6.7 10.2
Amortization of deferred
stock-based
compensation.............. 1.4 0.9 0.9 1.2 1.2 10.6 23.4 36.6
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 65.1 75.6 67.3 77.0 80.8 65.8 72.8 102.6
------ ------ ------ ------ ------ ------ ------ ------
Income from operations........ 29.0 18.2 27.2 15.7 11.1 28.9 21.0 (7.0)
Interest income............... 0.5 0.7 0.5 0.6 0.7 0.4 0.3 0.5
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes.... 29.5 18.9 27.7 16.2 11.8 29.3 21.3 (6.4)
Provision for income taxes.... (0.6) (0.4) (0.5) (0.5) (1.0) (0.5) (0.5) (0.1)
------ ------ ------ ------ ------ ------ ------ ------
Income before affiliated
company profit (loss)....... 28.9 18.5 27.2 15.7 10.8 28.7 20.8 (6.5)
Share in profit (loss) of
affiliated company.......... -- -- -- 0.3 (0.9) (0.5) (0.4) (0.5)
------ ------ ------ ------ ------ ------ ------ ------
Net income.................... 28.9% 18.5% 27.2% 16.0% 9.9% 28.2% 20.4% (7.0)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Our total revenues have generally increased in each period presented. The
increase in license revenues in the quarter ended June 30, 1999 was primarily
due to increased sales of new versions of two of our products, which were
released in March 1999. The increase in maintenance revenues was primarily due
to the recognition of maintenance revenues attributable to our growing installed
customer base. Total operating expenses have increased as we have grown our
infrastructure to support our expanding operations, including expanding our
sales force and increasing our research and development and general and
administrative headcount and related expenses.
We have experienced seasonal patterns in the past and we expect to
experience seasonal patterns in future periods. Specifically, we would expect to
experience stronger demand for our products during the quarter ending
December 31 and weaker demand in the quarter ending March 31.
RECENT DEVELOPMENTS
In February 2000, we: (i) sold 253,893 shares of our Series A preferred
stock for an aggregate purchase price of approximately $1.8 million;
(ii) converted from an S corporation to a C corporation for income tax purposes
effective January 1, 2000; and (iii) reincorporated from California to Delaware.
We expect to incur a non-cash charge against earnings attributable to common
stockholders of approximately $1.2 million in the first quarter of 2000 as a
result of the beneficial conversion feature of the Series A preferred stock.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We have funded our business to date from cash generated by our operations.
As of December 31, 1999, we had cash of $1.8 million.
Cash provided by operating activities was $192,000, $3.2 million and
$7.2 million in 1997, 1998 and 1999. The increases in 1998 and 1999 were
primarily due to increases in net income, amortization of deferred stock-based
compensation, deferred revenue resulting from additional maintenance contracts
and accrued expenses, offset by increases in accounts receivable resulting from
increased sales.
Cash used in investing activities was $176,000, $305,000 and $882,000 in
1997, 1998 and 1999. Cash used in investing activities was primarily for
purchases of property and equipment in each period. Capital expenditures totaled
$176,000, $297,000 and $882,000 in 1997, 1998 and 1999.
Cash used in financing activities was $231,000, $2.9 million and
$4.5 million in 1997, 1998 and 1999 and is due primarily to distributions to
stockholders as a result of our status as an S corporation for income tax
purposes.
We believe that our existing cash balances and cash equivalents and cash
from operations will be sufficient to finance our operations through at least
the next 12 months. If additional financing is needed, there can be no assurance
that such financing will be available to us on commercially reasonable terms, or
at all.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. We believe that all
of our material systems are substantially year 2000 compliant. To our knowledge,
we have not experienced any significant problems as a result of year 2000
issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and will be adopted
in the year 2001. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. We do not expect the adoption of this standard to have a material impact
on our results of operations, financial positions or cash flows.
In December 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-9, modification of SOP 97-2, "Software Revenue
Recognition with Respect to Certain Transactions." SOP 98-9 will be effective
for transactions that are entered into in fiscal years beginning after
March 15, 1999. Retroactive application is prohibited. We do not expect the
adoption of this standard to have a material impact on our results of
operations, financial positions or cash flows.
FOREIGN EXCHANGE RISK
As sales to Embarcadero Europe increase, we will be exposed to greater
volatility in fluctuations of the pound sterling. In the event we exercise our
option to acquire Embarcadero Europe, we will be exposed to volatility in
fluctuations of other currencies as well. To date, we have not used hedging
contracts to hedge our foreign-currency fluctuation risks. We will assess the
need to utilize financial instruments to hedge currency exposures on an ongoing
basis. We also do not use derivative financial instruments for speculative
trading purposes.
23
<PAGE>
BUSINESS
OVERVIEW
We provide software products that enable organizations to build and manage
e-business applications and their underlying databases. Our suite of products
allows customers to manage the database life cycle, which is the process of
creating, deploying and enhancing databases in response to evolving business
requirements. Our products employ a common user interface to simplify the
process of building and managing software applications to meet the rigorous
requirements of today's e-business environment. By simplifying the management of
the database life cycle, our suite of products enables organizations to increase
the utilization of their existing database infrastructure and the productivity
of their information technology (IT) professionals. We sell our software through
a direct telesales organization in North America and indirectly through our
distribution partners worldwide, including an affiliated distributor in Europe.
During 1999, we issued new licenses or maintenance renewals for 21,000 users
worldwide. We have thousands of customers across a range of industries,
including technology, telecommunications and financial services.
INDUSTRY BACKGROUND
In today's highly competitive markets, a growing number of organizations are
using the Internet to conduct business electronically. This e-business model has
led to the proliferation of new Internet-based, or e-business, software
applications. Businesses are becoming increasingly reliant on these e-business
applications to run critical parts of their operations and to collect important
customer and market information. These applications will continue to gain in
strategic importance as organizations seek to access and store an increasing
volume of information while providing access to that information to a greater
number of users.
While the Internet has fundamentally changed how organizations gather,
manage and distribute information, it has also presented a new set of business
and technology challenges. Given limited IT resources and intense time-to-market
pressures, organizations must ensure that the right software applications are
designed and built on time and within budget. Organizations must ensure that
these applications are up-and-running with optimal performance. Downtime--either
scheduled or unplanned--must be kept to an absolute minimum. The Internet allows
customers to quickly evaluate and switch to competing products or services,
thereby increasing the need for successful application performance. A poorly
designed or poorly performing application can have a significant operational and
financial impact, such as poor customer service, a reduction in brand equity or
significant lost revenue.
Software applications for e-business are designed to provide reliable
storage and flexible access to critical business information. Databases, which
are a proven technology for storing and accessing information, provide the
essential infrastructure of e-business applications. Dramatic improvements in
the cost and performance of computer hardware and networking technologies are
accelerating the proliferation of databases supporting e-business strategies.
The proliferation of software applications from Internet and e-business
initiatives has increased the demands on databases as organizations face
numerous business and technology challenges, including storing massive amounts
of customer data, handling increasing numbers of users and utilizing information
from disparate systems.
Historically, organizations have relied on a combination of highly trained
professionals and an assortment of software tools to manage their databases. As
e-business applications have proliferated, so have the demands placed on IT
professionals who must ensure the availability and performance of the underlying
databases. Many organizations struggle to keep pace with the simultaneous
pressures to build more applications, support more users and manage more data
within increasingly complex computing environments. At the same time, these
organizations are finding it increasingly difficult to staff database management
positions due to the limited supply of qualified IT professionals. As a
24
<PAGE>
result, experienced database administrators and developers are being asked to do
more in less time and less experienced IT personnel are being asked to become
more proficient at a faster rate. This strain on IT professionals is compounded
by the growing complexity of IT systems and the need to be proficient with
different types of databases.
Traditional software solutions for managing databases do not adequately
address the challenges of today's e-business environment. Many of these
solutions are designed for expert database administrators and developers and are
therefore too complex for less experienced IT personnel. This complexity often
prevents users of these solutions from becoming proficient without extensive
training. Also, these traditional solutions do not lend themselves to rapid
deployment, often requiring a lengthy installation process and extensive
configuration. These solutions can end up costing more than the database
software they are designed to manage. In many cases, traditional database
management solutions operate only on a single type of database, such as Oracle.
Since businesses often use databases from several different vendors to support
their e-business applications, IT professionals are forced to use a variety of
database-specific products to manage this heterogeneous environment. These
problems with traditional software solutions typically increase the time between
conception and implementation, making it difficult for organizations to rapidly
develop applications to meet changing e-business objectives.
Most traditional solutions also fail to adequately address the database life
cycle. Databases must first be designed and created, then frequently redesigned
and enhanced to support changing applications. This database life cycle includes
three phases: design, development and administration. The design phase focuses
on translating business requirements into technical specifications. The
development phase translates these technical specifications into software
applications. The administration phase involves concurrently managing these
software applications while ensuring their availability, performance, security
and recoverability. As business needs change, the process starts over again with
the need for new or enhanced applications. Most traditional solutions require
users to employ different software products with unique user interfaces and
capabilities to address each phase of the database life cycle.
As a result, we believe that there is a significant opportunity for a
database management solution that meets the demands of the e-business
environment. This solution should provide the following benefits:
- accelerate time-to-market by allowing users to produce effective work
results sooner;
- enhance the reliability and availability required of e-business
applications;
- alleviate the strain on IT resources, especially database professionals;
- provide a suite of solutions to manage the database life cycle; and
- manage an increasingly diversified and distributed database
infrastructure.
25
<PAGE>
THE EMBARCADERO SOLUTION
We provide software products that enable organizations to build and manage
e-business applications and their underlying databases. Our suite of software
solutions is designed to:
DEVELOP AND SUPPORT E-BUSINESS APPLICATIONS. Our solution allows customers
to rapidly develop applications that meet the rigorous requirements of today's
e-business environment. Our suite of products enables customers to manage the
phases of the database life cycle from a common user interface, thus simplifying
the process of creating, maintaining and enhancing e-business applications. Our
design products allow customers to reduce the time between conception and
implementation of their e-business applications. Our development products allow
companies to create and test complex application code from an easy-to-use
graphical user interface. Our administration products ensure the performance,
security, availability and recoverability of e-business applications across a
diverse mix of underlying databases.
INCREASE UTILIZATION OF EXISTING TECHNOLOGY. Our products enable
organizations to more effectively utilize their existing database
infrastructure. Most large organizations employ a mix of databases to support
different business applications. We believe our suite of products, with its
multi-vendor support, provides the only integrated solution for designing,
developing and administering a variety of databases.
LEVERAGE CONSTRAINED IT RESOURCES. Our products enable organizations to
enhance the productivity of IT professionals in managing the database life
cycle. Our products increase the productivity of both experienced database
administrators and less experienced IT professionals through the intuitive user
interface used across our entire product line. This reduces the amount of
training needed to begin using our software and simplifies the complexity of
database programming. Our products also allow organizations to replace numerous,
costly point or database-specific solutions with an integrated solution which
addresses each phase of the database life cycle.
FACILITATE RAPID ADOPTION. From our inception, we have strived to make it
easy for our customers to discover, try, purchase and use our products. We
design our products to leverage the Internet by promoting downloaded trial
versions, providing upgrades and offering maintenance directly from our web
site. We also design our products to install within minutes with minimal
configuration and to require limited on-going maintenance. Customers can rapidly
implement and utilize our products in designing, developing and managing the
databases that support their critical applications. We believe these factors
give our products a competitive advantage relative to most traditional
solutions.
GROWTH STRATEGY
Our objective is to become the leading provider of software solutions that
enable organizations to build and manage e-business applications and their
underlying databases. The key elements of our strategy are to:
EXPLOIT THE GROWING DEVELOPMENT OF E-BUSINESS APPLICATIONS. We plan to
continue to design our products for, and market our products to, organizations
implementing e-business applications. We believe that the growth and strategic
importance of the Internet is significantly increasing the development of new
software applications to conduct e-business. We believe that many of our
existing customers have increased their purchases of our products to support
their e-business applications. We also believe new Internet-based companies are
purchasing our products to quickly and reliably introduce new e-business
applications. During 1999, many Internet-based companies became our customers,
including CarsDirect.com, E*TRADE, eStamp, GoTo.com, InterVU, NetZero and
Yahoo!. We intend to increase our sales to both existing and new customers who
are developing and deploying e-business applications.
26
<PAGE>
EXTEND PRODUCT LEADERSHIP. We believe that our suite of products provides
the leading software solution to manage the database life cycle. Our products
share a core technology architecture, which we believe provides significant
advantages over competing products. This architecture reduces the cost of
product development, accelerates the time-to-market for new products and enables
us to maintain a common interface across the entire product suite. Our current
products already feature a number of important Internet technologies, including
Java, HTML and XML, and we intend to incorporate new technologies as they gain
market acceptance. We plan to build upon our database and Internet technologies
to enhance and expand our product offerings for e-business initiatives. We may
seek to enhance our product leadership through the licensing or acquisition of
complementary technologies or businesses.
LEVERAGE OUR INSTALLED CUSTOMER BASE. We believe that our installed
customer base represents a significant revenue opportunity. During 1999, we
issued new licenses or maintenance renewals to thousands of customers for over
21,000 users worldwide. Most of our customers initially purchase only one or two
of our products for a limited number of users in specific business locations. We
believe that we can sell more deeply into our installed customer base by selling
additional licenses of purchased products, by cross-selling other products and
by expanding departmental deployments into enterprise-wide implementations.
EXPAND OUR DIRECT SALES AND MARKETING EFFORTS. We plan to increase sales by
expanding our telesales efforts and building a field sales organization. Our
direct telesales force reduces the need for remote sales offices and customer
site visits by effectively using the telephone and Internet for product
demonstrations and product sales. We believe this direct telesales approach
allows us to respond more rapidly to customer needs while maintaining an
efficient, low-cost sales model. To complement our telesales efforts, we are
building a focused field sales organization to further penetrate and better
manage major accounts in the United States. In particular, we believe that a
field sales organization will facilitate enterprise-wide implementations of our
products by new and existing customers. We also plan to direct marketing efforts
at IT management, focusing on the value that our products can create for
organizations when developing, deploying and maintaining critical e-business
applications.
EXPAND OUR INTERNATIONAL DISTRIBUTION. We plan to expand our international
distribution capabilities. Although our products are sold worldwide, revenues
outside of North America represented only 12.4% of total revenues in 1999 and
were generated primarily by our affiliated distributor, Embarcadero Europe Ltd.
We believe there is a significant opportunity to expand sales of our software
products internationally. We have recently entered into an agreement with a
distributor covering Japan. We intend to increase our international distribution
by expanding direct selling efforts through Embarcadero Europe, initiating
distribution in Japan and developing stronger relationships with other
international distributors.
27
<PAGE>
PRODUCTS
Our suite of products enables organizations to design, develop and
administer databases which support e-business applications. Our products are
designed to work individually and together to provide rapid development and
optimal performance of applications that are critical as enterprises deploy and
extend their information technology infrastructure. We can bundle our products
to offer an integrated database life cycle solution for a particular database
platform, such as Oracle-only, or to support a multi-platform environment, such
as Oracle, Microsoft SQL Server and IBM DB2 UDB databases running
simultaneously. Our products and their functionality are summarized below:
<TABLE>
DATABASE LIFE
CYCLE PHASE
PRODUCT DESCRIPTION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Design ER/Studio Captures business requirements and translates them into
database applications from a graphical user interface
Development Rapid SQL Streamlines the process of developing complex database
code in a graphical environment
Administration DBArtisan Ensures the availability, performance, security and
recoverability of applications through the management of
a mix of database types from a single graphical console
DB Artisan Change Provides software configuration management for databases
Manager by storing accurate records of database changes over
time
</TABLE>
Our products run on personal computers using Windows operating systems and
manage databases that run in Unix, Windows NT and Linux environments. Our
products support each of the most widely-used database platforms, including
Oracle, Microsoft SQL Server, IBM DB2 Universal Database and Sybase.
DATABASE DESIGN
ER/STUDIO. ER/Studio addresses the design phase of the database life cycle.
Designing a software application begins with a detailed understanding of both
the business requirements addressed by the application and their technical
ramifications. By carefully creating a blueprint of business requirements for an
application, organizations are more likely to successfully build and rapidly
deploy reliable applications.
ER/Studio automates the process of capturing business requirements for an
application and its underlying database. With its intuitive graphical user
interface, ER/Studio allows users to design databases using pictures or objects
and reduces the need for users to know and write software code. ER/Studio
automatically converts these objects into database code, which users can easily
review and edit with simple mouse commands. In addition to designing new
applications, customers can use ER/Studio to maintain, enhance and integrate
existing applications. They can use ER/Studio's capabilities to reverse-engineer
existing applications into easily understood diagrams. Once captured in a design
format, users can easily annotate the intended functions of an application's
elements.
28
<PAGE>
DATABASE DEVELOPMENT
RAPID SQL. Rapid SQL addresses the development phase of the database life
cycle. A large portion of the software technology underlying an application is
database code that implements business requirements. For example, database code
required for e-commerce sites includes routines that check for the availability
of inventory or that validate a purchaser's credit card number. Problems in
writing complex database code can lead to substantial delays or even failure of
the development project.
Rapid SQL offers a rich graphical environment that streamlines the process
of developing complex database code. Rapid SQL allows users to write database
code more efficiently by using templates that reduce the need for manual coding.
It also streamlines the testing process by automatically identifying programming
errors. With Rapid SQL, customers can improve their productivity, cut
development times and reduce programming errors.
DEBUGGER. Debugger is an add-on product to both DBArtisan and Rapid SQL
that extends their functionality to help troubleshoot database-programming
errors. Developers often find it difficult to locate the source of programming
errors, especially with large and complex database code. Generally, the hardest
part of fixing an error is finding its underlying cause. Debugger is designed to
simplify the process of troubleshooting errors by leading users through the
execution of code in order to identify the source of errors quickly.
DATABASE ADMINISTRATION
DBARTISAN. DBArtisan addresses the administration phase of the database
life cycle. After launching e-business applications, organizations rely on IT
professionals to maintain the performance, availability, security and
recoverability of the underlying databases. Database administration requires the
constant attention of IT staff. Typical management tasks include backing up the
information stored in a database, analyzing database integrity, controlling
access to customer accounts and information, upgrading to new versions of
databases, testing proposed changes to a database before implementing them and
monitoring the availability of servers. Many of these projects can take hours,
even days, to complete using traditional solutions.
DBArtisan is designed to simplify database administration and facilitate
day-to-day database management. Its easy-to-use graphical console permits the
simultaneous administration of several databases and automates many tedious
administrative tasks. For example, using DBArtisan, IT professionals can copy
code from one database to another without manually entering any code, review
graphs that indicate how much space is available in various databases and
rapidly identify the source of a problem with an application. These capabilities
can increase users' productivity and reduce human error, which can lead to
increased application availability and performance.
DBARTISAN CHANGE MANAGER. DBArtisan Change Manager is a companion product
to DBArtisan that is designed to extend its basic functionality to provide
software configuration management for databases. DBArtisan Change Manager
automates the tedious and error-prone process of capturing and managing complete
definitions of databases, known as database schemas. It allows users to capture
and archive objects comprising a database application and promotes the
recoverability of databases by storing accurate records of database changes over
time. For example, an Internet-based financial services company used DBArtisan
Change Manager to safely move database code changes from development to test to
production and shorten system downtime for database changes. As a result, the
customer experienced fewer planned and unplanned outages of its web site.
29
<PAGE>
CUSTOMERS
We have thousands of customers representing a wide, cross-industry spectrum
of industrial corporations, service companies, financial institutions,
government agencies and technology companies. During 1999, we issued new
licenses or maintenance renewals for over 21,000 users worldwide.
A representative sample of companies that have purchased at least $75,000 in
software licenses and maintenance since January 1, 1997 includes:
TECHNOLOGY
- - America Online
- - Hewlett-Packard
- - Intel
- - IBM
- - Micron Technology
- - UUNet
TELECOMMUNICATIONS
- - AT&T
- - Bell Mobility
- - BellSouth
- - Excel Communications
- - MCI WorldCom
- - U.S. West
- - Williams Communications
ENERGY
- - Bonneville Power
- - PG&E
- - Sonat Energy Services
- - TransCanada Pipelines
FINANCIAL SERVICES
- - Aetna
- - Banc One
- - Bank of America
- - Bear Stearns
- - CNA Financial
- - Donaldson, Lufkin & Jenrette
- - Dun & Bradstreet
- - Fidelity
- - FleetBoston Financial
- - GE Capital
- - Jackson National Life Insurance
- - John Hancock
- - Lehman Brothers
- - MBNA
- - Merrill Lynch
- - Morgan Stanley Dean Witter
- - Northwestern Mutual
- - Providian Financial
- - Prudential
- - Reuters
- - State Street Global Advisors
- - Strong Capital Management
SERVICES
- - Andersen Consulting
- - ADP
- - Computer Sciences Corporation
- - EDS
- - Frank Russell Company
- - Greyhound Lines
- - Nielsen Media Research
OTHER
- - 3M
- - Anheuser-Busch
- - Blue Cross and Blue Shield
- - Kaiser Foundation Health Plan
- - Mercedes Benz
- - NBC
- - Owens-Illinois
- - Sandia National Laboratories
- - Sony
- - State of Washington
- - Walt Disney
CASE STUDIES
The following case studies illustrate how some companies are using our
products to address different phases of the database life cycle.
NORTHROP GRUMMAN (DESIGN)
Northrop Grumman is a leading defense electronics, system integration and
information technology company that provides an array of world-class
technologies and core competencies to military and commercial markets.
BUSINESS CHALLENGE. Northrop Grumman Integrated Systems and Aerostructures
Sector (ISA) utilizes large database applications to support the manufacturing
of airplanes. For example, Northrop Grumman's TRACAT management system tracks
problems that arise during the production of an aircraft and their resolution.
The critical nature of applications such as the TRACAT system makes it crucial
that the database development team at Northrop Grumman ISA build and maintain
databases that can support vast amounts of data and users while maintaining data
integrity.
30
<PAGE>
SOLUTION. Northrop Grumman ISA selected ER/Studio as its solution for the
design and maintenance of databases that run critical applications. Utilizing
ER/Studio, Northrop Grumman ISA's database developers have been able to create
and maintain very large and scalable databases. ER/ Studio's ability to generate
a visual picture of the multiple and complex relationships among Northrop
Grumman ISA's databases allows its database administrators to easily build
applications and extend their functionality. Northrop Grumman ISA's database
administrators have also found that ER/Studio can help in other difficult,
error-prone database management tasks, such as database migrations. According to
Northrop Grumman ISA's IT staff, ER/Studio allowed one programmer to accomplish
a difficult database migration in four days, a task which might have taken
multiple developers weeks otherwise to complete.
CYBERGOLD (DEVELOPMENT)
CyberGold is a premier online incentives marketing company which has created
an Internet community with approximately 4.5 million members.
BUSINESS CHALLENGE. To attract and retain members, CyberGold constantly
introduces new promotions, content and features to its web sites. The
implementation of these enhancements can require complex database programming,
which CyberGold needs to accomplish as quickly as possible with minimal errors.
These programming changes are critical to CyberGold because most actions a
consumer takes in interacting with CyberGold's web site, including signing up,
logging in, earning incentive rewards and purchasing an item, involve database
access and updates.
SOLUTION. To support the demands of its constantly changing web site,
CyberGold selected Rapid SQL for the programming of its web sites' underlying
databases. CyberGold believes that Rapid SQL simplifies the programming process
because it provides an easy-to-use development environment capable of
automatically generating code necessary to accomplish complex programming tasks
with optimal results. According to CyberGold's IT staff, Rapid SQL has led to
increased productivity, shorter development cycles and improved software
quality. With Rapid SQL, CyberGold IT professionals can more quickly write
complex database programming instructions that deliver valuable information and
reports to management, enabling them to make more timely business decisions.
UNIVERSAL STUDIOS (ADMINISTRATION)
Universal Studios is a leading entertainment production company with more
than 80 years of experience in motion pictures, television, commercials and
music videos.
BUSINESS CHALLENGE. Universal Studios utilizes numerous applications and
databases to support its wide variety of entertainment service offerings. The
expanding use of Universal Studios' multimedia content has changed existing
business requirements and created new challenges for its IT staff. The
requirements for flexible and reliable access to this content have driven a
proliferation of new software applications and underlying databases. Universal
Studios now supports nearly 90 databases from at least four different vendors.
SOLUTION. Universal Studios selected DBArtisan to efficiently manage its
assortment of databases. DBArtisan permits Universal Studios' database
administrators to manage and administer its mix of database types through a
single graphical console. Universal Studios believes that the ability to
accomplish database administration tasks on Microsoft SQL Server databases in
the same manner as on Oracle or Sybase databases has improved Universal Studios'
database administration efficiency by an estimated 50% and has improved the
availability of its databases. In addition, Universal Studios believes DBArtisan
has reduced its reliance on specially trained database administrators.
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MCI WORLDCOM (DESIGN, DEVELOPMENT AND ADMINISTRATION)
MCI WorldCom is a global leader in communications services with operations
in more than 65 countries.
BUSINESS CHALLENGE. The growth of MCI WorldCom's business largely depends
on the success of its sales force. A key tool for its sales organization is its
Forecast Information Revenue Sales Tool application, which generates, tracks and
reports on sales activities. The application must be available continuously
because any downtime could result in poor customer service and erroneous
customer information provided to decision makers. MCI WorldCom must ensure that
the application and the underlying databases are designed effectively, developed
rapidly and managed to provide optimal availability and performance.
SOLUTION. MCI WorldCom chose our suite of database design, development and
administrative products to manage the life cycle of the database underlying one
of its most critical applications. According to MCI WorldCom's IT staff, the
easy-to-use integrated product suite of ER/Studio, Rapid SQL and DBArtisan lets
them move from design to production in a fraction of the time that it took prior
to adopting our solution. Additionally, the improved ability to identify
performance bottlenecks and database errors using our products ensures that the
application will be continuously available to the sales force, once it is in
production. Also, by having its designers, developers and database
administrators standardize on a solution with a consistent user interface, MCI
WorldCom has experienced enhanced communication, collaboration and productivity
associated with its development projects.
SALES AND MARKETING
NORTH AMERICAN SALES. We sell our software in the U.S. and Canada primarily
through our direct telesales force, which has allowed us to build a broad
customer base efficiently. By leveraging the effective use of the telephone and
the Internet for product evaluations and sales, our direct telesales approach
allows us to respond more rapidly to customer needs while maintaining an
efficient, low-cost sales model. We intend to continue to build our telesales
organization. In addition, we plan to complement our direct telesales effort
with a focused field sales organization that will target major accounts. The
field sales organization is intended to help us further penetrate and better
manage large customer accounts and to drive larger sales transactions and
enterprise-wide implementation of our products. Currently, sales cycles range
between 2-3 months for departmental sales and up to 12 months for large-scale
implementations.
INTERNATIONAL SALES. We sell our software internationally primarily through
distributors and plan to expand our global distribution capabilities.
International sales represented 12.4% of our total revenues in 1999 and were
generated primarily by our affiliated distributor, Embarcadero Europe Ltd.,
which manages the sales, marketing, distribution and support of our products in
Europe, the Middle East and Africa. In other overseas markets, we intend to sell
our products through independent distributors, which will generally have
non-exclusive distribution rights for their respective territories. We have
entered into an agreement with a Japanese distributor with exclusive rights to
sell our products to end users in Japan. Our international distributors perform
sales, marketing and technical support functions for their local customers.
MARKETING. Our marketing efforts focus on generating sales leads and
building brand awareness about our products. Our marketing efforts include
advertising in trade journals, promoting a strong web presence, maintaining an
active public relations program, attending user group conferences, participating
in major database trade shows and forging strategic alliances with other
technology companies. We plan to increase our marketing efforts directed at IT
management to facilitate wider deployments of our products. In addition, we may
enter into strategic marketing relationships with other companies whose business
goals complement our own.
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CUSTOMER SERVICE AND SUPPORT
CUSTOMER SERVICE. Our customer service department handles customer
inquiries about product licensing. Customer service representatives activate
customer licenses and are responsible for managing maintenance renewals. We team
customer service representatives with salespeople in order to provide a
coordinated approach to customer sales and service requirements.
TECHNICAL SUPPORT. Customers receive technical support for the first
60 days after licensing a product. In addition, customers may extend the period
of technical support by purchasing maintenance contracts. We offer optional
annual service contracts to customers that entitle them to receive all product
upgrades and technical support. Our standard maintenance contract covers a
12-month period, is payable in advance and is renewable at the customer's
option.
Technical support is provided for North American customers through our
offices in San Francisco, California. We currently offer technical support from
6 a.m. to 6 p.m., Pacific Time, Monday through Friday. In the future, we plan to
offer premium service plans providing for around-the-clock service for an
additional fee. We deliver technical support by email, fax or telephone.
Depending on the product involved and the nature of the inquiry, a technical
support dispatcher assigns and routes cases to the appropriate technical support
engineer. As sales of our products grow, we plan to hire more support personnel.
Internationally, our distributors are generally responsible for providing
customer service and technical support.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused primarily on enhancing our
core technology and existing products, and developing additional applications
that enable organizations to manage the database life cycle. Members of our
research and development group have extensive experience in databases, database
management software, enterprise applications and Internet technologies. We
organize our research and development staff into discrete engineering teams
responsible for specific products in each phase of the database life cycle. Our
core engineering team is responsible for enhancing our current database
administration products and exploring new product technologies for the
administration phase of the database life cycle. Separate engineering teams
focus on our database design and database development product lines. We
supplement our internal software development efforts with outside contractors
who can perform discrete programming tasks effectively. In addition, we are
establishing relationships with other contractors who may undertake broader
product development efforts in exchange for royalties.
Our software development approach consists of a well-defined methodology
that provides guidelines for planning, controlling and implementing projects. We
employ a daily-build process that increases the collaboration, communication and
accountability of all software development team members individually and
collectively. Because we build on a core architecture, our products are tightly
integrated, which helps to reduce the number of application development errors.
Our engineering teams work closely with our quality assurance organization in an
effort to ensure quality product releases. As each product development program
approaches release, the software undergoes rigorous, iterative testing, bug
fixing, code stabilization and documentation.
Our future success depends largely on our ability to continue enhancing
existing products and to develop new ones that reinforce our competitive
position and our value proposition to customers. We have made and will continue
to make substantial financial and organizational investments in research and
development. Extensive product development input is obtained through customer
feedback, by monitoring evolving user requirements and by evaluating competing
products. We have instituted a
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product marketing function that is responsible for translating customer
requirements and market opportunities into product development initiatives that
our engineering teams can execute.
PROPRIETARY RIGHTS
We rely on copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to establish and protect our proprietary
rights. We also enter into confidentiality agreements with employees and
consultants and attempt to restrict access to proprietary information on a
need-to-know basis. Despite such precautions, unauthorized third parties may be
able to copy aspects of our products or obtain and use information that we
consider as proprietary.
We license our software products primarily under shrink-wrap licenses
included as part of product packaging. Shrink-wrap licenses are not negotiated
with or signed by individual licensees and purport to take effect upon the
opening of the product package or downloading of the product from the Internet.
These measures afford only limited protection. Policing unauthorized use of our
products is difficult and we are unable to determine the extent to which piracy
of our software exists. In addition, the laws of some foreign countries do not
protect our proprietary rights as well as United States laws.
We may have to enter into litigation to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others with respect to our rights. Litigation is generally very expensive and
can divert the attention of management from daily operations. Accordingly,
intellectual property litigation could materially adversely affect our business
and operating results.
We are not aware of any case in which we are infringing the proprietary
rights of others. However, third parties may bring infringement claims against
us. Any such claim is likely to be time consuming and costly to defend, could
cause product delays and could force us to enter into unfavorable royalty or
license agreements with third parties. A successful infringement claim against
us could require us to enter into a license or royalty agreement with the
claimant or develop alternative technology. However, we may not be able to
negotiate favorable license or royalty agreements, if any, in connection with
such claims and we may fail to develop alternative technology on a timely basis.
Accordingly, a successful product infringement claim against us could materially
adversely affect our business and operating results.
COMPETITION
The market for our products is highly competitive, dynamic and subject to
rapidly changing technology. We compete primarily against other providers of
database management utilities, which include Computer Associates, Quest Software
and other independent software vendors.
Our products also compete with products offered by the manufacturers of the
database services with which they are compatible, including Oracle, Microsoft
and IBM. Some of these competing products are provided at no charge to their
customers. We expect that companies such as Oracle, Microsoft and IBM will
continue to develop and incorporate into their products applications which
compete with our products and may take advantage of their substantial financial,
technical, marketing and distribution resources in those efforts.
We presently compete on numerous factors, including product functionality
and heterogeneity, reliability, ease-of-use, performance, scalability,
time-to-market, customer support and total cost of ownership. We believe that we
currently compete favorably overall. However, the market for our products is
dynamic and we may not compete successfully in the future with respect to one or
more of these factors.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing and other resources and greater name
recognition than we do. They also may be able to respond more quickly than we
can to changes in technology or customer requirements. Competition
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<PAGE>
could seriously impede our ability to sell additional products on acceptable
terms. Our competitors may:
- develop and market new technologies that render our products obsolete,
unmarketable or otherwise less competitive;
- make strategic acquisitions or establish cooperative relationships among
themselves or with other companies, thereby enhancing the functionality of
their products or increasing their operating margins; or
- establish or strengthen cooperative relationships with channel or
strategic partners which limit our ability to sell or to co-market
products through these channels.
EMPLOYEES
As of December 31, 1999, we had 105 employees, 43 of whom were engaged in
research and development, 36 in sales and marketing, 14 in customer service and
support and 12 in finance and administration. Our future performance depends
largely on our continuing ability to attract, train and retain highly qualified
technical, sales, service, marketing and managerial personnel. None of our
employees is represented by a collective bargaining agreement. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
FACILITIES
Our principal offices currently occupy approximately 14,500 square feet in
San Francisco, California pursuant to leases that expire in June 2004. In
addition, we maintain a research and development facility of approximately 4,600
square feet in Pacific Grove, California pursuant to leases that expire in
August 2002 and December 2003.
We believe that our facilities are adequate for the next six to nine months
and that, if required, we can lease suitable additional space on commercially
acceptable terms to accommodate expansion.
LEGAL PROCEEDINGS
We are not currently a party to any material pending legal proceedings.
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MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our officers
and directors as of February 22, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ------------------------ --------
<S> <C> <C>
EXECUTIVE OFFICERS
Stephen R. Wong........................... 40 Chairman
Ellen W. Taylor........................... 62 President, Chief Executive Officer and
Director
Raj P. Sabhlok............................ 36 Senior Vice President of Finance and
Corporate Development
Walter F. Scott III....................... 32 Vice President of Sales
Coleen J. Weeks........................... 39 Vice President of Marketing
OTHER OFFICERS
Susan A. Fleck............................ 56 Vice President of Customer Care
Nigel C. Myers............................ 32 Vice President of Product Development
Jeffrey Newman............................ 45 Vice President of Product Development
DIRECTORS
Frank J. Polestra(1)(2)................... 74 Director
Dennis J. Wong(2)......................... 42 Director
</TABLE>
- ------------------------
(1) Member of the audit committee
(2) Member of the compensation committee
EXECUTIVE OFFICERS
STEPHEN WONG is a co-founder of Embarcadero and has served as our
Chairman since July 1993. From July 1993 until October 1999, Mr. Wong also
served as our Chief Executive Officer. From May 1985 to May 1990, Mr. Wong
served as an associate, and subsequently as a partner, of Montgomery Medical
Ventures, a venture capital firm, where he specialized in technology
transfer and early stage investments. Mr. Wong holds his A.B. from Harvard
College and an M.B.A. from the Harvard Business School. Mr. Wong and Dennis
Wong, a member of our board of directors, are brothers.
ELLEN TAYLOR has served as our President and Chief Executive Officer
since October 1999. From December 1998 until October 1999, she served as
Vice President for Worldwide Marketing at Weather Services
International, Inc., a division of Litton Industries. From June 1998 until
September 1998, she served as Senior Vice President of PC DOCS, a document
and knowledge management company. From May 1996 until December 1997, Ms.
Taylor served as Chief Operating Officer of Wright Strategies, Inc, a
personal digital assistant software company. From May 1991 until
October 1995, Ms. Taylor served as Vice President and General Manager of the
Norton Utilities Product Group of Symantec Corp., a software company.
Ms. Taylor holds a B.A. degree from San Diego State University.
RAJ SABHLOK has served as our Senior Vice President of Finance and
Corporate Development since January 2000. From March 1995 until
December 1999, he served as the Director of Business Development of BMC
Software, Inc., a software company. From February 1988 until February 1995,
Mr. Sabhlok held a number of technical, marketing and sales management
positions with
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The Santa Cruz Operation, Inc., a UNIX software development company.
Mr. Sabhlok holds a B.A. degree in Mathematics from the University of
California, Santa Cruz.
WALTER SCOTT III has served as our Vice President of Sales since
January 2000. From April 1994 to January 2000, he worked in several
executive sales positions including Senior Program Director of Americas
Marketing, Sales Manager of Growth Accounts and Senior Sales Representative
at BMC Software, Inc. Mr. Scott holds a B.A. degree in Marketing and an
M.B.A. degree from the University of Maine.
COLEEN WEEKS is a co-founder of Embarcadero and has served as our Vice
President of Marketing since August 1999. From January 1995 through
July 1999, Ms. Weeks served as our Vice President of Sales and Marketing and
from July 1993 through December 1994 as our Director of Marketing.
Previously, she was Director of Marketing for QCR Associates, a
pharmaceutical marketing research firm, from November 1988 until July 1993.
Ms. Weeks holds a B.A. degree from Georgia State University.
OTHER OFFICERS
SUSAN FLECK has served as our Vice President of Customer Care since
February 2000. From September 1997 until January 2000, Ms. Fleck served as
Vice President of Engineering Services responsible for quality assurance,
quality engineering, customer support, documentation, training and release
management for New Era of Networks, Inc., a software company. From
April 1991 to September 1996, she served as Director of Quality Assurance at
Attachmate Corporation, an enterprise information access and management
software and services company. Ms. Fleck holds a B.S. degree in Computer
Science from Kean College.
NIGEL MYERS is a co-founder of Embarcadero has served as our Vice
President of Product Development overseeing our San Francisco product
development group since July 1993. Mr. Myers holds a B.S. degree from Pace
University.
JEFFREY NEWMAN has served as our Vice President of Product Development
overseeing our Pacific Grove product development group since August 1999.
From November 1988 to July 1999, Mr. Newman served as co-founder and
President of NewCon Software Inc., a software consulting firm. From 1982 to
October 1988, he served as a senior software engineer with Digital
Research Inc., an operating systems software company.
DIRECTORS
FRANK POLESTRA has served as a director since November 1999. He has been
the Managing Director of Ascent Venture Partners since March 1999. From 1980
to February 1999, Mr. Polestra served as President of Pioneer Capital Corp.,
a venture capital firm. Mr. Polestra holds Ph.D. and M.S. degrees in
physical chemistry from Yale University and a Doctor of Chemistry degree
from the University of Naples, Italy.
DENNIS WONG has served as a director since July 1993. He is currently
the Managing Director of SPI Holdings, a real estate investment company
which he formed in September 1995. He is also the President of Prism Capital
Corp., an investment company which he formed in 1989. Mr. Wong holds an A.B.
degree from Harvard College and an M.B.A. degree from the Harvard Business
School. Mr. Wong is a trustee of the San Francisco Museum of Modern Art.
Mr. Wong and Stephen Wong, our Chairman, are brothers.
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STRATEGIC ADVISOR
ARTHUR ROCK has served as a strategic advisor to us since February 2000. Mr.
Rock has been Principal of Arthur Rock & Co., a venture capital firm, since
1969. He was a director of Intel Corporation from its founding in 1968 until
1999 and held positions of Chairman of the Executive Committee and lead Director
of the Board of Directors. Mr. Rock has been a director of AirTouch
Communications, Inc. and a trustee of the California Institute of Technology and
serves as a director of Echelon Corporation. Mr. Rock received a B.S. degree in
Political Science and Finance from Syracuse University and an M.B.A. degree from
Harvard University.
CLASSIFIED BOARD OF DIRECTORS
Our bylaws provide that all directors will be part of a classified board of
directors, consisting of three classes of directors, each serving staggered
three-year terms. As a result, only a portion of our directors will be elected
each year. We will elect directors to initial staggered terms prior to the
closing of this offering. See "Description of Capital Stock--Effect of Certain
Provisions of Our Certificate of Incorporation, Bylaws and the Delaware
Anti-Takeover Statute."
BOARD COMMITTEES
We have established an audit committee and a compensation committee. Frank
Polestra is currently the only member of the audit committee. We intend to
appoint an additional member to our Board and to the audit committee before the
closing of this offering. The audit committee makes recommendations to the board
of directors regarding the selection of independent auditors, reviews the scope
of audit and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits.
Frank Polestra and Dennis Wong are members of the compensation committee.
The compensation committee makes recommendations to the board of directors
regarding our stock and compensation plans, approves compensation of certain
officers and grants stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dennis Wong, a member of the compensation committee, is the brother of
Stephen Wong, the former Chief Executive Officer and the current Chairman of
Embarcadero. During 1999, Stephen Wong received $60,000 in salary and $90,000 in
bonus compensation.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the board or any
board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
board committee meetings. From time to time, certain directors who are not
employees of Embarcadero have received grants of options to purchase shares of
our common stock. Following this offering, directors will receive automatic
option grants under our 2000 Nonemployee Directors Option Plan. See "Stock
Plans--2000 Nonemployee Directors Option Plan."
INDEMNIFICATION
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for: (1) breach of their duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) unlawful payments of
dividends or unlawful stock repurchases or redemption's, or (4) any transaction
from which the director derived an improper personal benefit. This limitation of
liability does not apply to liabilities arising under the federal or state
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission.
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Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers, and may indemnify our other employees and agents, to
the fullest extent permitted by law. We believe that indemnification under our
certificate of incorporation and bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws permit such indemnification.
We intend to enter into agreements to indemnify our directors and officers,
in addition to the indemnification provided for in our bylaws. These agreements,
among other things, will indemnify our directors and officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of Embarcadero arising out of services as one of our directors
or officers or such person's services to any of our subsidiaries 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 directors and officers.
There is no pending litigation or proceeding involving a director or officer
of Embarcadero in which indemnification is required or permitted, and we are not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation for
the fiscal year ended December 31, 1999 paid by us to each person who served as
Chief Executive Officer and to our other executive officers who received salary
and bonus compensation in 1999 of more than $100,000. These persons are
collectively referred to as the "Named Executive Officers." The compensation
table excludes other compensation in the form of perquisites and other personal
benefits that constitutes the lesser of $50,000 or 10% of the total salary and
bonus earned by each of the Named Executive Officers in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL --------------
COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- --------------------------- --------- -------- --------------
<S> <C> <C> <C>
Ellen W. Taylor (1)........................................ 44,141 -- 880,000(4)
President and Chief Executive Officer
Stephen R. Wong (2)........................................ 60,000 90,000 1,200,000(5)
Chief Executive Officer
Stuart E. Browning (3)..................................... 60,000 75,000 --
Vice President
Nigel C. Myers............................................. 60,000 75,000 --
Vice President of Development
Coleen J. Weeks............................................ 120,000 85,498 --
Vice President of Marketing
</TABLE>
- ------------------------
(1) Ms. Taylor became our President and Chief Executive Officer on October 18,
1999. Her current annual salary is $220,000.
(2) Mr. Wong served as our Chief Executive Officer from July 1993 through
October 1999 and currently serves as our Chairman.
(3) Mr. Browning served as a Vice President of the company until February 1,
2000.
(4) Three options granted on October 18, 1999 comprise this aggregate amount.
One option covers 440,000 shares and has an exercise price of $0.25 per
share. The second option covers 220,000
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<PAGE>
shares and has an exercise price of $2.50 per share. The third option covers
220,000 shares and has an exercise price of $5.00 per share. Each of the
options expires on October 18, 2006.
(5) This option was granted on May 31, 1999 and has an exercise price per share
is $0.25. The option expires on May 31, 2006.
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted during the fiscal year ended December 31, 1999 to each of the Named
Executive Officers. All options were granted under Embarcadero's 1993 Stock
Option Plan. Unless stated otherwise, options granted under that plan normally
vest over a four-year period in sixteen equal quarterly installments.
The percentage of options granted is based on an aggregate of 2,599,400
options we granted during the fiscal year ended December 31, 1999 to our
employees, including the Named Executive Officers.
The potential realizable value amounts in the last two columns of the
following chart are calculated by assuming a base price of $ per share and
represent hypothetical gains that could be achieved for the respective options
if exercised and sold at the end of the option term. The assumed 5% and 10%
annual rates of stock price appreciation from the date of grant to the end of
the option term are provided in accordance with rules of the SEC and do not
represent our estimate or projection of the future common stock price. Actual
gains, if any, on stock option exercises are dependent on the future performance
of the common stock, overall market conditions and the option holder's continued
employment through the vesting period. This table does not take into account any
actual appreciation in the price of the common stock from the date of grant to
the present.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
------------------------------------------------- OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES IN PRICE/$ EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ellen W. Taylor.................... 440,000 16.9 $ 0.25 10/18/06
220,000 8.5 2.50 10/18/06
220,000 8.5 5.00 10/18/06
Stephen R. Wong.................... 1,200,000 46.2 0.25 5/31/06
Stuart E. Browning................. -- -- -- -- -- --
Nigel C. Myers..................... -- -- -- -- -- --
Coleen J. Weeks.................... -- -- -- -- -- --
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding exercised stock
options during the fiscal year ended December 31, 1999 and unexercised options
held as of December 31, 1999 by each of the Named Executive Officers. All
options were granted under Embarcadero's 1993 Stock Option Plan.
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<PAGE>
There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the initial
public offering price of $ per share, less the applicable exercise price
per share, multiplied by the number of shares underlying such options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- --------------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ellen W. Taylor.......... -- -- -- 880,000 --
Stephen R. Wong.......... 800,000 150,000 1,050,000
Stuart E. Browning....... 800,000 -- -- -- --
Nigel C. Myers........... 800,000 -- -- -- --
Coleen J. Weeks.......... -- -- -- -- -- --
</TABLE>
- ------------------------
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Our 1993 Stock Option Plan provides that, upon a change in control of
Embarcadero, each outstanding option will generally become fully vested unless
the surviving corporation assumes the option or replaces it with a comparable
option.
We have entered into a letter agreement with Ms. Taylor, our President and
Chief Executive Officer, dated September 27, 1999. Under the letter agreement,
Ms. Taylor receives an annual base salary of $220,000 and is eligible for an
annual bonus of up to $130,000. Ms. Taylor also received an option to purchase
440,000 shares of common stock with an exercise price of $0.25 per share, an
option to purchase 220,000 shares of common stock at an exercise price of $2.50
per share and an option to purchase 220,000 shares of common stock at an
exercise price of $5.00 per share. In the event of a change of control within
six months of the commencement of Ms. Taylor's employment, or if the company
enters into an agreement that could result in a change of control within such
six-month period and the change of control occurs within nine months of the
commencement of her employment, Ms. Taylor's options will become exercisable
with respect to 50% of the underlying shares of common stock. In addition,
Ms. Taylor's options will become exercisable with respect to 25% of the
underlying shares of common stock if Ms. Taylor's employment with Embarcadero is
terminated without cause on or before October 19, 2000 or, if her employment
with Embarcadero is terminated without cause after October 19, 2000, her options
will continue to vest for six months following her termination. Ms. Taylor is
also entitled to twelve months' severance pay and benefits following her
termination without cause.
We have entered into a letter agreement with Mr. Sabhlok, our Senior Vice
President of Finance and Corporate Development, dated January 24, 2000. Under
the letter agreement, Mr. Sabhlok receives an annual base salary of $200,000 and
is eligible for an annual bonus up to $75,000. Mr. Sabhlok also received an
option to purchase 500,000 shares of common stock at an exercise price of $1.50
per share and an option to purchase 100,000 shares of common stock at an
exercise price of $5.00 per share. In the event of a change of control within
six months of the commencement of Mr. Sabhlok's employment, or if the company
enters into an agreement that could result in a change of control within such
six-month period and the change of control occurs within nine months of the
commencement of his employment, Mr. Sabhlok's option will become exercisable
with respect to the greater (1) of the number of underlying shares of common
stock that will enable him to realize $5 million of value or (2) 150,000 shares.
In addition, Mr. Sabhlok's options will become exercisable with respect to 25%
of the underlying shares of common stock if Mr. Sabhlok's employment with
Embarcadero is terminated without cause on or before January 24, 2001 or, if his
employment with Embarcadero is terminated without cause after January 24, 2001,
his options will continue to vest for six months following his termination.
Mr. Sabhlok is also entitled to six months' severance pay and benefits following
his
41
<PAGE>
termination without cause. We have also agreed to reimburse Mr. Sabhlok for
certain losses he may suffer in the event that he is unable to realize gains on
stock options from his former employer.
We have entered into a letter agreement with Mr. Scott, our Vice President
of Sales, dated December 31, 1999. Under the letter agreement, Mr. Scott
receives an annual base salary of $200,000 and is eligible for an annual bonus
of up to $300,000. Mr. Scott also received an option to purchase 500,000 shares
of common stock at an exercise price of $1.50 per share and an option to
purchase 100,000 shares of common stock at an exercise price of $5.00 per share.
In the event of a change of control within six months of the commencement of
Mr. Scott's employment, or if the company enters into an agreement that could
result in a change of control within such six-month period and the change of
control occurs within nine months of the commencement of his employment,
Mr. Scott's option will become exercisable with respect to the greater of (1)
the number of underlying shares of common stock that will enable him to realize
$6 million of value or (2) 150,000 shares. In addition, Mr. Scott's options will
become exercisable with respect to 25% of the underlying shares of common stock
if Mr. Scott's employment with Embarcadero is terminated without cause on or
before January 2, 2001 or, if his employment with Embarcadero is terminated
without cause after January 2, 2001, his options will continue to vest for six
months following his termination. Mr. Scott is also entitled to six months'
severance pay and benefits following his termination without cause. We have also
agreed to reimburse Mr. Scott for certain losses he may suffer in the event that
he is unable to realize gains on stock options from his former employer.
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN. Our board of directors adopted our 1993 Stock Option Plan on
November 1, 1993. The plan was amended and restated in February 2000. This plan
provides for the grant of incentive stock options to our employees and
nonstatutory stock options to our employees, directors and consultants. As of
February 22, 2000, 11,300,000 shares of common stock were reserved for issuance
under this plan. Of these shares, 4,395,564 were issued upon exercise of stock
options, 3,873,800 shares were subject to outstanding options and 3,030,636
shares were available for future grant.
Our board of directors or a committee appointed by the board administers the
stock option plan and determines who is granted options and the terms of options
granted, including the exercise price, the number of shares subject to
individual option awards and the vesting period of options.
The exercise price for incentive stock options granted under the plan may
not be less than 100% of the fair market value of our common stock on the option
grant date. The exercise price of nonstatutory options must generally be not
less than 85% of the fair market value of our common stock on the option grant
date.
Options generally expire seven years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
plan provides that no participant may receive options covering more than 600,000
shares in any one-year period.
An option under plan will generally become fully vested upon a change of
control, unless the surviving corporation assumes the option or provides an
economically equivalent substitute for the option. A change in control includes:
- an acquisition of 50% or more of our outstanding stock by any person or
entity;
- a sale of all or substantially all of our assets;
- a merger of Embarcadero after which our own stockholders own 50% or less
of the company or any successor company; or
- any other transaction which our board of directors determines, in its
discretion, would materially alter the structure, ownership or control of
the company.
42
<PAGE>
Except as otherwise determined by the board or committee administering the
plan, a participant may not transfer rights granted under our stock option plan
other than by will, the laws of descent and distribution or as otherwise
provided under the plan.
Our board of directors may amend the plan at any time, subject to any
required stockholder approval. The plan will terminate in November 2003 unless
terminated earlier by the board of directors.
2000 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN. We adopted the 2000 Nonemployee
Directors Stock Option Plan in February 2000 and have reserved a total of
200,000 shares of common stock for issuance thereunder. Under the plan, each
nonemployee director receives an automatic grant of a nonstatutory stock option
to purchase 25,000 shares of common stock on the date on which such person first
becomes a director. At the first board of directors meeting immediately
following each annual stockholders meeting beginning with the 2001 annual
stockholders meeting, Embarcadero will automatically grant each nonemployee
director a nonstatutory option to purchase 5,000 shares of common stock. The
exercise price of options under the plan will be equal to the fair market value
of the common stock on the date of grant. The maximum term of the options
granted under the plan is ten years. The options become exercisable over three
years in equal quarterly installments. The plan will terminate in
February 2010, unless terminated earlier in accordance with the provisions of
the plan.
401(K) PLAN. In October 1999 our board of directors adopted a Retirement Savings
and Investment Plan covering our full-time employees located in the United
States. This plan is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended, so that contributions to this plan by
employees, and the investment earnings thereon, are not taxable to employees
until withdrawn. Pursuant to the plan, employees may elect to reduce their
current compensation from a minimum of one percent of their annual compensation
up to the statutory prescribed annual limit ($10,500 in 2000) and to have the
amount of the reduction contributed to the plan. We do not currently make
additional matching contributions on behalf of plan participants.
43
<PAGE>
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS
We have entered into letter agreements with Ellen Taylor, our President and
Chief Executive Officer, Raj Sabhlok, our Senior Vice President of Finance and
Corporate Development, and Walter Scott, our Vice President of Sales, which set
forth certain terms of their employment with Embarcadero. See
"Management--Employment and Change of Control Arrangements."
OPTION GRANTS
We have granted options to our directors and executive officers, and we
intend to grant additional options to our directors and executive officers in
the future. See "Management--Option Grants in Last Fiscal Year" and
"Management--Director Compensation."
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with our directors and
executive officers. Such agreements may require us, among other things, to
indemnify our officers and directors, other than for liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. See "Management--Indemnification."
LOANS TO CERTAIN OFFICERS AND DIRECTORS
On March 1, 1999, we loaned $40,000 to each of Stephen R. Wong, our
Chairman, Dennis J. Wong, a director, Stuart E. Browning, our former Vice
President, and Nigel C. Myers, our Vice President of Product Development, and
$55,000 to Jeffrey Newman, our Vice President of Product Development. Each of
the loans was extended to finance the exercise of stock options. Messrs. S.
Wong, D. Wong, Browning and Myers exercised options to purchase 800,000 shares
of our common stock with their loans, and Mr. Newman exercised options to
purchase 1,100,000 shares of common stock with his loan. In connection with the
loans, we received promissory notes in the amount of the loans, each bearing
interest at the prevailing prime rate. Principal and interest were due no later
than March 1, 2001, subject to acceleration upon certain events. All of the
notes were repaid in full in December 1999.
OTHER RELATED PARTY TRANSACTIONS
Stuart Browning, a former Vice President of the company, resigned his
position with Embarcadero effective February 1, 2000. In February 2000, we
entered into an agreement with Mr. Browning which provides for him to receive
severance payments in the aggregate amount of $120,000 and continued medical
benefits for up to twelve months.
In August 1999, we entered into a three-year office lease for our Pacific
Grove facility with NewCon Software, a corporation controlled by Jeffrey Newman,
who serves as our Vice President of Product Development. Our monthly payments
under the lease are $10,000.
We believe that the transactions above were made on terms no less favorable
to us than could have been obtained from unaffiliated parties. All future
transactions, including loans between us and our officers, directors, principal
stockholders and their affiliates, will be approved by a majority of the board
of directors, including a majority of the independent and disinterested
directors, and will continue to be made on terms no less favorable to us than
could have been obtained from unaffiliated parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of February 22, 2000 and as adjusted to reflect the sale of the shares
offered by this prospectus for:
- each person who is known by us to beneficially own more than 5% of our
common stock;
- each of our directors;
- each of the Named Executive Officers; and
- all of our directors and executive officers as a group.
Percentage of ownership is based on 21,449,457 shares of common stock
outstanding as of February 22, 2000, giving effect to the conversion of our
preferred stock into common stock upon the closing of this offering, and
shares outstanding after this offering, assuming no exercise of the
underwriters' over-allotment options.
Beneficial ownership is calculated based on requirements of the Securities
and Exchange Commission. All shares of the common stock subject to options
currently exercisable or exercisable within 60 days after February 22, 2000 are
deemed to be outstanding for the purpose of computing the percentage of
ownership of the person holding such options, but are not deemed to be
outstanding for computing the percentage of ownership of any other person.
Unless otherwise indicated below, each stockholder named in the table has
sole or shared voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.
Unless otherwise indicated in the table, the address of each individual
listed in the table is Embarcadero Technologies, Inc., 425 Market Street, Suite
425, San Francisco, California 94105.
<TABLE>
<CAPTION>
PERCENTAGE OF
OPTIONS SHARES
INCLUDED IN -------------------
NUMBER OF SHARES BENEFICIAL BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP OFFERING OFFERING
- ------------------------ ------------------ ----------- -------- --------
<S> <C> <C> <C> <C>
Stephen R. Wong.................................. 5,025,500 225,500 23.4%
Stuart E. Browning............................... 4,800,000 -- 22.4
Nigel C. Myers................................... 4,800,000 -- 22.4
Dennis J. Wong (1)............................... 4,800,000 -- 22.4
Jeffrey Newman................................... 1,100,000 -- 5.1
Coleen J. Weeks.................................. 800,000 -- 3.7
Ellen W. Taylor.................................. 110,000 110,000 *
Frank J. Polestra................................ -- -- --
All directors and executive officers as a group
(9 persons) (2)................................ 16,635,500 335,500 77.6% %
</TABLE>
- ------------------------
* Less than 1% of Embarcadero's outstanding common stock.
(1) Includes 150,000 shares held of record by the Ethan Wong Investment Trust
and 150,000 shares held of record by the Audrey Wong Investment Trust.
Dennis Wong is a trustee for each trust.
(2) Does not include shares held by Stuart Browning, a former Vice President of
the company who resigned effective February 1, 2000.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock and 5,000,000 shares of preferred stock.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation to be effective after the closing of this
offering, our bylaws and the provisions of applicable Delaware law.
COMMON STOCK
As of December 31, 1999, there were 21,175,564 shares of common stock
outstanding held of record by approximately 15 stockholders. There will be
shares of common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options,
after giving effect to the sale of common stock in the offering and the
conversion of our outstanding preferred stock.
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders.
Subject to preferences to which holders of preferred stock issued after the
sale of the common stock offered hereby may be entitled, holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor.
In the event of our liquidation, dissolution or winding up, holders of common
stock will be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights, and there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock, which we may designate in the future.
PREFERRED STOCK
Upon the closing of this offering, each share of our outstanding Series A
preferred stock will automatically convert into one share of common stock. After
the closing, the board of directors will be authorized, subject to any
limitations prescribed by law, without stockholder approval, from time to time
to issue up to an aggregate of 5,000,000 shares of preferred stock, $0.001 par
value per share, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
board of directors. The rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of our outstanding voting stock. We have no present plans to
issue any shares of preferred stock.
EFFECT OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
THE DELAWARE ANTI-TAKEOVER STATUTE
CERTIFICATE OF INCORPORATION AND BYLAWS. Certain provisions of our amended and
restated certificate of incorporation and bylaws may have the effect of making
it more difficult for a third party to acquire, or
46
<PAGE>
of discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Certain of these provisions allow
us to issue preferred stock without any vote or further action by the
stockholders, require advance notification of stockholder proposals and
nominations of candidates for election as directors, eliminate the ability of
our stockholders to act by written consent and do not provide for cumulative
voting in the election of directors. Our bylaws provide for the division of the
board of directors into three classes, with each class serving three-year terms.
In addition, our bylaws provide that special meetings of the stockholders may be
called only by the board of directors and that the authorized number of
directors may be changed only by resolution of the board of directors. These
provisions may make it more difficult for stockholders to take certain corporate
actions and could have the effect of delaying or preventing a change in control
of Embarcadero.
DELAWARE ANTI-TAKEOVER STATUTE. We are subject to Section 203 of the Delaware
General Corporation Law. This law prohibits a Delaware corporation from engaging
in any "business combination" with any "interested stockholder," unless any of
the following conditions are met. The law will not apply if:
- prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date of the transaction, the business combination
is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of our
assets involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by us of any of our stock to the interested
stockholder; and
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as an entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person.
REGISTRATION RIGHTS
After this offering, the holders of 253,893 shares of common stock issuable
upon the conversion of our Series A preferred stock upon the closing of this
offering will be entitled to registration rights in the event we register any
shares of our common stock under the Securities Act. If we plan to register any
shares of our common stock, we have to notify those stockholders and they may be
entitled to include all or part of their shares in the registration. However,
these registration rights are subject to conditions and limitations, including
the right of underwriters to limit the number of shares included in a
registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, (assuming no exercise of the underwriters'
over-allotment option) we will have outstanding an aggregate of
shares of common stock outstanding, assuming no exercise of
outstanding options. Of the total outstanding shares, the shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by our
affiliates, as that term is defined under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 as described below.
SALES OF RESTRICTED SHARES
The remaining 21,449,457 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All of these shares will be
subject to "lock-up" agreements providing that the stockholder will not offer,
sell or otherwise dispose of any of the shares of common stock owned by them for
a period of 180 days after the date of this offering. However, holders of such
restricted shares who have not been officers, directors or affiliates of
Embarcadero on or since the date of this prospectus may offer, sell or otherwise
dispose of 25% of their shares on the earlier of 90 days after the date of this
offering or on the second trading day after the first public release of
Embarcadero's quarterly results if the last recorded sale price on the Nasdaq
National Market for 20 of the 30 trading days ending on such date is at least
twice the price per share in the initial public offering. These stockholders may
also offer, sell or otherwise dispose of an additional 25% of their shares
135 days after the date of this offering if the price per share of common stock
has achieved the same target level. However, Donaldson, Lufkin & Jenrette, may
in its sole discretion, at any time without notice, release all or any portion
of the shares subject to lock-up agreements. Upon expiration of the lock-up
agreements, 15,010 shares will become eligible for sale pursuant to
Rule 144(k), 16,800,000 shares will become eligible for sale under Rule 144 and
4,395,564 shares will become eligible for sale under Rule 701.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
(LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES COMMENTS
- ---- ---------- -----------------------------------
<S> <C> <C>
At the effective date........................... -- All shares restricted under lock-up
provision
90 days after the effective date or
second trading day following first public
release of quarterly earnings (1)............. 23,891 Shares saleable under Rule 701
135 days after the effective date (1)........... 23,891 Shares saleable under Rule 701
180 days after the effective date
(expiration of lock-up)....................... 21,157,782 Shares saleable under Rule 144,
144(k), 701
February 17, 2001............................... 253,893 Shares saleable under Rule 144
</TABLE>
- ------------------------
(1) The number of shares listed may be offered, sold or traded provided that the
last recorded sale price per share for 20 of the 30 trading days ending on
such date is at least twice the initial public offering price per share.
48
<PAGE>
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock option
plans. Based upon the number of shares subject to outstanding options as of
February 22, 2000 and currently reserved for issuance under both of these plans,
this registration statement would cover approximately 6,904,000 shares. Shares
registered under the registration statement will generally be available for sale
in the open market immediately after the 180-day lock-up agreements expire.
RULE 144
In general, under Rule 144 as currently in effect, a person including an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell in "broker's transactions" or to market
makers, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the number of shares of common stock then outstanding (which will
equal approximately shares immediately after this offering); or
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current public
information about Embarcadero.
RULE 144(k)
Under Rule 144(k), a person who is deemed to have not been our affiliate at
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 having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144. However,
holders of shares that would otherwise be saleable under Rule 701 are subject to
the contractual restrictions described above which restrict the sale or
disposition of such shares for 180 days following the effective date.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
, 2000, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), U.S. Bancorp Piper
Jaffray Inc., SoundView Technology Group, Inc. and DLJDIRECT Inc. (the
"representatives"), have severally agreed to purchase from the Company the
respective number of shares of common stock set forth opposite their names
below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
U.S. Bancorp Piper Jaffray Inc..............................
SoundView Technology Group, Inc.............................
DLJDIRECT Inc...............................................
---------
Subtotal................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $
per share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the common stock, the public offering price and other
selling terms may be changed by the representatives at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
An electronic prospectus will be available on the web sites maintained by
DLJDIRECT Inc., an affiliate of DLJ, and Wit Capital Corporation, an affiliate
of Wit SoundView. In addition, other dealers purchasing shares from DLJDIRECT
and Wit SoundView in this offering have agreed to make a prospectus in
electronic format available on web sites maintained by each of these dealers.
Other than the prospectus in electronic format, the information on these web
sites relating to the offering is not part of this prospectus and has not been
approved or endorsed by Embarcadero or the underwriters, and should not be
relied on by prospective investors.
Embarcadero has granted to the underwriters an option, exercisable within
30 days after the date of this prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of common stock
at the initial public offering price less underwriting discounts and
commissions. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such underwriter's percentage underwriting
commitment in the offering as indicated in the preceding table.
Embarcadero has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect thereof.
Each of Embarcadero, its executive officers and directors and certain of its
stockholders have agreed, subject to certain exceptions, not to (i) offer,
pledge, sell, contract to sell, sell any option or
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<PAGE>
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any common stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of common stock, or such other securities, in cash or otherwise) for a
period of 180 days after the date of this prospectus without the prior written
consent of DLJ. However, 25% of the shares of common stock subject to the
restrictions described above (other than shares owned by directors, officers or
affiliates) will be released from these restrictions if the reported last sale
price of the common stock on the Nasdaq National Market is at least twice the
initial public offering price for 20 of the 30 consecutive trading days ending
on the last trading day of the 90-day period after the date of this prospectus.
These shares will be released on the later to occur of the 90-day period after
the date of this prospectus and the second trading day after the first public
release of our quarterly results. An additional 25% of the shares subject to the
restrictions described above will be released from these restrictions if the
reported last sale price of the common stock on the Nasdaq National Market is at
least twice the initial public offering price for 20 of the 30 consecutive
trading days ending on the last trading day of the 135-day period after the date
of this prospectus.
Certain employees of DLJ beneficially own shares of our common stock
constituting less than 0.2% of our outstanding common stock on an as-converted
basis.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered hereby will be determined by negotiation among Embarcadero and the
representatives. The factors to be considered in determining the initial public
offering price include:
- the history of and the prospects for the industry in which Embarcadero
competes;
- the past and present operations of Embarcadero;
- the historical results of operations of Embarcadero;
- the prospects for future earnings of Embarcadero;
- the recent market prices of securities of generally comparable companies;
and
- the general condition of the securities markets at the time of the
offering.
The underwriters have reserved up to shares of the common stock to be
sold in this offering for sale to some of our employees and associates of our
employees and directors, and to other individuals or companies who have
commercial arrangements or personal relationships with us. Through this directed
share program, we intend to ensure that those individuals and companies that
have supported us, or who are in a position to support us in the future, have
the opportunity to purchase our common stock at the same price that we are
offering our shares to the general public. Prospective participants will not
receive any investment materials other than a copy of this prospectus, and will
be permitted to participate in this offering at the initial public offering
price presented on the cover page of this prospectus. No commitment to purchase
shares by any participant in the directed share program will be accepted until
after the registration statement of which this prospectus is a part is effective
and an initial public offering price has been established. The number of shares
available for sale to the general public will be reduced by the number of shares
sold through the directed share program. Any shares reserved for the directed
share program which are not so purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered hereby.
Other than in the United States, no action has been taken by Embarcadero or
the underwriters that would permit a public offering of the shares of common
stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of common stock offered hereby may not be
51
<PAGE>
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the offering of the common stock and the distribution
of this prospectus. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of common stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot the offering, creating a syndicate
short position. The underwriters may bid for and purchase shares of common stock
in the open market to cover such syndicate short position or to stabilize the
price of the common stock. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members, if the syndicate repurchases
previously distributed common stock in syndicate covering transactions, in
stabilization transactions or otherwise. 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.
LEGAL MATTERS
The validity of the common stock being offered by Embarcadero will be passed
upon for Embarcadero by Heller Ehrman White & McAuliffe LLP, San Diego,
California which has acted as our counsel in connection with this offering.
Stephen C. Ferruolo, a member of Heller Ehrman White & McAuliffe LLP, is
Secretary of Embarcadero. Certain matters will be passed upon for the
underwriters by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California.
EXPERTS
Our financial statements at December 31, 1998 and 1999 for each of the three
years in the period ended December 31, 1999 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
CHANGE IN ACCOUNTANTS
In December 1999, our board of directors dismissed Odenburg, Ullakko,
Muranishi and Co. as our independent accountants and subsequently appointed
PricewaterhouseCoopers LLP as our independent accountants. There were no
disagreements with the former accountants during the years ended December 31,
1997 and 1998 or during any subsequent interim period preceding their
replacement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the former accountants' satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection with
their reports. The former independent accountants issued an unqualified report
on the financial statements as of and for the years ended December 31, 1997 and
1998. We did not consult with PricewaterhouseCoopers LLP on any accounting or
financial reporting matters in the periods prior to their appointment.
52
<PAGE>
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules) under the Securities Act, with respect to the shares to
be sold in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock offered in this prospectus, reference is
made to the registration statement, including the exhibits thereto, and the
financial statements and notes filed as a part thereof. With respect to each
such document filed with the SEC as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved.
We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
public reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's web site at http:\\www.sec.gov.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
EMBARCADERO TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Changes in Stockholders' Equity (Deficit)..... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Embarcadero Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Embarcadero
Technologies, Inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, CA
February 17, 2000
F-2
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13 $ 1,804 $ 1,804
Trade accounts receivable, net of allowance for doubtful
accounts of $114 in 1998 and $153 in 1999............... 1,850 3,530 3,530
Prepaid and other current assets.......................... 481 310 310
Deferred tax assets....................................... -- -- 244
------ ------- -------
Total current assets.................................... 2,344 5,644 5,888
Property and equipment, net................................. 342 958 958
Investment in affiliated company............................ 16 -- --
Other assets................................................ 4 46 46
------ ------- -------
Total assets................................................ $2,706 $ 6,648 $ 6,892
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 216 $ 806 $ 806
Deferred revenue.......................................... 2,706 4,094 4,094
Notes payable to stockholders............................. -- 1,000 1,000
Deferred tax liabilities.................................. -- -- 518
------ ------- -------
Total current liabilities............................... 2,922 5,900 6,418
Commitments (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock: no par value; 40,000,000 shares authorized;
16,838,344 and 21,175,564 shares issued and outstanding
at December 31, 1998 and 1999........................... -- -- --
Additional paid-in capital................................ 232 14,663 10,523
Deferred stock-based compensation......................... (96) (10,049) (10,049)
Accumulated deficit....................................... (352) (3,866) --
------ ------- -------
Total stockholders' equity (deficit).................... (216) 748 474
------ ------- -------
Total liabilities and stockholders' equity (deficit)........ $2,706 $ 6,648 $ 6,892
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
License (including sales to affiliate of $1,806 in
1999)................................................... $ 3,434 $ 6,510 $ 13,739
Maintenance............................................... 1,152 2,609 5,446
---------- ---------- ----------
Total revenues........................................ 4,586 9,119 19,185
COST OF REVENUES:
License................................................... 200 321 460
Maintenance (exclusive of non-cash compensation expense of
$26 in 1999)............................................ 132 251 621
---------- ---------- ----------
Total cost of revenues................................ 332 572 1,081
---------- ---------- ----------
Gross profit................................................ 4,254 8,547 18,104
OPERATING EXPENSES:
Research and development (exclusive of non-cash
compensation expense of $18, $63 and $550 in 1997, 1998
and 1999, respectively)................................. 1,874 2,732 4,265
Sales and marketing (exclusive of non-cash compensation
expense of $16, $27 and $277 in 1997, 1998 and 1999,
respectively)........................................... 1,515 2,707 5,721
General and administrative (exclusive of non-cash
compensation expense of $0, $9 and $3,408 in 1997, 1998
and 1999, respectively)................................. 580 996 1,577
Amortization of deferred stock-based compensation......... 34 99 4,261
---------- ---------- ----------
Total operating expenses.............................. 4,003 6,534 15,824
---------- ---------- ----------
Income from operations...................................... 251 2,013 2,280
Interest income............................................. 52 52 88
---------- ---------- ----------
Income before income taxes.................................. 303 2,065 2,368
Provision for income taxes.................................. (2) (45) (82)
---------- ---------- ----------
Income before share in affiliated company profit (loss)..... 301 2,020 2,286
Share in profit (loss) of affiliated company................ -- 8 (100)
---------- ---------- ----------
Net income.................................................. $ 301 $ 2,028 $ 2,186
========== ========== ==========
NET INCOME PER SHARE:
Basic..................................................... $ 0.02 $ 0.12 $ 0.11
========== ========== ==========
Diluted................................................... $ 0.01 $ 0.10 $ 0.10
========== ========== ==========
SHARES USED IN PER SHARE CALCULATION:
Basic..................................................... 16,800 16,810 20,070
========== ========== ==========
Diluted................................................... 21,078 21,230 21,372
========== ========== ==========
PRO FORMA DATA (UNAUDITED) (NOTES 2 AND 5):
Income before income taxes, as reported................... $ 2,368
Pro forma income tax provision............................ (2,678)
Share in loss of affiliated company....................... (100)
----------
Pro forma net loss........................................ $ (410)
==========
Pro forma net loss per share, basic and diluted............. $ (0.02)
==========
Shares used in pro forma net loss per share, basic and
diluted................................................... 20,363
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE EARNINGS STOCKHOLDERS'
-------------------- PAID-IN STOCK-BASED FROM (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS DEFICIT) (DEFICIT)
-------- --------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997....... 16,800 $ -- $ 1 $ -- $ -- $ 477 $ 478
Deferred compensation related
to stock options granted..... -- -- 61 (61) -- -- --
Amortization of deferred stock-
based compensation........... -- -- -- 34 -- -- 34
Distributions to
stockholders................. -- -- -- -- -- (463) (463)
Net income..................... -- -- -- -- -- 301 301
------ --------- ------- -------- ----- ------- -------
BALANCE AT DECEMBER 31, 1997..... 16,800 -- 62 (27) -- 315 350
Exercise of common stock
options...................... 38 -- 2 -- -- -- 2
Deferred compensation related
to stock options granted..... -- -- 168 (168) -- -- --
Amortization of deferred stock-
based compensation........... -- -- -- 99 -- -- 99
Distributions to
stockholders................. -- -- -- -- -- (2,695) (2,695)
Net income..................... -- -- -- -- -- 2,028 2,028
------ --------- ------- -------- ----- ------- -------
BALANCE AT DECEMBER 31, 1998..... 16,838 -- 232 (96) -- (352) (216)
Exercise of common stock
options...................... 4,337 -- 217 -- (216) -- 1
Payment on notes receivable
from
stockholders for purchase of
common stock................. -- -- -- -- 216 -- 216
Deferred compensation related
to stock options granted..... -- -- 14,214 (14,214) -- -- --
Amortization of deferred stock-
based compensation........... -- -- -- 4,261 -- -- 4,261
Distributions to
stockholders................. -- -- -- -- -- (5,700) (5,700)
Net income..................... -- -- -- -- -- 2,186 2,186
------ --------- ------- -------- ----- ------- -------
BALANCE AT DECEMBER 31, 1999..... 21,175 $ -- $14,663 $(10,049) $ -- $(3,866) $ 748
====== ========= ======= ======== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 301 $ 2,028 $ 2,186
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 128 178 252
Provision for doubtful accounts....................... 48 30 39
Amortization of deferred stock-based compensation..... 34 99 4,261
Share in loss (profit) of affiliated company.......... -- (8) 100
Loss on disposal of property and equipment............ 4 12 14
Changes in assets and liabilities:
Trade accounts receivable........................... (759) (669) (1,719)
Prepaid and other current assets.................... (130) (342) 170
Accounts payable and accrued liabilities............ 133 58 506
Deferred revenue.................................... 431 1,857 1,389
Other long-term assets.............................. 2 -- (42)
------- ------- -------
Net cash provided by operating activities....... 192 3,243 7,156
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (176) (297) (882)
Investment in affiliated company.......................... -- (8) --
------- ------- -------
Net cash used in investing activities........... (176) (305) (882)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft............................................ 232 (232) --
Distributions to stockholders............................. (463) (2,695) (4,700)
Proceeds from exercise of stock options................... -- 2 1
Payments on notes receivable from stockholders............ -- -- 216
------- ------- -------
Net cash used in financing activities........... (231) (2,925) (4,483)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (215) 13 1,791
Cash and cash equivalents at beginning of year.............. 215 -- 13
------- ------- -------
Cash and cash equivalents at end of year.................... $ -- $ 13 $ 1,804
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes................................ $ 3 $ -- $ 56
======= ======= =======
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred stock-based compensation......................... $ 61 $ 168 $14,214
======= ======= =======
Notes payable (distribution) to stockholders.............. $ -- $ -- $ 1,000
======= ======= =======
Exercise of common stock options for notes receivable..... $ -- $ -- $ 216
======= ======= =======
</TABLE>
The accompanying notes are in integral part of these financial statements.
F-6
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY:
Embarcadero Technologies, Inc. (the "Company") was incorporated in
California on July 23, 1993 and reincorporated in Delaware on February 15, 2000.
The Company provides software products that enable organizations to build and
manage e-business applications and their underlying databases.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 reported amounts of revenues and expenses during the reporting
period. These estimates include levels of allowances for accounts receivable,
valuation of deferred tax assets and value of the Company's capital stock.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, trade accounts receivable, accounts payable
and accrued liabilities and notes payable to stockholders approximate fair value
due to their short maturities.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash and cash equivalents with high credit quality
financial institutions. The Company has not experienced any losses on its
deposits of cash and cash equivalents. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company records an allowance for doubtful
accounts receivable for credit losses at the end of each period based on
analysis of individual aged accounts receivable balances. As a result of this
analysis, the Company believes that its allowance for doubtful accounts is
adequate at December 31, 1998 and 1999. There was no single customer that
accounted for more than 10% of the total revenues in all periods presented.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. Leasehold improvements are amortized on a
straight line basis over the lesser of their estimated useful life or the lease
term. Gains and losses from the disposal of property and equipment are taken
into income in the year of disposition. Repairs and maintenance costs are
expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for
F-7
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows applicable to such assets.
REVENUE RECOGNITION
Total revenues consist of revenues earned under software license agreements
and maintenance agreements. The Company adopted the provisions of Statement of
Position 97-2, or SOP 97-2, effective January 1, 1998. SOP 97-2 supersedes
Statement of Position 91-1, "Software Revenue Recognition" and delineates the
accounting for software product and maintenance revenues. Under SOP 97-2,
revenues from software license agreements are recognized upon shipment, provided
that a signed contract exists, the fee is fixed and determinable and collection
of the resulting receivable is probable.
For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance and other services), revenues are allocated to each
component of the contract based on objective evidence of its fair value, which
is specific to the Company. The Company recognizes revenues allocated when the
criteria for product revenue set forth above are met. The Company recognizes
revenues from maintenance fees, including amounts allocated from product
revenues for ongoing customer support and product updates ratably over the
period of the maintenance contract. Payments for maintenance fees are generally
made in advance and are non-refundable.
Prior to the adoption of SOP 97-2, effective January 1, 1998, the Company
recognized revenues from the sale of products upon shipment if remaining
obligations were insignificant and collection of the resulting accounts
receivable was probable. Provisions for the estimated obligations were accrued
upon shipment. Revenues from software maintenance contracts, including amounts
unbundled from product sales, were deferred and recognized ratably over the
period of the contract.
COST OF REVENUES
Cost of license revenues includes costs associated with the delivery of
software products and royalties for third party embedded software. Cost of
maintenance revenues include salaries and related expenses for the service
organization.
STOCK-BASED COMPENSATION
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for employee stock options under Accounting Principles Board
Opinion ("APB") No. 25 and follows the disclosure-only provisions of SFAS 123.
Under APB No. 25, compensation expense is based on the difference, if any, on
the date of the grant, between the estimated fair value of the Company's shares
and the exercise price of options to purchase that stock.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs are included in research and development and are
expensed as incurred. Under Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" some software development costs are capitalized after
technological feasibility is established. The capitalized cost is then amortized
on a straight-line basis over the estimated product life, or on the ratio of
current revenues to total
F-8
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
projected product revenues, whichever is greater. To date, the period between
technological feasibility, which generally has been defined as the establishment
of a working model, typically occurs when the beta testing commences, and the
general availability of such software has been short and software development
costs qualifying for capitalization have been insignificant. Accordingly, the
Company has not capitalized any software development costs.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of 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, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company did not have any
significant components that are required to be reported in comprehensive income
other than its net income.
INCOME TAXES
The Company elected to be taxed under the S corporation provisions of the
Internal Revenue Code. Historically, the stockholders of the Company were
allocated their pro rata share of the Company's income in their individual
returns. Due to its S corporation status, the Company was only subject to
California corporate state income taxes. In February 2000, the Company converted
from an S corporation to a C corporation, effective as of January 1, 2000,
accordingly, the Company will now be subject to regular federal and state income
taxes.
PRO FORMA BALANCE SHEET INFORMATION (UNAUDITED)
The pro forma balance sheet gives effect to the termination of the Company's
S corporation tax status as if such termination had occured on December 31,
1999.
Upon termination of its S corporation status, the Company was required to
recognize deferred income taxes for cumulative temporary differences between
income for financial and tax reporting purposes. Had the Company been a
C corporation at December 31, 1999, the cumulative deferred income tax
liability, net, calculated in accordance with SFAS No. 109, "Accounting for
Income Taxes," would have approximated $274,000 (see also Note 5).
Upon termination of S corporation status, the accumulated deficit is
required to be reclassified to additional paid in capital; the pro forma balance
sheet reflects such reclassification.
HISTORICAL NET INCOME PER SHARE
The Company computes historical net income per share in accordance with SFAS
No. 128, Earnings per Share. Basic earnings per share is computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities by including stock options in the weighted
average number of common shares outstanding for a period, if dilutive.
F-9
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
A reconciliation of the numerator and denominator used in the calculation of
historical basic and diluted net income per share follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Historical net income per share, basic and diluted:
Numerator for net income, basic and diluted............. $ 301 $ 2,028 $ 2,186
------- ------- -------
Denominator for basic earnings per share:
Weighted average vested common shares outstanding... 16,800 16,810 20,070
------- ------- -------
Net income per share basic.............................. $ 0.02 $ 0.12 $ 0.11
======= ======= =======
Denominator for diluted earnings per share:
Weighted average vested common shares outstanding... 16,800 16,810 20,070
Effect of dilutive securities-
Common stock options............................ 4,278 4,420 1,302
------- ------- -------
Weighted average common and common equivalent
shares............................................ 21,078 21,230 21,372
------- ------- -------
Net income per share diluted............................ $ 0.01 $ 0.10 $ 0.10
======= ======= =======
Anti dilutive securities not included in net income per
share calculation-common stock options.................. -- -- 2,039
======= ======= =======
</TABLE>
PRO FORMA NET LOSS AND NET LOSS PER SHARE (UNAUDITED)
The pro forma net loss gives effect to the tax provision that would have
been required by the termination of the Company's S corporation tax status had
such termination occurred on January 1, 1999.
The Company computes pro forma net income per share in accordance with SFAS
No. 128, Earnings Per Share, as if the Company had converted from an
S corporation to a C corporation in 1999. In accordance with SEC administrative
policies, the weighted average number of common shares outstanding used in the
pro forma per share calculation also includes the number of common shares which,
based on the initial public offering estimated price, are equivalent to the
excess of 1999 distributions to stockholders over 1999 net income.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and will be adopted
in the year 2001. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The Company does not expect the adoption of this standard to have a
material impact on its results of operations, financial positions or cash flows.
In December 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-9, modification of SOP 97-2, "Software Revenue
Recognition with Respect to Certain Transactions." SOP 98-9 will be effective
for transactions that are entered into in fiscal years beginning after
F-10
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
March 15, 1999. Retroactive application is prohibited. The Company does not
expect the adoption of this standard to have a material impact on its results of
operations, financial position or cash flows.
NOTE 3--BALANCE SHEET ACCOUNTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software........................... $ 582 $ 976
Furniture and fixtures.................................... 35 205
Leasehold improvements.................................... 7 159
----- -----
624 1,340
Less: Accumulated depreciation and amortization........... (282) (382)
----- -----
$ 342 $ 958
===== =====
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Payroll and related expenses.............................. $ 51 $ 305
Sales tax payable......................................... 36 132
Accrued state income tax.................................. 45 82
Other..................................................... 84 287
----- -----
$ 216 $ 806
===== =====
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS
In September 1998 the Company invested $8,000 in a foreign entity,
Embarcadero Europe Limited ("EEL"), resulting in an approximate 44% ownership
interest in EEL. The investment is accounted for under the equity method. The
Company has an option to acquire the remaining 56% ownership interest in EEL. At
December 31, 1999, if the Company exercised its option, the cost would be
approximately $3 million. The option expires in October 2001. In 1998 and 1999,
the Company had software product and maintenance revenue from EEL totaling
$18,000 and $1,870,000 and reimbursed EEL for marketing and administrative
expenses of $156,000 and $714,000. At December 31, 1998 and 1999, the Company
had a net intercompany trade account receivable balance from EEL of $305,000 and
$696,000, respectively.
The Company leases office space controlled by an individual who became a
stockholder and employee of the Company in 1999. Total payments for rent were
$51,000 during the year ended December 31, 1999.
F-11
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PRO FORMA INCOME TAXES (UNAUDITED)
The pro forma provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
CURRENT:
U.S. federal.............................................. $2,123
State and local........................................... 560
------
Total current income taxes.............................. 2,683
------
DEFERRED:
U.S. federal.............................................. (37)
Other..................................................... 32
------
Total deferred income taxes............................. (5)
------
Net income taxes............................................ $2,678
======
</TABLE>
The reconciliation between the effective pro forma income tax rate and the
U.S. federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-------------
<S> <C>
U.S. federal taxes at statutory rate........................ $ 900
Permanent difference--non-deductible expenses............... 1,384
State taxes, net of federal tax benefit..................... 394
------
Pro forma tax provision................................... $2,678
======
</TABLE>
Pro forma deferred tax assets and liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
<S> <C>
DEFERRED TAX ASSETS:
Accruals and allowances................................... $ 244
-----
Total deferred tax assets............................... 244
-----
DEFERRED TAX LIABILITIES:
Depreciation.............................................. $ (45)
Cash to accrual basis..................................... (473)
-----
Total deferred tax liabilities.......................... (518)
-----
Net deferred tax liability.................................. $(274)
=====
</TABLE>
F-12
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS
ROYALTY OBLIGATIONS
In December 1998, the Company entered into an agreement to license and
integrate certain third party software into the Company's products, under which
the Company is obligated to pay royalties on proceeds from sales of such
products. The initial term of the agreement is two years. The agreement is
automatically extended for additional one-year terms thereafter, unless either
party gives at least two months' advance notice of termination. In 1999, the
Company paid royalty fees of $101,000 under this agreement.
REIMBURSEMENT OF EXPENSES
In connection with the Company's investment in EEL (see Note 4), the Company
was obligated to reimburse EEL for marketing and distribution expenses of
$43,000 a month. Effective September 1999, the Company agreed to amend the
agreement to reimburse expenses at a rate of 25% of EEL's gross revenues.
LEASES
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through 2004. Rent expense for the year
ended December 31, 1997, 1998 and 1999 was $86,000, $118,000 and $308,000. The
terms of the facility lease provide for rental payments on a graduated scale.
The Company recognizes rent expense on a straight-line basis over the lease
period, and has accrued for rent expense incurred but not paid.
Future minimum lease payments under noncancelable operating leases,
including lease commitments entered into subsequent to December 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OPERATING
DECEMBER 31, LEASES
- ------------ ---------
<S> <C>
2000........................................................ $ 621
2001........................................................ 618
2002........................................................ 613
2003........................................................ 469
2004........................................................ 170
------
Total minimum lease payments............................ $2,491
======
</TABLE>
F-13
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--STOCK OPTION PLANS
In November 1993, the Company adopted the 1993 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. At December 31, 1999, the Company
had reserved 12,000,000 shares of Common Stock for issuance under the Plan. In
February 2000, the Company amended and restated the Plan to reserve 11,300,000
shares of Common Stock for issuance.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 100% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that the
exercise price of an ISO and NSO granted to a 10% stockholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant.
Options are exercisable at such times and under such conditions as determined by
the Board of Directors.
Activity under the Plan is set forth as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
NUMBER OF OPTIONS AVERAGE
OF SHARES ISSUED AND EXERCISE AGGREGATE
AVAILABLE OUTSTANDING PRICE PRICE
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balances, January 1, 1997........................ 7,500,000 4,500,000 $0.05 $ 225,000
Options granted.................................. (84,400) 84,400 0.05 4,220
Options cancelled................................ 40,000 (40,000) 0.05 (2,000)
---------- ---------- ----------
Balances, December 31, 1997...................... 7,455,600 4,544,400 0.05 227,220
Options granted.................................. (176,600) 176,600 0.05 8,830
Options exercised................................ -- (38,344) 0.05 (1,917)
Options cancelled................................ 96,056 (96,056) 0.05 (4,803)
---------- ---------- ----------
Balances, December 31, 1998...................... 7,375,056 4,586,600 0.05 229,330
Options granted.................................. (2,599,400) 2,599,400 0.85 2,209,490
Options exercised................................ -- (4,337,220) 0.05 (216,861)
Options cancelled................................ 169,980 (169,980) 0.23 (39,095)
---------- ---------- ----------
Balances, December 31, 1999...................... 4,945,636 2,678,800 0.81 $2,182,864
========== ========== ==========
</TABLE>
For financial reporting purposes, the Company has determined that the
estimated value of common stock determined in anticipation of the Company's
initial public offering (see Note 10) was in excess of the exercise price, which
was deemed to be the fair market value as of the dates of grant. In connection
with the grants of such options, the Company recognized deferred compensation of
approximately $61,000 in 1997, $168,000 in 1998 and $14,214,000 in 1999.
Deferred stock-based compensation will be amortized over the vesting periods
utilizing the multiple option method; approximately $34,000 was expensed in the
year ended December 31, 1997, $99,000 in 1998 and $4,261,000 in 1999. Future
amortization based on options granted through December 31, 1999 is
F-14
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--STOCK OPTION PLANS (CONTINUED)
expected to be $5,830,000, $2,762,000, $1,202,000 and $255,000 in the years
2000, 2001, 2002 and 2003, respectively.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31, 1999 OPTIONS EXERCISABLE AT
------------------------------------------- DECEMBER 31, 1999
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ----------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.05.................. 344,400 8.04 $0.05 328,190 $0.05
0.25.................. 1,774,400 9.52 0.25 800,904 0.25
0.50.................. 120,000 9.82 0.50 69,278 0.50
2.50-5.00............. 440,000 9.80 3.75 22,308 3.75
--------- ---- ----- --------- -----
2,678,800 9.39 0.81 1,220,680 0.27
========= =========
</TABLE>
FAIR VALUE DISCLOSURES
The Company has adopted the disclosure-only provisions of Statement of
Financing Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Had compensation cost for the Company's stock-based compensation
plan been determined based on the fair value at the grant dates for the awards
under a method prescribed by SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported........................................ $ 301 $2,028 $2,186
Pro forma.......................................... 300 2,027 2,088
Basic net income per share:
As reported........................................ 0.02 0.12 0.11
Pro forma.......................................... 0.02 0.12 0.10
Diluted net income per share:
As reported........................................ 0.01 0.10 0.10
Pro forma.......................................... 0.01 0.10 0.10
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rate.......................... 6.13% 5.42% 5.00%
Expected life.................................... 3 years 3 years 3.5 years
Expected dividends............................... $ -- $ -- $ --
</TABLE>
The weighted average per share fair value of common stock options granted
during 1997, 1998 and 1999 was $0.94, $1.85 and $6.75.
F-15
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) defined contribution plan covering all
employees. Under the plan, employees are permitted to contribute a portion of
gross compensation not to exceed standard limitations provided by the Internal
Revenue Service. The Company has not made any contributions under this plan
since inception.
NOTE 9--SEGMENT REPORTING
The Company operates in one industry segment. The Company's geographic sales
data based on customer destination is defined by region: North America, United
Kingdom (U.K.) and Other. Sales in the U.K. are transacted by the Company's
affiliated distributor, Embarcadero Europe Ltd. The affiliated distributor as
well as other distributors handle regions outside the U.K. and North America.
Revenue by geographic region was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
North America............................................... $4,330 $8,895 $16,800
U.K......................................................... 160 160 2,308
Other....................................................... 96 64 77
------ ------ -------
$4,586 $9,119 $19,185
====== ====== =======
</TABLE>
NOTE 10--SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
In January 2000, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock.
REINCORPORATION
In February 2000, the Company reincorporated in Delaware. At the time of its
reincorporation, the Company increased the number of its authorized common stock
to 60,000,000 shares, authorized 5,000,000 shares of preferred stock and
effected a two-for-one stock split of its outstanding common stock. All share
and per share information included in these financial statements have been
retroactively adjusted to reflect the stock split.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
In February 2000, the Company's Board of Directors and stockholders adopted
the 2000 Nonemployee Directors Stock Option Plan under which nonemployee
directors will automatically be granted options to purchase shares of common
stock on their election and on each annual stockholders' meeting, beginning with
the annual stockholders meeting in 2001.
F-16
<PAGE>
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--SUBSEQUENT EVENTS (CONTINUED)
A total of 200,000 shares of common stock have been authorized for issuance
under the 2000 Nonemployee Directors Stock Option Plan.
1993 STOCK OPTION PLAN
In February 2000, the Company's Board of Directors and stockholders approved
the amendment and restatement of the 1993 Stock Option Plan. A total of
11,300,000 shares of common stock have been authorized for issuance under the
1993 Stock Option Plan as amended.
SERIES A CONVERTIBLE PREFERRED STOCK
In February 2000, the Company sold 253,893 shares of Series A convertible
preferred stock for proceeds of approximately $1,828,030. The holders of
Series A convertible preferred stock have certain rights and preferences
including voting rights, dividends, liquidation and conversion. Shares of
Series A convertible preferred stock automatically convert into common shares
upon the closing of the initial public offering of the Company's common stock.
The conversion ratio of the series A convertible preferred stock as of
February 15, 2000 is 1:1. The Company will incur a non-cash charge (beneficial
conversion feature) against earnings attributable to common stockholders of
approximately $1.2 million in the quarter ending March 31, 2000.
F-17
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
, 2000
[LOGO]
SHARES OF COMMON STOCK
----------------------
P R O S P E C T U S
----------------------
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
WIT SOUNDVIEW
DLJDIRECT INC.
- ---------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Embarcadero
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by Embarcadero, other
than the underwriting discounts and commissions payable by Embarcadero in
connection with the sale of the common stock being registered. All amounts shown
are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
Registration fee............................................ $ 15,180
NASD filing fee............................................. 6,250
Nasdaq National Market...................................... 95,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 350,000
Director and officer liability insurance.................... 250,000
Transfer agent and registrar fees........................... 25,000
Miscellaneous expenses...................................... 73,570
Total....................................................... $1,270,000
==========
</TABLE>
ITEM 14 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. Our Certificate of Incorporation and Bylaws
provide that we will indemnify our directors, officers, and that we may
indemnify our employees and agents, to the full extent permitted by Delaware
General Corporation Law, including in circumstances in which indemnification is
otherwise discretionary under Delaware law. In addition, we intend to enter into
separate indemnification agreements with our directors and officers which would
require us, among other things, to indemnify them against certain liabilities
which may arise by reason of their status or service (other than liabilities
arising from willful misconduct of a culpable nature). The indemnification
provisions in our Certificate of Incorporation and Bylaws and the
indemnification agreement to be entered into between us and our directors and
officers may be sufficiently broad to permit indemnification of our officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act. We also intend to maintain director and officer
liability insurance, if available on reasonable terms, to insure our directors
and officers against the cost of defense, settlement or payment of a judgment
under certain circumstances. In addition, the underwriting agreement filed as
Exhibit 1.1 to this Registration Statement provides for indemnification by the
underwriters of the Company and our officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
ITEM 15 RECENT SALES OF UNREGISTERED SECURITIES.
In the past three years we have sold and issued the following securities:
1. In February 2000, we issued 253,893 shares of Series A preferred stock to
a total of nine investors for an aggregate purchase price of $1,828,030. The
issuance of these securities was exempt from registration under the Securities
Act pursuant to Rule 506 under Regulation D. Based on representations made to us
by the investors, the investors were all accredited investors within the meaning
of Rule 501 of Regulation D under the Securities Act and were able to bear the
financial risk
II-1
<PAGE>
of their investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
securities. We did not make any offer to sell the securities by means of any
general solicitation or general advertising within the meaning of Rule 502 of
Regulation D of the Securities Act.
2. During the past three years, we have issued an aggregate of 4,075,400
options to purchase shares of common stock to our employees and directors and
4,395,564 shares of common stock have been issued pursuant to the exercise of
options. The sales of the above securities were deemed to be exempt from
registration pursuant to either Section 4(2) of the Securities Act or Rule 701
promulgated under the Securities Act. The recipients of securities in each of
these transactions represented their intention to acquire the securities for
investment only and not with view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationship with us, to information about us.
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation, as
currently in effect
3.2 Form of Amended and Restated Certificate of Incorporation,
to be effective upon closing*
3.3 Bylaws, as currently in effect
3.4 Form of Amended and Restated Bylaws, to be effective upon
closing*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Heller Ehrman White & McAuliffe LLP*
10.1 Amended and Restated 1993 Stock Option Plan
10.2 2000 Nonemployee Directors Stock Option Plan
10.3 Form of Indemnification Agreement
10.4 Office Lease between Metropolitan Life Insurance Company and
Embarcadero Technologies, Inc. dated April 23, 1999, as
amended
10.5 Lease Agreement between NewCon Software, Inc. and
Embarcadero Technologies, Inc., dated as of August 1, 1999
10.6 Lease between Wallace J. Getz and Embarcadero Technologies,
Inc., dated as of December 6, 1999
10.7 Employment Offer Letter to Ellen Taylor dated September 23,
1999
10.8 Employment Offer Letter to Raj P. Sabhlok dated January 24,
2000
10.9 Employment Offer Letter to Walter F. Scott III dated
December 31, 1999
10.10 Separation Agreement and General Release with Stuart
Browning dated February 1, 2000
10.11 Series A Preferred Stock Purchase Agreement dated
February 17, 2000
16.1 Letter re: change in certifying accountant
23.1 Consent of PricewaterhouseCoopers LLP, independent auditors
23.2 Consent of Heller Ehrman White & McAuliffe LLP (included in
Exhibit 5.1)*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULE.
Schedule II-Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17 UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the 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 hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 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,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in San Francisco, California, on the
22nd day of February, 2000.
<TABLE>
<S> <C> <C>
EMBARCADERO TECHNOLOGIES, INC.
By: /s/ ELLEN W. TAYLOR
-----------------------------------------
Ellen W. Taylor
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Ellen Taylor and Raj P. Sabhlok, and each
of them acting individually, as his true and lawful attorneys-in-fact and
agents, each 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 or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ELLEN W. TAYLOR President and Chief Executive
------------------------------------ Officer (Principal Executive February 22, 2000
Ellen W. Taylor Officer)
/s/ RAJ P. SABHLOK
------------------------------------ Senior Vice President and Chief February 22, 2000
Raj P. Sabhlok Financial Officer
/s/ STEPHEN R. WONG
------------------------------------ Chairman of the Board February 22, 2000
Stephen R. Wong
/s/ FRANK J. POLESTRA
------------------------------------ Director February 22, 2000
Frank J. Polestra
/s/ DENNIS J. WONG
------------------------------------ Director February 22, 2000
Dennis J. Wong
</TABLE>
II-4
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EMBARCADERO TECHNOLOGIES, INC.
Embarcadero Technologies, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the
"CORPORATION") does hereby certify that:
1. The original Certificate of Incorporation was filed with the
Secretary of State of Delaware on February 11, 2000.
2. The Amended and Restated Certificate of Incorporation in the
form attached hereto as EXHIBIT A has been duly adopted in accordance with
the provisions of Sections 242, 245 and 228 of the General Corporation Law of
the State of Delaware by the directors and stockholders of the Corporation,
and prompt written notice was duly given pursuant to Section 228 to those
stockholders who did not approve the Amended and Restated Certificate of
Incorporation by written consent.
3. The Amended and Restated Certificate of Incorporation so
adopted reads in full as set forth in EXHIBIT A attached hereto and is hereby
incorporated herein by this reference.
IN WITNESS WHEREOF, Embarcadero Technologies, Inc. has caused this
Certificate to be signed by the President this 16th day of February, 1999.
EMBARCADERO TECHNOLOGIES, INC.
By: /s/ STEPHEN C. FERRUOLO
-----------------------------------
Stephen C. Ferruolo, Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EMBARCADERO TECHNOLOGIES, INC.
FIRST
The name of the Corporation is Embarcadero Technologies, Inc.
SECOND
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, Delaware
19901. The name of its registered agent at such address is National Corporate
Research, Ltd.
THIRD
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, as amended from time
to time.
FOURTH
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 65,000,000 shares, comprised of
60,000,000 shares of Common Stock with a par value of $0.001 per share (the
"COMMON STOCK") and 5,000,000 shares of Preferred Stock with a par value of
$0.001 per share (the "PREFERRED STOCK").
The Preferred Stock shall be divided into series. Two Hundred
Fifty-Three Thousand Eight Hundred Ninety-Three (253,893) of the shares of
Preferred Stock are designated "Series A Preferred Stock" (the "SERIES A
PREFERRED"). The remaining shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of the Corporation (the
"BOARD OF DIRECTORS") is expressly authorized to provide for the issue of all or
any of the remaining shares of the Preferred Stock in one or more series, and to
fix the number of shares and to determine or alter for each such series, such
voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares and as may be permitted by the General
Corporation Law of the State of Delaware. The Board of Directors is also
expressly authorized to increase or decrease (but not below the number of shares
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of such Series then outstanding) the number of shares of any Series other than
the Series A Preferred subsequent to the issue of shares of that series. In case
the number of shares of any such Series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
FIFTH
The relative rights, preferences, privileges, and restrictions granted
to or imposed upon the respective classes of the shares or the holders thereof
are as set forth below.
1. DIVIDEND PREFERENCE.
The holders of Series A Preferred shall be entitled to
receive, out of funds legally available therefor, dividends at an annual rate
equal to $0.58 (as adjusted for combinations, consolidations, subdivisions, or
stock splits with respect to such shares) for each outstanding share of Series A
Preferred held by them, payable when and if declared by the Board of Directors,
in preference and priority to the payment of dividends on any shares of Common
Stock (other than those payable solely in Common Stock or involving the
repurchase of shares of Common Stock from terminated employees, officers,
directors, or consultants pursuant to contractual arrangements). In the event
dividends are paid to the holders of Series A Preferred that are less than the
full amounts to which such holders are entitled pursuant to this Section 1, such
holders shall share ratably in the total amount of dividends paid according to
the respective amounts due each such holder if such dividends were paid in full.
After payment of dividends to the holders of Series A Preferred, dividends may
be declared and distributed among all holders of Common Stock; provided,
however, that no dividend may be declared and distributed among holders of
Common Stock at a rate greater than the rate at which dividends are paid to the
holders of Series A Preferred based on the number of shares of Common Stock into
which such shares of Series A Preferred are convertible (as adjusted for stock
splits and the like) on the date such dividend is declared. The dividends
payable to the holders of Series A Preferred shall not be cumulative, and no
right shall accrue to the holders of Series A Preferred by reason of the fact
that dividends on the Series A Preferred are not declared or paid in any
previous fiscal year of the Corporation, whether or not the earnings of the
Corporation in that previous fiscal year were sufficient to pay such dividends
in whole or in part. In the event that the Corporation shall have declared but
unpaid dividends outstanding immediately prior to, and in the event of, a
conversion of Series A Preferred (as provided in Section 4 hereof), the
Corporation shall, at the option of the Corporation, pay in cash to the
holder(s) of Series A Preferred subject to conversion the full amount of any
such dividends or allow such dividends to be converted into Common Stock in
accordance with, and pursuant to the terms specified in, Section 4 hereof.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution, or
winding up of the Corporation, whether voluntary or not, or the sale, lease,
assignment, transfer, conveyance or disposal of all or substantially all of the
assets of the Corporation, or the acquisition of this
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Corporation by another entity by means of consolidation, corporate
reorganizations or merger, or other transaction or Series of related
transactions in which more than 50% of the outstanding voting power of this
Corporation is disposed of (each a "LIQUIDATION EVENT"), distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) Each holder of Series A Preferred shall be entitled
to receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock, by reason
of their ownership of such stock, the amount of $7.20 (the "ORIGINAL SERIES A
ISSUE PRICE") per share (as adjusted for combinations, consolidations,
subdivisions, or stock splits with respect to such shares) for each share of
Series A Preferred then held by such holder, plus an amount equal to all
declared but unpaid dividends on such shares of Series A Preferred
(collectively, the "SERIES A PREFERENCE"). If, upon the occurrence of a
Liquidation Event, the assets and funds available to be distributed among the
holders of the Series A Preferred shall be insufficient to permit the payment to
such holders of the full Series A Preference, then the entire assets and funds
of the Corporation legally available for distribution to such holders shall be
distributed ratably based on the total preferential amount due each such holder
under this Section 2(a).
(ii) After payment has been made to the holders of Series
A Preferred of the full amounts to which they are entitled pursuant to paragraph
(i) above, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed ratably among the holders of Common Stock.
(b) Each holder of Series A Preferred shall be deemed to have
consented to distributions made by the Corporation in connection with the
repurchase of shares of Common Stock issued to or held by officers, directors,
or employees of, or consultants to, the Corporation or its subsidiaries upon
termination of their employment or services pursuant to agreements (whether now
existing or hereafter entered into) providing for the right of said repurchase
between the Corporation and such persons.
(c) The value of securities and property paid or distributed
pursuant to this Section 2 shall be computed at fair market value at the time of
payment to the Corporation or at the time made available to stockholders, all as
determined by the Board of Directors in the good faith exercise of its
reasonable business judgment, provided that (i) if such securities are listed on
any established stock exchange or a national market system, their fair market
value shall be the closing sales price for such securities as quoted on such
system or exchange (or the largest such exchange) for the date the value is to
be determined (or if there are no sales for such date, then for the last
preceding business day on which there were sales), as reported in the Wall
Street Journal or similar publication, and (ii) if such securities are regularly
quoted by a recognized securities dealer but selling prices are not reported,
their fair market value shall be the mean between the high bid and low asked
prices for such securities on the date the value is to be determined (or if
there are no quoted prices for such date, then for the last preceding business
day on which there were quoted prices).
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(d) Nothing hereinabove set forth shall affect in any way the
right of each holder of Series A Preferred to convert such shares at any time
and from time to time into Common Stock in accordance with Section 4 hereof.
3. VOTING RIGHTS.
Except as otherwise required by law or hereunder, the holder of each
share of Common Stock issued and outstanding shall have one vote and the holder
of each share of Series A Preferred shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Series A
Preferred could be converted at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of Series A Preferred
shall not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Series A Preferred held by each
holder could be converted) be rounded to the nearest whole number (with one-half
being rounded upward). Holders of Common Stock and Series A Preferred shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation.
4. CONVERSION RIGHTS.
The holders of Series A Preferred shall have conversion rights
as follows:
(a) RIGHT TO CONVERT. Each share of Series A Preferred
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for such Series A Preferred, into such number of fully-paid and
non-assessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price by the then applicable Conversion Price for such Series A
Preferred, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be deliverable upon
conversion of the Series A Preferred (the "SERIES A CONVERSION PRICE") shall
initially be the Original Series A Issue Price. The initial Series A Conversion
Price shall be subject to adjustment as provided in accordance with Section 4(d)
of this Article FIFTH.
(b) AUTOMATIC CONVERSION. Each share of Series A
Preferred shall automatically be converted into shares of Common Stock at the
then effective applicable Conversion Price upon the earlier of: (i) the closing
of a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the Corporation to the
public with aggregate proceeds to the Corporation in excess of $10,000,000
(before deduction for underwriters commissions and expenses) and a per share
price not less than $5.00 per share (appropriately adjusted for any stock
combination, stock split, stock dividend, recapitalization, or other similar
transaction) and (ii) the affirmative vote or written consent of the holders of
at least 50% of the outstanding shares of Series A Preferred (each such event is
an "AUTOMATIC CONVERSION"). In the event of an Automatic Conversion of the
Series A Preferred upon a public
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offering as aforesaid, the person(s) entitled to receive the Common Stock
issuable upon such conversion of such Series A Preferred shall not be deemed to
have converted such Series A Preferred until immediately prior to the closing of
such sale of securities.
(c) MECHANICS OF CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of the Series A Preferred. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price. Before any holder of Series A Preferred
shall be entitled to convert the same into full shares of Common Stock and to
receive certificates therefor, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred, and shall give written notice to the
Corporation at such office that he or she elects to convert the same; provided,
however, that in the event of an Automatic Conversion pursuant to Section 4(b),
the outstanding shares of Series A Preferred shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent, and provided further that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
Automatic Conversion unless the certificates evidencing such shares of Series A
Preferred are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen, or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series A Preferred, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid and a check payable to the holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred to
be converted, or in the case of Automatic Conversion, on the date of closing of
the offering or the date of the affirmative vote or written consent of greater
than 50% of the then outstanding shares of Series A Preferred, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) ADJUSTMENTS TO CONVERSION PRICE.
(i) ADJUSTMENTS FOR DIVIDENDS, SPLITS, SUBDIVISIONS,
COMBINATIONS, OR CONSOLIDATION OF COMMON STOCK. In the event the outstanding
shares of Common Stock shall be increased by stock dividend payable in Common
Stock, stock split, subdivision, or other similar transaction occurring after
the filing of this Amended and Restated Certificate of Incorporation into a
greater number of shares of Common Stock, the Series A Conversion Price then in
effect shall, concurrently with the effectiveness of such event, be decreased in
proportion to the percentage increase in the outstanding number of shares of
Common Stock. In the event the outstanding shares of Common Stock shall be
decreased by reverse stock split, combination,
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consolidation, or other similar transaction occurring after the filing of this
Amended and Restated Certificate of Incorporation into a lesser number of shares
of Common Stock, the Series A Conversion Price then in effect shall,
concurrently with the effectiveness of such event, be increased in proportion to
the percentage decrease in the outstanding number of shares of Common Stock.
(ii) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 4, then and in
each such event provision shall be made so that the holders of Series A
Preferred shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Series A Preferred been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of Series A Preferred.
(iii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Common Stock issuable upon conversion of the Series A
Preferred shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for above), the Series A Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Series A Preferred shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of such Series A Preferred immediately before that change.
(iv) ADJUSTMENTS ON ISSUANCE OF ADDITIONAL STOCK. If the
Corporation shall issue "Additional Stock" (as defined below) for a
consideration per share less than the Series A Conversion Price in effect on the
date and immediately prior to such issue, then and in such event, the Series A
Conversion Price shall be reduced concurrently with such issue to a price
(calculated to three decimal places) determined by multiplying such Series A
Conversion Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Stock so issued (or deemed to
be issued) would purchase at such Conversion Price; and (ii) the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Additional Stock so issued;
provided that for purposes of this Section 4(d)(iv), all shares of Common Stock
issuable upon conversion of the outstanding Series A Preferred, all shares of
Common Stock issuable upon exercise of outstanding stock options, all shares of
Common Stock reserved for issuance under the
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Corporation's current employee stock option plan, and all shares of Common Stock
issuable upon exercise or conversion of any other outstanding security or debt
instrument of the Corporation shall be deemed to be Common Stock outstanding.
For purposes of this subsection (iv) "ADDITIONAL STOCK" shall mean all Common
Stock issued by the Corporation after the date on which the first share of
Series A Preferred was issued (the "ORIGINAL ISSUE DATE") other than Common
Stock issued or issuable at any time (a) to equipment lessors, banks or other
institutions providing borrowing facilities to the Corporation which are
primarily for other than equity financing purposes of the Corporation and which
are approved in each case by the affirmative vote of at least a majority of the
total number of then-authorized Directors, (b) pursuant to options to purchase,
or stock sales or stock bonus issuances directly, including issuances of Common
under options or outright, and including options or stock to Directors, issued
or granted after the Original Issue Date under employee and consultant stock
option and stock purchase plans of the Corporation, and under other written
agreements for employees of or consultants to the Corporation, (c) the issuance
of securities upon conversion of any Preferred Stock, (d) the issuance of
securities by the Corporation pursuant to a stock split or dividend, (e) the
issuance of securities by the Corporation in a public offering, and (f) pursuant
to a merger or acquisition by the Corporation that is approved by the Board.
For the purpose of making any adjustment in the Series A
Conversion Price as provided above, the consideration received by the
Corporation for any issue or sale of Common Stock will be computed:
(1) to the extent it consists of cash, as the amount of
cash received by the Corporation before deduction of any offering expenses
payable by the Corporation and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Corporation in connection
with such issue or sale;
(2) to the extent it consists of property other than
cash, at the fair market value of that property as determined in good faith by
the Corporation's Board of Directors; and
(3) if Common Stock is issued or sold together with other
stock or securities or other assets of the Corporation for a consideration which
covers both, as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Common Stock.
If the Corporation (1) grants any rights or options to
subscribe for, purchase, or otherwise acquire shares of Common Stock, or (2)
issues or sells any security convertible into shares of Common Stock, then, in
each case, the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities will be determined by
dividing the total amount, if any, received or receivable by the Corporation as
consideration for the granting of the rights or options or the issue or sale of
the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation on exercise or conversion of the
securities, by the maximum number of shares of Common Stock issuable on the
exercise of conversion. Such granting or issue or sale will be
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considered to be an issue or sale for cash of the maximum number of shares of
Common Stock issuable on exercise or conversion at the price per share
determined under this subsection, and the Series A Conversion Price will be
adjusted as above provided to reflect (on the basis of that determination) the
issue or sale. No further adjustment of the Series A Conversion Price will be
made as a result of the actual issuance of shares of Common Stock on the
exercise of any such rights or options or the conversion of any such convertible
securities.
Upon the redemption or repurchase of any such securities or
the expiration or termination of the right to convert into, exchange for, or
exercise with respect to, Common Stock, the Series A Conversion Price will be
readjusted to such price as would have been obtained had the adjustment made
upon their issuance been made upon the basis of the issuance of only the number
of such securities as were actually converted into, exchanged for, or exercised
with respect to, Common Stock. If the purchase price or conversion or exchange
rate provided for in any such security changes at any time, then, upon such
change becoming effective, the Series A Conversion Price then in effect will be
readjusted to such price as would have been obtained had the adjustment made
upon the issuance of such securities been made upon the basis of (1) the
issuance of only the number of shares of Common Stock theretofore actually
delivered upon the conversion, exchange or exercise of such securities, and the
total consideration received therefor, and (2) the granting or issuance, at the
time of such change, of any such securities then still outstanding for the
consideration, if any, received by the Corporation therefor and to be received
on the basis of such changed price or rate.
(e) NO IMPAIRMENT. Except as provided in Section 6, the
Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series A Preferred against
impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request of any
holder of Series A Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of the Series A Preferred.
(g) NOTICES OF RECORD DATE. In the event that this Corporation
shall propose at any time:
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(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock, or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) 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;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease, or convey all or substantially all its property or
business, or to liquidate, dissolve, or wind up; then, in connection with each
such event, this Corporation shall send to the holders of the Series A
Preferred:
(1) at least 20 days' prior written notice of
the date on which a record shall be taken for such dividend, distribution, or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least 20 days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event or the record date
for the determination of such holders if such record date is earlier).
Each such written notice shall be delivered
personally or given by first class mail, postage prepaid, addressed to the
holders of the Series A Preferred at the address for each such holder as shown
on the books of this Corporation.
(h) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes (other than income taxes) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of Series A
Preferred pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
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including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to its Certificate of
Incorporation.
(j) STATUS OF CONVERTED STOCK. In case any Series A Preferred
shall be converted pursuant to this Section 4, the shares so converted shall
resume the status of authorized but unissued shares of Preferred Stock
undesignated as to series.
5. REDEMPTION RIGHTS.
The Series A Preferred shall be nonredeemable.
6. COVENANTS.
In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of at least 50% of the outstanding shares of Preferred
Stock:
(a) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws if such action would
adversely change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred;
(b) authorize or issue shares of any class or Series of stock
having any preference or priority as to dividends or redemption rights,
liquidation preferences, conversion rights, or voting rights, superior to or on
a parity with any preference or priority of the Series A Preferred;
(c) authorize or issue any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this Corporation having any preference or
priority as to dividends or redemption rights, liquidation preferences,
conversion rights, or voting rights, superior to or on a parity with any
preference or priority of the Series A Preferred;
(d) reclassify any shares of capital stock of this Corporation
into shares having any preference or priority as to dividends or redemption
rights, liquidation preferences, conversion rights, or voting rights, superior
to or on a parity with any preference or priority of the Series A Preferred;
(e) redeem or repurchase any shares of any class or Series of
Common Stock, except from employees, advisors, officers, directors and
consultants of, and persons performing services for, this Corporation or its
subsidiaries on terms approved by the Board of Directors upon termination of
employment or association;
(f) effect a Liquidation Event (as defined in Section 2 above);
(g) declare or pay dividends on or make any distributions with
respect to the Corporation's Common Stock;
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(h) increase or decrease the authorized number of shares of
Preferred Stock or Series A Preferred; or
(i) authorize the issuance of any securities of any subsidiary of
the Corporation.
7. RESIDUAL RIGHTS.
All rights accruing to the outstanding shares of the Corporation not
expressly provided for to the contrary herein shall be vested in the Common
Stock. The Common Stock shall not be redeemable.
SIXTH
The Corporation is to have perpetual existence.
SEVENTH
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:
A. BOARD AUTHORITY. The board of directors of the Corporation is
expressly authorized:
(i) To make, alter or repeal the bylaws of the
Corporation.
(ii) To authorize and cause to be executed mortgages and
liens upon the real and personal property of the Corporation.
(iii) To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve in the manner in which it was created.
(iv) By a majority of the whole board, to designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member of
any committee. The bylaws may provide that in the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
or in the bylaws of the Corporation, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in
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reference to amending the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of the State of Delaware, fix any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other Series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation under Sections
251 or 252 of the General Corporation Law of the State of Delaware, recommending
to the stockholders the sale, lease or exchange, of all or substantially all of
the corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
bylaws of the Corporation; and, unless the resolution or bylaws expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware.
(v) When and as authorized by the stockholders in
accordance with statute, to sell, lease or exchange all or substantially all of
the property and assets of the Corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such consideration,
which may consist in whole or in part of money or property including shares of
stock in, and/or other securities of, any other corporation or corporations, as
its board of directors shall deem expedient and for the best interests of the
Corporation.
B. ELECTION OF DIRECTORS. The election of directors need not be
by written ballot unless the bylaws of the Corporation shall so provide.
C. CORPORATE RECORDS. The books of the Corporation may be kept at
such place within or without the State of Delaware as the bylaws of the
Corporation may provide or as may be designated from time to time by the board
of directors of the Corporation.
EIGHTH
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said
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compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
NINTH
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended hereafter
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
TENTH
A. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or Proceeding, whether civil, criminal, administrative or investigative
("PROCEEDING"), by reason of the fact that he or she is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended, (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment) against all
expenses, liability and loss including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the Corporation shall indemnify any such
person seeking indemnity in connection with an action, suit or Proceeding (or
part thereof) initiated by such person only if such action, suit or Proceeding
(or part thereof) was authorized by the board of directors of the Corporation.
Such right shall be a contract right and shall include the right to be paid by
the Corporation
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expenses incurred in defending any such Proceeding in advance of its final
disposition; provided, however, that the payment of such expenses incurred by a
director or officer of the Corporation in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of such
Proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this Section or otherwise.
B. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Paragraph A
of Article TENTH is not paid in full by the Corporation within 90 days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to this Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification consistent with this
Paragraph B of Article TENTH to any employees or agent of the Corporation.
C. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by Paragraphs A and B of Article TENTH shall not be exclusive of any other right
which such persons may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
D. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any such director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
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ELEVENTH
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
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Exhibit 3.3
BYLAWS
OF
EMBARCADERO TECHNOLOGIES, INC.
a Delaware corporation
ARTICLE I
STOCKHOLDERS
------------
1. ANNUAL MEETING. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within 13 months of the last
annual meeting of stockholders.
2. SPECIAL MEETINGS; NOTICE. Special meetings of the stockholders,
other than those required by statute, may be called at any time by the Board of
Directors pursuant to a resolution approved by a majority of the whole Board of
Directors or the Chairman of the Board of Directors. Notice of every special
meeting, stating the time, place and purpose, shall be given by mailing, postage
prepaid, at least 10 but not more than 60 days before each such meeting, a copy
of such notice addressed to each stockholder of the Corporation at his post
office address as recorded on the books of the Corporation. The Board of
Directors may postpone or reschedule any previously scheduled special meeting.
3. NOTICE OF MEETINGS. Written notice of the place, date, and time of
all meetings of the stockholders shall be given, not less than 10 nor more than
60 days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the place, date and
time thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than 30
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
4. QUORUM. At any meeting of the stockholders, the holders of a
majority of all of the shares of stock entitled to vote at the meeting, present
in person or by proxy, shall constitute a quorum for all purposes, unless or
except to the extent that the presence
<PAGE>
of a larger number may be required by law. Where a separate vote by a class or
classes or series is required, a majority of the shares of such class or classes
or series present in person or represented by proxy shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of
the meeting may adjourn the meeting to another place, date, or time.
5. ORGANIZATION. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board or, in
his or her absence, the President of the Corporation or, in his or her absence,
such person as may be chosen by the holders of a majority of the shares entitled
to vote who are present, in person or by proxy, shall call to order any meeting
of the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman of the meeting appoints.
6. CONDUCT OF BUSINESS. The chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seem to him or her in order. The chairman of the meeting shall have the power
to adjourn the meeting to another place, date and time. The date and time of the
opening and closing of the polls for each matter upon which the stockholders
will vote at the meeting shall be announced at the meeting.
7. PROXIES AND VOTING. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law filed in accordance
with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of directors but
excepting where otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefore by a stockholder entitled to vote or by his
or her proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy voting
and such other information as may be required under the procedure established
for the meeting.
The Corporation may, and to the extent required by law, shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and
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make a written report thereof. The Corporation may designate one or more persons
as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. Every vote taken by
ballots shall be counted by a duly appointed inspector or inspectors.
All elections shall be determined by a plurality of the votes
cast, and except as otherwise required by law, all other matters shall be
determined by the affirmative vote of a majority of the shares Present in person
or represented by proxy and entitled to vote on such matter.
8. STOCK LIST. A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each class of stock
and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE II
BOARD OF DIRECTORS
------------------
1. NUMBER, ELECTION AND TERM OF DIRECTORS. Subject to the rights of the
holders of any series of preferred stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies.
2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to applicable law
and to the rights of the holders of any series of preferred stock with respect
to such series of preferred stock, and unless the Board of Directors otherwise
determines, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement,
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disqualification, removal from office or other cause shall be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the entire Board of Directors shall shorten the term of any incumbent director.
3. REGULAR MEETINGS. Regular meetings of the Board of Directors shall
be held at such place or places, on such date or dates, and at such time or
times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the President or by two or more directors then in office and shall be
held at such place, on such date, and at such time as they or he or she shall
fix. Notice of the place, date, and time of each such special meeting shall be
given each director by whom it is not waived by mailing written notice not less
than five days before the meeting or by telephone or by telegraphing or telexing
or by facsimile transmission of the same not less than 24 hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
5. QUORUM. At any meeting of the Board of Directors, a majority of the
total number of the whole Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the
Board of Directors, or of any committee thereof, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
7. CONDUCT OF BUSINESS. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
8. POWERS. The Board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts and things as may be
exercised or done by
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the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(a) To declare dividends from time to time in accordance with
law;
(b) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(c) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(d) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(e) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(f) To adopt from time to time such stock option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(g) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(h) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and affairs.
9. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
certificate of incorporation, the Board of Directors shall have the authority to
fix the compensation of the directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or paid a
stated salary or paid other compensation as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE III
COMMITTEES
----------
1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
from time to time designate committees of the Board, with such lawfully
delegable powers and
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duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
2. CONDUCT OF BUSINESS. Committees shall consist of one or more
directors. Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; a majority of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by the affirmative vote of a majority of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE IV
OFFICERS
--------
1. GENERALLY. The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary, a Treasurer and such other
officers as may from time to time be appointed by the Board of Directors.
Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders. Each
officer shall hold office until his or her successor is elected and qualified or
until his or her earlier resignation or removal. Any number of offices may be
held by the same person. The salaries of officers elected by the Board of
Directors shall be fixed from time to time by the Board of Directors or by such
officers as may be designated by resolution of the Board.
2. PRESIDENT. The President shall be the Chief Executive Officer of the
Corporation. Subject to the provisions of these Bylaws and to the direction of
the Board of Directors, he or she shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive or which are delegated to him or her by the Board of
Directors. He or she shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are
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<PAGE>
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
3. VICE PRESIDENT. Each Vice President shall have such powers and
duties as may be delegated to him or her by the Board of Directors. One Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
4. TREASURER. The Treasurer shall have the responsibility for
maintaining the financial records of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Treasurer shall also perform such other duties
as the Board of Directors may from time to time prescribe.
5. SECRETARY. The Secretary shall issue all authorized notices for, and
shall keep minutes of, all meetings of the stockholders and the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
6. DELEGATION OF AUTHORITY. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
7. REMOVAL. Any officer of the Corporation may be removed at any time,
with or without cause, by the Board of Directors.
8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other Corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
-----
1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, certifying the number of shares owned by him or her.
Any or all of the signatures on the certificate may be by facsimile.
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2. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the
transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of Article V
of these Bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
3. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may, except as otherwise required by law, fix a record date, which
record date shall not precede the date on which the resolution fixing the record
date is adopted and which record date shall not be more than 60 nor less than 10
days before the date of any meeting of stockholders, nor more than 60 days prior
to the time for such other action as hereinbefore described; provided, however,
that if no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the loss,
theft or destruction of any certificate of stock, another may be issued in its
place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
5. REGULATIONS. The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
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ARTICLE VI
NOTICES
-------
1. NOTICES. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, recognized overnight delivery service or by
sending such notice by facsimile, receipt acknowledged, or by prepaid telegram
or mailgram. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram, shall be the time of the giving of the notice.
2. WAIVERS. A written waiver of any notice, signed by a stockholder,
director, officer, employee or agent, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or agent.
Neither the business nor the purpose of any meeting need be specified in such a
waiver. Attendance at any meeting shall constitute waiver of notice except
attendance for the sole purpose of objecting to the timeliness of notice.
ARTICLE VII
MISCELLANEOUS
-------------
1. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
2. CORPORATE SEAL. The Board of Directors may provide a suitable seal,
containing the name of the Corporation, which seal shall be in the charge of the
Secretary. If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
Board of Directors so designated, or by any other person as to matters which
such director or committee member reasonably believes
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are within such other person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Corporation.
4. FISCAL YEAR. The fiscal year of the Corporation shall be as fixed by
the Board of Directors.
5. TIME PERIODS. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 of this ARTICLE VIII with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation.
2. RIGHT TO ADVANCEMENT OF EXPENSES. The right to indemnification
conferred in Section 1 of this ARTICLE VIII shall include the right to be paid
by the Corporation the expenses (including attorney's fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of
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expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VIII
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
3. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 or 2
of this ARTICLE VIII is not paid in full by the Corporation within 60 days after
a written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be 20 days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified or to such advancement of expenses, under this
ARTICLE VIII or otherwise shall be on the Corporation.
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4. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this ARTICLE VIII shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise.
5. INSURANCE. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any officer, employee or agent of the Corporation to the fullest extent of the
provisions of this Article with respect to the indemnification and advancement
of expenses of directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred
by law, the Board of Directors is expressly authorized to make, alter, amend and
repeal these Bylaws subject to the power of the holders of capital stock of the
Corporation to alter, amend or repeal the Bylaws; provided, however, that, with
respect to the powers of holders of capital stock to make, alter, amend and
repeal Bylaws of the Corporation, notwithstanding any other provision of these
Bylaws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law, these
Bylaws or any preferred stock, the affirmative vote of the holders of at least
50% of the voting power of all of the then-outstanding shares entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to make, alter, amend or repeal any provision of these Bylaws.
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Exhibit 10.1
AMENDED AND RESTATED
EMBARCADERO TECHNOLOGIES, INC.
1993 STOCK OPTION PLAN
1. PURPOSE.
The purpose of the EMBARCADERO TECHNOLOGIES, INC. 1993 STOCK OPTION
PLAN (the "Plan") is to grant to selected employees, directors, and consultants
of EMBARCADERO TECHNOLOGIES, INC., a California corporation (the "Company"), a
favorable opportunity to acquire Common Stock of the Company, thereby
encouraging such persons to accept or continue a productive relationship with
the Company, and furnishing such persons with an incentive to improve operations
and increase profits of the Company. Capitalized terms not previously defined
herein are defined in Section 18 of this Plan.
2. OPTIONS AND SHARES.
2.1 NUMBER OF SHARES. Options granted under this Plan (the "Options")
are for the purchase of Common Stock of the Company (the "Shares"). Subject to
adjustment as provided in this Plan, the aggregate number of Shares that may be
issued pursuant to Options granted under this Plan is 11,300,000 Shares. If any
Option expires or is terminated without being exercised in whole or in part, the
unexercised or released Shares from such Option shall be available for future
grant and purchase under this Plan.
2.2 INDIVIDUAL LIMITATION. The company may not grant options covering
in the aggregate more than 600,000 Shares (subject to adjustment as provided in
this Plan) to any one participant in any one-year period.
2.3 RESERVATION OF SHARES. At all times during the term of this Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under this Plan.
3. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), or by a committee of the Board that is composed solely of two or
more Non-Employee Directors (in either case, the "Administrator"). As used in
this Plan, references to "Non-Employee Directors" shall have the meaning set
forth in Rule 16b-3 as promulgated by the Securities and Exchange Commission
under Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). The interpretation by the Administrator of any of the
provisions of this Plan or any Option granted under this Plan shall be final and
binding upon the Company and all persons having an interest in any option or any
Shares purchased pursuant to an Option.
<PAGE>
The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper. Subject to the provisions
of the Plan, the Administrator shall have the sole authority, in its discretion:
(a) to determine to which of the eligible individuals, and the
time or times at which, options to purchase Common Stock of
the Company shall be granted;
(b) to determine the number of shares of Common Stock to be
subject to options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common
Stock upon the exercise of each option;
(d) to determine the term and the exercise schedule of each
option;
(e) to determine the terms and conditions of each stock option
grant (which need not be identical) entered into between the
Company and any eligible individual to whom the Administrator
has granted an option, subject to Section 15 hereof;
(f) to interpret the Plan;
(g) to accelerate the exercise date or schedule with respect to
any option granted under the Plan or, with the consent of the
holder thereof, to modify or amend any such option;
(h) to make all determinations deemed necessary or advisable for
the administration of the Plan;
(i) to determine whether Optionee has ceased to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company
and the effective date on which such employment terminated;
and
(j) to determine whether an Optionee, who is a director,
consultant or advisor of the Company, is "employed by the
Company or any Parent, Subsidiary or Affiliate of the Company"
pursuant to the foregoing Sections.
4. ELIGIBILITY.
Options may be granted to employees, officers, directors, consultants
and advisers (provided such consultants and advisers render bona fide services
not in connection with the offer and sale of securities in a capital-raising
transaction) of the Company or any Parent, Subsidiary or Affiliate of the
Company. Incentive Stock Options may be granted
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only to employees of the Company or a Parent or Subsidiary of the Company. The
Administrator in its sole discretion shall select the recipients of Options
("Optionees"). An Optionee may be granted more than one Option under this Plan.
The Company may also, from time to time, assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (a) granting an Option under this Plan in replacement of
the option assumed by the Company, or (b) treating the assumed option as if it
had been granted under this Plan if the terms of such assumed option could be
applied to an Option granted under this Plan. Such assumption shall be
permissible if the holder of the assumed option would have been eligible to be
granted an Option hereunder if the other company had applied the rules of this
Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS.
5.1 OPTION GRANT. Each option granted under the Plan shall be evidenced
by a written stock option grant (the "Option") Each such agreement shall
designate the option thereby granted as a Common Stock option. Each such Option
shall be subject to the terms and conditions set forth in this Section 5, and to
such other terms and conditions not inconsistent herewith as the Administrator
may deem appropriate in each case.
5.2 DATE OF OPTION. The date of grant of an Option shall be the date on
which the Administrator makes the determination to grant such Option unless
otherwise specified by the Administrator. The Option representing the Option
will be delivered to Optionee with a copy of this Plan within a reasonable time
after the granting of the Option.
5.3 EXERCISE PRICE. The exercise price of an Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the Shares on the
date the Option is granted. The exercise price of a Nonqualified Stock Option
granted prior to the Company's Common Stock is listed or approved for listing
on the Nasdaq National Market shall not be less than 85% of the Fair Market
Value of the Shares on the date the Option is granted. The exercise price of
any Incentive Stock Option granted to a person owning more than 10% of the
total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not be
less than 110% of the Fair Market Value of the Shares on the date the Option
is granted. For purposes of this Section 5.3, in determining stock ownership,
an Optionee shall be considered as owning the voting capital stock owned,
directly or indirectly, by or for his brothers and sisters, spouse, ancestors
and lineal descendants. Voting capital stock owned, directly or indirectly,
by or for a corporation, partnership, estate or trust shall be considered as
being owned proportionately by or for its shareholders, partners or
beneficiaries, as applicable. Common Stock with respect to which any such
Optionee holds an Option shall not be counted. Additionally, for purposes of
this Section 5.3, outstanding capital stock shall include all capital stock
actually issued and outstanding immediately after the grant of the Option to
the Optionee. Outstanding capital stock shall
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not include capital stock authorized for issue under outstanding Options held by
the Optionee or by any other person.
5.4 EXERCISE PERIOD. Subject to the limitations set forth herein,
Options shall be exercisable within the times or upon the events determined by
the Administrator as set forth in the Option. No Option shall be exercisable
after the expiration of ten (10) years from the date the Option is granted.
5.5 OPTIONS NON-TRANSFERABLE. Except as otherwise determined by the
Administrator and expressly set forth in the Option agreement, options granted
under this Plan, and any interest therein, shall not be transferable or
assignable by Optionee, and may not be made subject to execution, attachment or
similar process, otherwise than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title 1 of the Employee Retirement Income Security Act, or the rules
thereunder, and shall be exercisable during the lifetime of the Optionee only by
Optionee.
5.6 ASSUMED OPTIONS. In the event the Company assumes an option granted
by another company, the exercise price and the number and nature of shares
issuable upon exercise, of such assumed option will be adjusted appropriately
pursuant to the Code. In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
6.1 NOTICE. Options may be exercised only by delivery to the Company of
a written stock option exercise agreement (the "Exercise Agreement") in a form
approved by the Administrator (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if any, as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of shares being purchased.
6.2 PAYMENT. Payment for the Shares may be made in cash (by check) or,
where approved by the Administrator in its sole discretion and where permitted
by law: (a) by cancellation of indebtedness of the Company to the Optionee; (b)
by surrender of shares of common stock of the Company having a Fair Market Value
equal to the applicable exercise price of the Option that have been owned by
Optionee for more than six (6) months (and which have been paid for within the
meaning of the Securities and Exchange Commission ("SEC") Rule 144 and, if such
Shares were purchased from the
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Company by use of a promissory note, such note has been fully paid with respect
to such shares), or were obtained by Optionee in the open public market; (c) by
waiver of compensation due or accrued to Optionee for services rendered; (d)
provided that a public market for the Company's stock exists, through a "same
day sale" commitment from Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer") whereby Optionee
irrevocable elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price directly to
the Company; (e) provided that a public market for the Company's stock exists,
through a "margin commitment from Optionee and an NASD Dealer whereby Optionee
irrevocable elects to exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; or (f) by any combination of the foregoing.
6.3 WITHHOLDING TAXES. Prior to issuance of the Shares upon exercise of
an Option, Optionee shall pay or make adequate provision for any federal or
state withholding obligations of the Company, if applicable. Where approved by
the Administrator in its sole discretion, Optionee may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a Fair Market Value equal to the amount of taxes the
Administrator determines is, in its discretion, required to be withheld. In such
case, the Company shall issue the net number of Shares to Optionee by deducting
the Shares retained from the Shares exercised.
6.4 LIMITATIONS ON EXERCISE. Notwithstanding the exercise periods set
forth in the Option, exercise of an Option shall always be subject to the
following:
6.4.1 If Optionee ceases to be employed by the Company or any
Parent or Subsidiary of the Company for any reason except death or disability,
Optionee may exercise such Optionee's ISOs to the extent (and only to the
extent) that they would have been exercisable upon the date of termination,
within ninety (90) days after the date of termination (or such shorter time
period as may be specified in the Option);
6.4.2 If Optionee's employment with the Company or any Parent
or Subsidiary or Affiliate of the Company is terminated because of the death of
Optionee or disability (as defined in Section 22 (e) (3) of the Code) of
Optionee, Optionee's Options may be exercised to the extent (and only to the
extent) that they would have been exercisable by Optionee on the date of
termination, by Optionee (or Optionee's legal representative) within one year
after the date of termination (or such shorter time period as may be specified
in the Option), but in any event no later than the expiration date of the
Options.
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7. SECURITIES LAW REQUIREMENTS.
No shares of Common Stock shall be issued upon the exercise of any
option unless and until counsel for the Company determines that:
(a) the company and the Optionee have satisfied all applicable
requirements under the Securities Act of 1933 and the
Securities Exchange Act of 1934;
(b) any applicable listing requirement of any stock exchange on
which the Company's Common Stock is listed has been satisfied;
and
(c) all other applicable provisions of state and federal law have
been satisfied.
8. RESTRICTIONS ON SHARES.
At the discretion of the Committee, the Company may reserve to itself
and/or its assignee(s) in the Grant a right to repurchase a portion of or all
Shares held by an Optionee upon Optionee's termination of employment or service
with the Company, or a Parent, Subsidiary or Affiliate of the Company for any
reason, within a specified time as determined by the Committee at the time of
grant, at Optionee's original purchase price, the Fair Market Value of such
Shares or a price determined by a formula or other provision set forth in the
Grant.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
The Administrator shall have the power to accelerate the exercise date
or schedule of any outstanding Option, or to otherwise modify, extend or renew
outstanding Options and to authorize the grant of new Options in substitution
therefor, PROVIDED that any such action may not, without the written consent of
Optionee, impair any rights under any Option previously granted. The
Administrator shall have the power to reduce the exercise price of outstanding
Options without the consent of Optionees by a written notice to the Optionees
affected; PROVIDED, HOWEVER, that the exercise price per Share may not be
reduced below the minimum exercise price that would be permitted under Section
5.3 of this Plan for Options granted on the date the action is taken to reduce
the exercise price.
10. STOCK OWNERSHIP; FINANCIAL STATEMENTS.
Notwithstanding any other provisions of the Plan and except as provided
in this Section 10, no Optionee shall have any of the rights of a shareholder
(including the right to vote and receive dividends) of the Company, by reason of
the provisions of this Plan or any action taken hereunder, until the date such
Optionee shall both have paid the exercise price for the Common Stock and shall
have been issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) the stock
certificate evidencing such shares. No adjustment shall be made for
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dividends or distributions or other rights for which the record date is prior to
such date, except as provided in this Plan. However, the Company shall
provide to each Optionee, during the period for which such Optionee has one
or more Options outstanding, copies of the financial statements of the
Company, consisting of, at a minimum, a balance sheet and an income
statement, at such time after the close of each fiscal year of the Company as
such statements are released by the Company to its shareholders. The Company
shall not be required to provide such information to key employee's whose
duties in connection with the Company assume their access to equivalent
information.
11. NO OBLIGATION TO EMPLOY.
Nothing in this Plan or any Option granted under this Plan shall confer
on any Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company, nor
limit or otherwise impair the right of the Company, or any Parent, Subsidiary or
Affiliate of the Company to terminate Optionee's employment or other
relationship at any time, with or without cause.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CHANGE IN CONTROL.
12.1 CHANGES IN CAPITALIZATION. Subject to any required action by the
Company's shareholders, the number of Shares of Common Stock covered by this
Plan as provided in Section 2, the number of Shares covered by each outstanding
Option granted hereunder and the exercise price thereof shall be proportionately
adjusted for any increase or decrease in the number of shares of Common Stock
resulting from a stock split, reverse stock split, recapitalization, combination
or reclassification of the shares or the payment of a stock dividend (but only
on the Common Stock) or any other increase or decrease in the number of such
outstanding shares of Common Stock effected without the receipt of consideration
by the Company; provided, however, that the conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration".
12.2 EFFECT OF TRIGGERING EVENT. In the event of a Triggering Event
each option granted hereunder shall be assumed or an equivalent option
substituted by the successor entity (including as a "successor" any purchaser
of substantially all of the assets of the Company) or a parent or subsidiary
of the successor entity. In the event that the successor does not assume or
substitute for the Option, the Optionee shall have the right to exercise the
Option as to 100% of the shares of Common Stock covered by the Option,
including shares as to which it would not otherwise be exercisable. If an
Option is exercisable in lieu of assumption or substitution in the event of a
merger, sale of assets or other transaction, the Administrator shall notify
the Optionee that the Option shall be fully exercisable for a period of at
least 20 days from the date of such notice, and the Option shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall
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be considered assumed if, following the merger, sale of assets, or other
transaction, the Option confers the right to purchase or receive, for each share
of Common Stock subject to the Option immediately prior to the merger, sale of
assets, or other transaction, the consideration (whether stock, cash, or other
securities or property) received in such transaction 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 was not solely common stock of the successor entity
or its parent entity, the Option shall also be deemed assumed if the
Administrator, with the consent of the successor corporation, provides for the
consideration to be received upon the exercise of the Option, for each share of
Common Stock subject to the Option, to be solely common stock of the successor
entity or its parent entity equal in fair market value to the per share
consideration received by holders of Common Stock in the merger, sale of assets
or other transaction.
12.3 EXPIRATION. In the event the Company is ceasing to exist as a
separate corporate entity, then notwithstanding any contrary terms in the
Option, each of the Options granted hereunder shall expire on a date at least 20
days after the Board gives written notice to Optionees, specifying the terms and
conditions of such termination.
13. ADOPTION AND SHAREHOLDER APPROVAL.
This Plan shall become effective on the date that it is adopted by the
Board of the Company. This Plan shall be approved by the shareholders of the
Company, in any manner permitted by applicable corporate law, within twelve
months before or after the date this Plan is adopted by the Board. Upon the
effective date of the Plan, the Board may grant Options pursuant to this Plan;
PROVIDED that, in the event that shareholder approval is not obtained within the
time period provided herein, all Options granted hereunder shall terminate. No
Option that is issued as a result of any increase in the number of shares
authorized to be issued under this Plan shall be exercised prior to the time
such increase has been approved by the shareholders of the Company and all such
Options granted pursuant to such increase shall similarly terminate if such
Shareholder approval is not obtained.
14. TERM OF PLAN AND GOVERNING LAW.
Options may be granted pursuant to this Plan from time to time within a
period of ten (10) years after the date on which this Plan is adopted by the
Board. This Plan and the Options granted pursuant hereto shall be governed by
California law, except for that body of law pertaining to conflict of laws.
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15. AMENDMENT OR TERMINATION OF PLAN.
The Board may terminate the Plan or amend the Plan from time to time in
such respects as the Board may deem advisable, except that, without the approval
of the Company's shareholders in compliance with the requirements of applicable
law, no such revision or amendment shall amend this Plan in any manner that
requires shareholder approval pursuant to the Code or the regulations
promulgated thereunder as such provisions apply to Incentive Stock Option plans,
without obtaining such shareholder approval.
16. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
17. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of the
Company on November 1, 1993, and shall be effective on said date, provided
the Plan is approved within twelve (12) months of said date by the
shareholders of the Company in accordance with the requirements of the Code
and other applicable law. Options may be granted, but may not be exercised,
prior to the date of such shareholder approval.
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
18.1 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possession 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
18.2 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
18.3 "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
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18.4 "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Administrator from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Administrator shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the Nasdaq
National Market System, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
working days preceding the date of determination as the Administrator shall deem
appropriate).
18.5 "Triggering Event" shall mean the occurrence of any of the
following:
(i) any person or entity acquires ownership or control,
directly or indirectly, of securities of the Company (or a successor to the
Company) representing fifty percent (50%) or more of the combined voting power
of the then outstanding securities of the Company or such successor; and
(ii) (a) a sale or disposition of assets of the Company
involving all or substantially all of the assets of the Company; (b) any
merger or reorganization of the Company or other transaction pursuant to
which all of the shareholders of the Company immediately prior to the
transaction, hold (immediately after the transaction) less than fifty percent
(50%) of the combined voting power of the Company or any successor Company;
and (c) any other event or transaction which the Board determines, in its
discretion, would materially alter the structure, ownership or control of the
Company.
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Exhibit 10.2
2000 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
OF
EMBARCADERO TECHNOLOGIES, INC.
1. PURPOSES OF THE PLAN
The purposes of the 2000 Nonemployee Directors Stock Option Plan of
Embarcadero Technologies, Inc., a Delaware corporation, are: (a) to encourage
Nonemployee Directors to accept or continue their association with the Company;
and (b) to increase the interest of Nonemployee Directors in the Company's
operations and increased profits through participation in the growth in value of
the Common Stock of the Company.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" shall mean the entity, either the Board or a
committee appointed by the Board, responsible for administering this Plan, as
provided in Section 5.
(b) "AFFILIATE" shall mean a parent or subsidiary corporation as
defined in the applicable provisions of the Code.
(c) "ANNUAL OPTION" shall have the meaning set forth in Section 6(b).
(d) "BOARD" shall mean the Board of Directors of the Company, as
constituted from time to time.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" shall mean the Common Stock of the Company.
(g) "COMPANY" shall mean Embarcadero Technologies, Inc., a Delaware
corporation.
(h) "DIRECTOR FEE" shall mean the cash amount, if any, a Nonemployee
Director shall be entitled to receive for serving as a director of the Company
in any fiscal year.
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(i) "FAIR MARKET VALUE" shall mean, as of the date in question, the
last transaction price quoted by the Nasdaq National Market System on the date
of grant; PROVIDED, HOWEVER, that if the Common Stock is not traded on such
market system or the foregoing shall otherwise be inappropriate, then the Fair
Market Value shall be determined by the Administrator in good faith at its sole
discretion and on such basis as it shall deem appropriate. Such determination
shall be conclusive and binding on all persons.
(j) "INITIAL OPTION" shall have the meaning set forth in Section 6(a).
(k) "NONEMPLOYEE DIRECTOR" shall mean any person who is a member of
the Board but is not an employee of the Company or any Parent or Subsidiary
of the Company and has not been an employee of the Company or any Parent or
Subsidiary of the Company at any time during the preceding 12 months.
(l) "OPTION" shall mean a stock option granted pursuant to this Plan.
(m) "OPTION AGREEMENT" shall mean the written agreement described in
Section 6(c) evidencing the grant of an Option to a Nonemployee Director and
containing the terms, conditions and restrictions pertaining to such Option.
(n) "OPTION SHARES" shall mean the Shares subject to an Option
granted under this Plan.
(o) "OPTIONEE" shall mean a Nonemployee Director who holds an
Option.
(p) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "PLAN" shall mean this 2000 Nonemployee Directors Stock Option
Plan of Embarcadero Technologies, Inc., as it may be amended from time to
time.
(r) "RULE 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission, or any successor rule thereto.
(s) "SECTION" unless the context clearly indicates otherwise, shall
refer to a Section of this Plan.
(t) "SHARE" shall mean a share of Common Stock, as adjusted in
accordance with Section 7(a).
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(u) "SUBSIDIARY" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section
424(f) of the Code, but only for so long as it is a "subsidiary corporation".
3. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a Nonemployee
Director is eligible to receive Options under this Plan.
4. STOCK SUBJECT TO THIS PLAN
Subject to Section 7(a) of this Plan, the maximum aggregate number of
Shares which may be issued on exercise of Options granted pursuant to this Plan
is 200,000 Shares. The Shares covered by the portion of any grant under the
Plan which expires unexercised shall become available again for grants under the
Plan.
5. ADMINISTRATION
(a) This Plan shall be administered by the Board, or by a committee
(the "Committee") of at least two Board members to which administration of
the Plan is delegated (in either case, the "Administrator"), in accordance
with the requirements of Rule 16b-3.
(b) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its sole discretion: (i) to determine the Fair
Market Value of the Shares subject to Option; (ii) to interpret this Plan;
(iii) to prescribe, amend and rescind rules and regulations relating to this
Plan; (iv) to defer (with the consent of the Optionee) or accelerate the
exercise date of any Option; (v) to authorize any person to execute on behalf
of the Company any instrument evidencing the grant of an Option; and (vi) to
make all other determinations deemed necessary or advisable for the
administration of this Plan. The Administrator may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation and application
of this Plan shall be determined by the Administrator. Such determination
shall be final and binding on all persons.
6. GRANT OF OPTIONS
(a) GRANT FOR INITIAL ELECTION OR APPOINTMENT TO BOARD. Subject to
the terms and conditions of this Plan, if any person who is not an officer or
employee of the Company is first elected or appointed as a member of the
Board and is otherwise
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considered a "Nonemployee Director" as defined herein, then the Company shall
grant to such Nonemployee Director on such day an Option to purchase 25,000
Shares ("Initial Option") at an exercise price equal to the Fair Market Value
of such Shares on the date of such Initial Option grant, subject to the
limitation of Section 7(i).
(b) GRANT FOR RE-ELECTION TO BOARD. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following each annual meeting of stockholders of the Company
(even if held on the same day as the meeting of stockholders) the Company
shall grant to each Nonemployee Director then in office for longer than six
months, an Option to purchase 5,000 shares (the "Annual Option") at an
exercise price equal to the Fair Market Value of such Shares.
(c) No Option shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board. Each Option shall be
evidenced by a written Option Agreement, in form and substance satisfactory
to the Company, executed by the Company and the Optionee. Failure by the
Company, the Nonemployee Director, or both to execute an Option Agreement
shall not invalidate the granting of an Option; however, the Option may not
be exercised until the Option Agreement has been executed by both parties.
7. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in this Section 7.
(a) CHANGES IN CAPITAL STRUCTURE. Subject to subsection 7(b), if
the Common Stock is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation, or reorganization,
appropriate adjustments shall be made in: (i) the number and class of shares
of Common Stock subject to this Plan and each Option outstanding under this
Plan; and (ii) the exercise price of each outstanding Option; PROVIDED,
HOWEVER, that the Company shall not be required to issue fractional shares as
a result of any such adjustment. Each such adjustment shall be subject to
approval by the Administrator in its sole discretion.
(b) TIME OF OPTION EXERCISE. Subject to the other provisions of
this Plan, each Option shall be for a term of ten years. Each Option shall be
exercisable over three years in equal quarterly installments. At the
discretion of the Administrator, the Company shall have a right of repurchase
of Option Shares.
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(c) LIMITATION ON OTHER GRANTS. The Administrator shall have no
discretion to grant Options under this Plan other than as set forth in
Sections 6(a) and 6(b).
(d) TRANSFER TO IMMEDIATE FAMILY MEMBERS. All or any portion of
this Option may be transferred by Optionee to (i) the spouse, children or
grandchildren of the Optionee ("Immediate Family Members"), (ii) a
partnership in which such Immediate Family Members are the only partners, or
(iii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, provided that (x) there may be no consideration for such transfer
and (y) subsequent transfers of this Option shall be prohibited except those
in accordance with Section 7(e). Following transfer, this Option shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer. The events of termination of Section 7(g)
shall continue to be applied with respect to the original Optionee, following
which this Option shall be exercisable by the transferee only to the extent,
and for the periods specified in, Section 7(g). Neither the Company nor the
Administrator shall have any obligation to provide the transferee with notice
of termination of an Optionee.
(e) NONTRANSFERABILITY. This Option is not assignable or
transferable by Optionee except in accordance with Section 7(e) or by will or
by the laws of descent and distribution. During the life of Optionee, this
Option is exercisable only by the Optionee or by a transferee permitted
pursuant to Section 7(e). Any attempt to assign, pledge, transfer,
hypothecate or otherwise dispose of this Option in a manner not herein
permitted, and any levy of execution, attachment, or similar process on this
Option, shall be null and void.
(f) PAYMENT. Except as provided below, payment in full, in cash,
shall be made for all Option Shares purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment
shall constitute general funds of the Company. Payment may also be made
pursuant to a cashless exercise/sale procedure. At the time an Option is
granted or exercised, the Administrator, in its absolute discretion, may
authorize any one or more of the following additional methods of payment: (i)
acceptance of the Optionee's full recourse promissory note for all or part of
the Option price, less any par value per share, which must be paid in cash,
payable on such terms and bearing such interest rate as determined by the
Administrator (but in no event less than the minimum interest rate specified
under the Code at which no additional interest on debt instruments of such
type would be imputed), which promissory note may be either secured or
unsecured in such manner as the Administrator shall approve (including,
without limitation, by a security interest in the Shares); (ii) delivery by
the Optionee of Common Stock already owned by the Optionee for all or part of
the Option
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price, provided the Fair Market Value of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the Optionee
is authorized to pay by delivery of such stock; PROVIDED, HOWEVER, that if an
Optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the Optionee may not, within six months following
such exercise, exercise any Option granted under this Plan by delivery of
Common Stock; and (iii) any other consideration and method of payment to the
extent permitted under the Delaware General Corporation Law.
(g) TERMINATION AS DIRECTOR. Unless determined otherwise by the
Administrator in its absolute discretion, to the extent not already expired
or exercised, an Option shall terminate at the earlier of: (i) the expiration
of the term of the Option; or (ii) three months after the last day served by
the Optionee as a director of the Company; PROVIDED, that an Option shall be
exercisable after the date of termination of service as a director only to
the extent exercisable on the date of termination; and PROVIDED FURTHER, that
if termination of service as a director is due to the Optionee's death or
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the Optionee, or the Optionee's personal representative (or any other person
who acquires the Option from the Optionee by will or the applicable laws of
descent and distribution), may at any time within 12 months after the
termination of service as a director (or such lesser period as is specified
in the Option Agreement but in no event after the expiration of the term of
the Option), exercise the rights to the extent they were exercisable on the
date of the termination.
(h) WITHHOLDING AND EMPLOYMENT TAXES. At the time of exercise of an
Option (or at such later time(s) as the Administrator may prescribe), the
Optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. If authorized by the Administrator in its
sole discretion, an Optionee shall be permitted to elect, by means of a form
of election to be prescribed by the Administrator, to have shares of Common
Stock which are acquired upon exercise of the Option withheld by the Company
or to tender to the Company other shares of Common Stock or other securities
of the Company owned by the Optionee on the date of determination of the
amount of tax to be withheld as a result of the exercise of such Option (the
"Tax Date") to pay the amount of withholding taxes due. Any securities so
withheld or tendered shall be valued by the Company as of the Tax Date.
(i) OPTION TERM. Each Option shall expire ten years after the date
of grant.
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(j) EXERCISE PRICE. The exercise price of any Option granted to any
person who owns, directly or by attribution under the Code currently Section
424(d), stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a "Ten
Percent Stockholder") shall in no event be less than 110% of the fair market
value (determined in accordance with 2(i) of the stock covered by the Option
at the time the Option is granted.
8. MANNER OF EXERCISE
(a) An Optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of
the officer of the Company designated by the Administrator, accompanied by
payment of the exercise price as provided in Section 7(e) and, if required,
by payment of any federal or state withholding or employment taxes required
to be withheld due to exercise of the Option. The date the Company receives
written notice of an exercise accompanied by payment of the exercise price
and any required federal or state withholding or employment taxes will be
considered as the date such Option was exercised.
(b) Promptly after the date an Option is exercised, the Company
shall, without stock issue or transfer taxes to the optionee or other person
entitled to exercise the Option, deliver to the Optionee or such other person
a certificate or certificates for the requisite number of shares of Common
Stock. An Optionee or transferee of an Optionee shall not have any privileges
as a stockholder with respect to any Common Stock covered by the Option until
the date of issuance of a stock certificate.
9. NO RIGHT TO DIRECTORSHIP
Neither this Plan nor any Option shall confer upon any Optionee any
right with respect to continuation of the Optionee's membership on the Board
or shall interfere in any way with provisions in the Company's Certificate of
Incorporation, as amended, and Bylaws, as amended, relating to the election,
appointment, terms of office, and removal of members of the Board.
10. LEGAL REQUIREMENTS
The Company shall not be obligated to offer or sell any Shares upon
exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the federal securities laws and
the offer and sale of the Shares are otherwise in compliance with all
applicable securities laws and the regulations of any stock exchange on which
the Company's securities may then be listed. The Company shall have no
obligation to register the Shares covered by this Plan under the federal
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securities laws or take any other steps as may be necessary to enable the
Shares covered by this Plan to be offered and sold under federal or other
securities laws. Upon exercising all or any portion of an Option, an Optionee
may be required to furnish representations or undertakings deemed appropriate
by the Company to enable the offer and sale of the Shares or subsequent
transfers of any interest in the Shares to comply with applicable securities
laws. Certificates evidencing Shares acquired upon exercise of Options shall
bear any legend required by, or useful for purposes of compliance with,
applicable securities laws, this Plan or the Option Agreements.
11. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may adversely affect outstanding Options. No amendment
shall require stockholder approval unless:
(a) stockholder approval is required to meet the exemptions
provided by Rule 16b-3, or any successor rule thereto or under applicable
state statutes; or
(b) the Board otherwise concludes that stockholder approval is
advisable.
12. STOCKHOLDER APPROVAL; TERM
This Plan shall become effective upon adoption by the Board of
Directors; PROVIDED, HOWEVER, that no Option shall be exercisable unless and
until written consent of holders of a majority of the outstanding shares of
capital stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at a
validly called stockholders' meeting (or such greater number as may be required
by law or applicable governmental regulations or orders) is obtained within 12
months after adoption by the Board. This Plan shall terminate ten years after
adoption by the Board unless terminated earlier by the Board. The Board may
terminate this Plan at any time without stockholder approval. No Options shall
be granted after termination of this Plan, but termination shall not affect
rights and obligations under then-outstanding Options.
Adopted by the Board of Directors: February 10, 2000
Approved by the Stockholders: February 11, 2000
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Exhibit 10.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is effective as of the
____ day of _________, 2000, by and between Embarcadero Technologies, Inc., a
Delaware corporation (the "Company"), and ___________________, an individual
("Indemnitee").
BACKGROUND
A. Indemnitee is a member of the Board of Directors of the Company and,
in that capacity, performs a valuable service for the Company. For a variety of
reasons, including the frequency, magnitude and often baseless nature of claims
and actions brought against corporate directors and officers generally, it is
difficult for corporations to attract and retain highly competent persons as
directors and officers. In addition, there exists uncertainty, both as to
matters of "substance" and "procedure," about the protection against such claims
provided by statutory, charter and bylaw provisions and through "director and
officer" insurance.
B. The Company's Certificate of Incorporation also provides for
indemnification of, and advancement of expenses to, the directors and officers
of the Company to the maximum extent authorized by the Delaware General
Corporation Law, as amended (the "DGCL"), and, together with the DGCL, permits,
by its nonexclusive nature, the establishment of indemnification agreements
between the Company and its directors and officers.
C. In order to induce Indemnitee to continue to serve as a member of
the Board of Directors and to clarify the specific procedure for addressing
indemnification matters if and as they arise, the Company and the Indemnitee
hereby agree to contractual indemnification arrangements on the terms set forth
in this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS. For purposes of this Agreement, the following terms
have the following meanings:
a. "Agent" means any person (i) who is or was a director,
officer, employee or other agent of the Company or (ii) who is or was serving at
the request of the Company, or otherwise as a result of that person's
relationship with the Company, as a director, officer, employee or other agent
of another foreign or domestic corporation or of any partnership, joint venture,
trust or other enterprise (including, without limitation, service with respect
to employee benefit plans).
b. "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
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the Company's then outstanding Voting Securities, or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.
c. "Disinterested Director" means a director of the Company who
neither is nor was a party to the Proceeding in respect of which indemnification
is sought under this Agreement or otherwise.
d. "Expenses" includes any and all direct and indirect costs
(including, without limitation, attorneys' fees and disbursements, court costs,
fees and expenses of witnesses, experts, professional advisers and private
investigators, arbitration expenses, costs of attachment, appeal or similar
bonds, travel expenses, duplicating, printing and binding costs, telephone
charges, postage, delivery service fees, and any and all other disbursements or
out-of-pocket expenses) actually and reasonably incurred by or on behalf of
Indemnitee in connection with either (i) the investigation, defense, settlement
or appeal of, or being a witness or participant in, a Proceeding (including
preparing for any of the foregoing) or (ii) the establishment or enforcement of
any right to indemnification under this Agreement or otherwise or any right to
recovery under any liability insurance policy maintained by the Company;
PROVIDED, HOWEVER, that "Expenses" shall not include any judgments, fines or
amounts paid in settlement.
e. "Independent Counsel" means a law firm or attorney that
neither is presently nor in the past two years has been retained to represent:
(i) the Company or Indemnitee in any matter material to the Company or
Indemnitee, or (ii) any other party to the Proceeding in respect of which
indemnification is sought under this Agreement or otherwise. In addition, the
term "Independent Counsel" does not include any law firm or attorney who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's right to indemnification under this Agreement
or otherwise.
f. "Liabilities" means liabilities and losses of any type
whatsoever, including, without limitation, judgments, fines, excise taxes and
penalties (including, without limitation, ERISA excise taxes and penalties) and
amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such
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liabilities and losses), actually incurred by Indemnitee in connection with or
as a result of a Proceeding.
g. "Potential Change in Control" shall be deemed to have occurred
if (i) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person (including the
Company) publicly announces an intention to take or to consider taking actions
which, if consummated, would constitute a Change in Control; (iii) any person,
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 9.5% or more
of the combined voting power of the Company's then outstanding Voting
Securities, increases such person's beneficial ownership of such securities by
five percentage points or more over the initial percentage of such securities
equal to or exceeding 9.5% so owned by such person; or (iv) the Board of
Directors of the Company adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred.
h. "Proceeding" means any threatened, pending or completed
action, suit or proceeding (including any inquiry, hearing, arbitration
proceeding or alternative dispute resolution mechanism), whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Company), to which Indemnitee is or was a party, witness or other
participant, or is threatened to be made a party, witness or other participant,
by reason of the fact that Indemnitee is or was an Agent, or by reason of
anything done or not done by Indemnitee in that capacity or in any other
capacity while serving as an Agent, whether before or after the date of this
Agreement. "Proceeding" shall not include any Proceeding initiated by Indemnitee
(other than as contemplated by Sections 3(d) or 6 of this Agreement) unless such
Proceeding was authorized or consented to by the Board of Directors of the
Company.
i. "Voting Securities" means any securities of the Company which
vote generally in the election of directors.
2. AGREEMENT TO INDEMNIFY. Subject to the terms and conditions of, and
in accordance with the procedures set forth in, this Agreement, the Company
shall hold Indemnitee harmless and indemnify Indemnitee (and Indemnitee's spouse
as provided below), to the fullest extent permitted by the provisions of the
DGCL and other applicable law, from and against all Expenses and Liabilities,
including, without limitation, Expenses and Liabilities arising from any
Proceeding brought by or in the right of the Company or its stockholders. The
Company and Indemnitee intend that this Agreement provide for indemnification in
excess of that expressly required, granted or permitted by statute, including,
without limitation, any indemnification provided by the Company's Certificate of
Incorporation or Bylaws, or by vote of its stockholders or directors, or by
applicable law. If, after the date hereof, the DGCL or any other applicable law
is amended to permit or authorize indemnification of, or advancement of defense
expenses to, Indemnitee to a greater extent than is permitted on the date
hereof, references in this Agreement
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to the DGCL or any other applicable law shall be deemed to refer to the DGCL or
such applicable law as so amended.
3. PROCEDURAL MATTERS.
a. INITIAL REQUEST. Whenever Indemnitee believes that, in a
specific case, Indemnitee is then entitled to indemnification under this
Agreement or under the Company's Certificate of Incorporation or Bylaws, the
DGCL or otherwise, Indemnitee shall submit a written notice to the Company
requesting an authorization and determination by the Company to that effect. The
notice shall describe the matter giving rise to the request and be accompanied
by all appropriate supporting documentation reasonably available to Indemnitee.
b. DETERMINATION AND PAYMENT. The Company shall make a
determination about Indemnitee's entitlement to indemnification in the specific
case no later than 90 days after receipt of Indemnitee's request. In making that
determination, the person or persons making the determination shall presume that
Indemnitee met any applicable standard of conduct required for indemnification,
unless the Company shall have affirmatively shown by clear and convincing
evidence that Indemnitee did not meet that standard. The determination shall be
made by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors. If such a quorum is not obtainable, or, even if
obtainable, a quorum of Disinterested Directors so directs, the determination
shall be made by Independent Counsel in a written opinion obtained at the
Company's expense. Notwithstanding the foregoing, if there has been a Change in
Control (other than a Change in Control which has been approved by a majority of
the Company's Board of Directors who were directors immediately prior to such
Change in Control), the determination shall be made by Independent Counsel in a
written opinion obtained at the Company's expense. If the person or persons
empowered to make the determination either: (i) affirmatively makes a
determination of Indemnitee's entitlement to indemnification or (ii) fails to
make any determination at all within the 90-day period, indemnification shall be
considered as authorized and proper in the circumstances, and Indemnitee shall
be absolutely entitled to such indemnification, and shall receive payment as
promptly as practicable, in the absence of any misrepresentation of a material
fact by Indemnitee in the request for indemnification, or a specific
determination by a court of competent jurisdiction that all or any part of such
indemnification is prohibited by applicable law. If the person or persons
empowered to make the determination find that the Indemnitee is not entitled to
indemnification, the Indemnitee shall have the right to apply to a court of
competent jurisdiction for the purpose of enforcing Indemnitee's right to
indemnification pursuant to this Agreement. The termination of any Proceeding by
judgment, order, settlement, arbitration award, conviction or upon a plea of
NOLO CONTENDERE or its equivalent shall not, of itself, create a presumption
that 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 that, with respect to any criminal Proceeding, Indemnitee had
reasonable cause to believe Indemnitee's conduct was unlawful.
c. ADVANCEMENT OF EXPENSES. If so requested in a writing by
Indemnitee accompanied by appropriate supporting documentation, the Company
shall, within ten days after receipt of the request, advance funds for the
payment of Expenses, whether that request is made
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before or after the final disposition of a Proceeding (including, without
limitation, any criminal Proceeding or any Proceeding brought by or in the right
of the Company or its stockholders), unless there has been a final determination
that Indemnitee is not entitled to indemnification for those Expenses. If
required by law at the time of the advance, the payment of the advance shall be
conditioned upon the receipt from Indemnitee of an undertaking (which need not
be secured) to repay the advance to the extent that it is ultimately determined
that Indemnitee is not entitled to such indemnification by the Company. Any
dispute concerning the advancement of Expenses may, at the election of the
Indemnitee, be resolved by arbitration before an arbitrator selected by
Indemnitee and approved by the Company. If the parties cannot agree on a single
arbitrator, then the claim shall be heard by a panel of three arbitrators, with
one selected by Indemnitee, one selected by the Company and one selected jointly
by the foregoing two arbitrators. Each of the arbitrators shall be a litigation
or corporate attorney with experience in the field of officer and director
indemnification. The arbitrators shall be selected within (15) days after demand
for arbitration and shall render a decision within (45) days after selection,
unless good cause is shown for requiring a longer decision period. The Company
shall act in utmost good faith to provide timely information to the arbitrators
and to insure Indemnitee a full opportunity to defend against the Company's
claim that Indemnitee is not entitled to an advance of Expenses. The Company
shall indemnify Indemnitee against all Expenses incurred by Indemnitee under the
dispute resolutions proceedings set forth in this Subsection 3(c), unless a
court of competent jurisdiction finds that each of the claims and/or defenses by
Indemnitee in the action or proceeding for which an advance is sought was
frivolous or made in bad faith.
d. ENFORCEMENT. If Indemnitee has not received a determination
of entitlement to indemnification or an advance, as the case may be, within the
applicable time periods for such actions specified in this Agreement, or if it
has been determined that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall be
entitled to commence an action in any court of competent jurisdiction (including
the court in which the Proceeding (as to which Indemnitee seeks indemnification)
is or was pending) (i) in the former case, seeking enforcement of Indemnitee's
rights under this Agreement or otherwise, or seeking an initial determination by
the court, or (ii) in the latter case, challenging any such determination or any
aspect thereof, including the legal or factual bases therefor. The Company
hereby consents to service of process and to appear generally in any such
proceeding. It shall be a defense to any such action that applicable law does
not permit the Company to indemnify Indemnitee for the amount claimed. In any
such action, the Company shall have the burden of proving that indemnification
or advances are not proper in the circumstances of the specific case. Neither
the failure of the Company to have made a determination prior to the
commencement of such action that indemnification is proper under the
circumstances because Indemnitee has met the standard of conduct under
applicable law, nor an actual determination by the Company that Indemnitee has
not met such standard of conduct, shall be a defense to the action or create a
presumption that Indemnitee has not met that standard of conduct. The Company
shall indemnify Indemnitee for Expenses incurred by Indemnitee in connection
with the successful establishment or enforcement, in whole or in part, by
Indemnitee of Indemnitee's right to indemnification or advances.
-5-
<PAGE>
e. NOTICE BY INDEMNITEE AND DEFENSE OF PROCEEDINGS. Indemnitee
shall promptly notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may give rise to a claim for indemnification under
this Agreement or otherwise; PROVIDED, HOWEVER, that a failure of Indemnitee to
provide that notice shall relieve the Company from liability only if and to the
extent that the failure materially prejudices the Company's ability to
adequately defend Indemnitee in the Proceeding. With respect to any Proceeding
as to which Indemnitee so notifies the Company:
i. The Company shall be entitled to participate at its
own expense.
ii. Except as otherwise provided below, the Company,
jointly with any other indemnifying party similarly notified, shall be entitled
to assume the defense of such Proceeding, with counsel reasonably satisfactory
to Indemnitee. After notice from the Company to Indemnitee of the Company's
election to assume the defense, the Company shall not be liable to Indemnitee
under this Agreement for any Expenses subsequently incurred by Indemnitee, other
than as provided below. Indemnitee shall have the right to employ Indemnitee's
own counsel in that Proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its election so to assume the defense
shall be borne by Indemnitee, except to the extent that (x) the employment of
counsel by Indemnitee has been authorized by the Company, (y) Indemnitee has
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of the defense of such Proceeding or that
counsel selected by the Company may not be adequately representing Indemnitee,
or (z) the Company has not in fact employed counsel to assume the defense of
such Proceeding. In those cases, the fees and expenses of Indemnitee's own
counsel shall be paid by the Company.
iii. Neither the Company nor Indemnitee shall
unreasonably withhold its or his or her consent to any proposed settlement. The
Company has no obligation to indemnify and hold Indemnitee harmless under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent. The Company shall not settle any Proceeding in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent.
f. CHANGE IN CONTROL. If there is a Change in Control (other
than a Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), then with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnification and advances under this Agreement or
otherwise, the Company shall seek legal advice only from Independent Counsel
selected by Indemnitee and approved by the Company, which approval shall not be
unreasonably withheld. Such Independent Counsel, among other things, shall
render its written opinion to the Company and Indemnitee as to whether and to
what extent Indemnitee would be permitted to be
-6-
<PAGE>
indemnified under applicable law. The Company shall pay the reasonable fees and
expenses of such Independent Counsel.
4. NONEXCLUSIVITY. The indemnification provided by this Agreement is
not exclusive of or inconsistent with any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation or Bylaws, any other
agreement, any vote of stockholders or directors, the DGCL, or otherwise, both
as to action in Indemnitee's official capacity and otherwise. If and to the
extent that a change in the DGCL (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Certificate of Incorporation or Bylaws or under this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by such change.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled to
indemnification by the Company for some or a portion of Expenses or Liabilities
but not for the total amount, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses and Liabilities to which Indemnitee
is entitled to be indemnified. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any Proceeding or in defense of any claim, issue or
matter therein, including dismissal without prejudice, Indemnitee shall be
indemnified against all Expenses incurred by Indemnitee in connection therewith.
6. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer, as the case may be. If Indemnitee serves as a
fiduciary of any employee benefit plan of the Company or any of its subsidiary
or affiliated corporations, then to the extent that the Company maintains an
insurance policy or policies providing fiduciaries' liability insurance,
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms, to the maximum extent of the coverage available for any fiduciary.
In the event of a Potential Change in Control, the Company shall maintain in
force any and all insurance policies then maintained by the Company providing
directors' and officers' liability insurance or fiduciaries' liability
insurance, in respect of Indemnitee, for a period of six years thereafter. Upon
notice to the Company, either from Indemnitee or from any other source, of the
commencement or threat of commencement of any Proceeding or matter which may
give rise to a claim for indemnification of Indemnitee and which may be covered
by any insurance policy maintained by the Company, the Company shall promptly
give notice to the insurer in accordance with the procedures prescribed by such
policy and shall thereafter take all necessary or appropriate action to cause
such insurer to pay, to or on behalf of Indemnitee all Liabilities and Expenses
payable under such policy with respect to such Proceeding or matter. The Company
shall indemnify Indemnitee for Expenses incurred by Indemnitee in connection
with any successful action brought by Indemnitee for recovery under any
insurance policy referred to in this Section 6 and shall advance to Indemnitee
the Expenses of such action in the manner provided in Section 3(c) above.
-7-
<PAGE>
7. OTHER SOURCES. Indemnitee shall not be required to exercise any
rights Indemnitee may have against any other parties (for example, under an
insurance policy purchased by Indemnitee, the Company or any other person or
entity) before Indemnitee exercises or enforces Indemnitee's rights under this
Agreement. However, to the extent the Company actually indemnifies Indemnitee or
advances Indemnitee funds in respect of Expenses, the Company shall be entitled
to enforce any such rights which Indemnitee may have against third parties.
Indemnitee shall assist the Company in enforcing those rights if it pays
Indemnitee's costs and expenses of doing so. If Indemnitee is actually
indemnified or advanced Expenses by any such third party, then, for so long as
Indemnitee is not required to disgorge the amounts so received, to that extent
the Company shall be relieved of its obligation to indemnify Indemnitee or to
advance Expenses.
8. CERTAIN RELATIONSHIPS. The obligations and rights created under this
Agreement shall not be affected by any amendment to the Company's Certificate of
Incorporation or Bylaws or any other agreement or instrument to which Indemnitee
is not a party, and shall not diminish any other rights which Indemnitee now or
in the future has against the Company or any other person or entity.
9. SEVERABILITY. If any provision of this Agreement is determined to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the Company and Indemnitee. In any
event, the remaining provisions of this Agreement shall remain enforceable to
the maximum extent possible.
10. CONTRIBUTION. If the indemnification provided in Section 2 of this
Agreement is unavailable, then, in respect of any Proceeding in which the
Company is jointly liable with Indemnitee (or would be if joined in the
Proceeding), the Company shall contribute to the amount of Expenses and
Liabilities as appropriate to reflect: (i) the relative benefits received by the
Company, on the one hand, and Indemnitee, on the other hand, from the
transaction from which the Proceeding arose, and (ii) the relative fault of the
Company, on the one hand, and of Indemnitee, on the other, in connection with
the events which resulted in such Expenses and Liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of Indemnitee, on the other, shall be determined by reference to,
among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such Expenses and Liabilities. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or any other method of allocation which does not take account of
the equitable considerations described in this Section 10.
11. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws. This Agreement is intended to be an agreement
of the type contemplated by Section 145(f) of the DGCL.
-8-
<PAGE>
12. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by personal or courier delivery,
confirmed facsimile or telex transmission or first class mail, and shall be
deemed to have been duly given upon receipt if personally delivered or delivered
by courier, on the date of transmission if transmitted by facsimile or telex, or
three days after mailing if mailed, to the addresses set forth below:
If to Indemnitee:
------------------------
------------------------
------------------------
------------------------
If to the Company:
Embarcadero Technologies, Inc.
425 Market Street
Suite 425
San Francisco, California 94105
Attn: President
or to such other address as either party may designate by notice to the other
from time to time.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
14. 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 spouse, estate, heirs, executors, administrators,
personal or legal representatives and assigns. The Company shall require any
successor corporation (whether by merger, consolidation, or otherwise) by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
15. AMENDMENT AND WAIVER. This Agreement may not be amended except by a
writing executed by both the Company and Indemnitee. No waiver of any provision
of this Agreement shall be effective unless in writing and signed by the party
to be charged therewith. A waiver of, or a failure to insist on, complete
compliance with any provision of this Agreement shall not be construed as a
waiver of a subsequent or different non-compliance, breach or default of that or
any other provision of this Agreement.
16. ACKNOWLEDGMENT. The Company expressly acknowledges that it has
entered into this Agreement and assumed the obligations imposed on the Company
under this Agreement in order to induce Indemnitee to serve or to continue to
serve as a director or officer and acknowledges that Indemnitee is relying on
this Agreement in serving or continuing to serve in
-9-
<PAGE>
such capacity. The Company further agrees to stipulate in any court proceeding
that the Company is bound by all of the provisions of this Agreement.
17. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, estate, heirs, executors, administrators or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
18. DURATION OF AGREEMENT. This Agreement shall continue in effect for
so long as Indemnitee is subject to any possible Proceeding, regardless of
whether Indemnitee continues to serve as an Agent.
19. ENTIRE AGREEMENT. This document contains the final, complete and
exclusive statement of the agreement between the Company and Indemnitee with
respect to the subject matter of this Agreement and supersedes any prior or
contemporaneous understandings, agreements, communications, correspondence or
representations by or between the parties, whether written or oral, relating to
the subject matter of this Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth in its first paragraph.
EMBARCADERO TECHNOLOGIES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
---------------------------------
, Indemnitee
---------------------
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<PAGE>
Exhibit 10.4
OFFICE LEASE
BETWEEN
METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD)
AND
EMBARCADERO TECHNOLOGIES, INC. (TENANT)
425 MARKET STREET
SAN FRANCISCO, CALIFORNIA
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE ONE - BASIC LEASE PROVISIONS.......................................1
1.01 BASIC LEASE PROVISIONS...................................1
1.02 ENUMERATION OF EXHIBITS & RIDER(S).......................2
1.03 DEFINITIONS..............................................2
ARTICLE TWO - PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING......6
2.01 LEASE OF PREMISES........................................6
2.02 TERM.....................................................7
2.03 FAILURE TO GIVE POSSESSION...............................7
2.04 AREA OF PREMISES.........................................7
2.05 CONDITION OF PREMISES....................................7
ARTICLE THREE - RENT.......................................................7
ARTICLE FOUR - RENT ADJUSTMENTS AND PAYMENTS...............................7
4.01 RENT ADJUSTMENTS.........................................7
4.02 STATEMENT OF LANDLORD....................................8
4.03 BOOKS AND RECORDS........................................8
4.04 PARTIAL OCCUPANCY........................................8
4.05 TENANT OR LEASE SPECIFIC TAXES...........................9
ARTICLE FIVE - SECURITY DEPOSIT............................................9
ARTICLE SIX - SERVICES....................................................10
6.01 LANDLORD'S GENERAL SERVICES.............................10
6.02 ELECTRICAL SERVICES.....................................10
6.03 ADDITIONAL AND AFTER-HOUR SERVICES......................11
6.04 TELEPHONE SERVICES......................................11
6.05 DELAYS IN FURNISHING SERVICES...........................12
6.06 CHOICE OF SERVICE PROVIDER..............................12
6.07 SIGNAGE.................................................13
ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES.................13
7.01 POSSESSION AND USE OF PREMISES..........................13
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS..................14
7.03 QUIET ENJOYMENT.........................................15
ARTICLE EIGHT - MAINTENANCE...............................................15
8.01 LANDLORD'S MAINTENANCE..................................15
8.02 TENANT'S MAINTENANCE....................................16
ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS...............................16
9.01 TENANT ALTERATIONS......................................16
9.02 LIENS...................................................17
ARTICLE TEN - ASSIGNMENT AND SUBLETTING...................................18
10.01 ASSIGNMENT AND SUBLETTING...............................18
10.02 RECAPTURE...............................................20
10.03 EXCESS RENT.............................................20
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<PAGE>
10.04 TENANT LIABILITY........................................20
10.05 ASSUMPTION AND ATTORNMENT...............................20
ARTICLE ELEVEN - DEFAULT AND REMEDIES.....................................21
11.01 EVENTS OF DEFAULT.......................................21
11.02 LANDLORD'S REMEDIES.....................................21
11.03 ATTORNEY'S FEES.........................................23
11.04 BANKRUPTCY..............................................23
11.05 LANDLORD'S DEFAULT......................................24
ARTICLE TWELVE - SURRENDER OF PREMISES....................................24
12.01 IN GENERAL..............................................24
12.02 LANDLORD'S RIGHTS.......................................25
ARTICLE THIRTEEN - HOLDING OVER...........................................25
ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY.......................25
14.01 SUBSTANTIAL UNTENANTABILITY.............................25
14.02 INSUBSTANTIAL UNTENANTABILITY...........................27
14.03 RENT ABATEMENT..........................................27
14.04 WAIVER OF STATUTORY REMEDIES............................27
ARTICLE FIFTEEN - EMINENT DOMAIN..........................................27
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART.....................27
15.02 TAKING OF PART..........................................27
15.03 COMPENSATION............................................28
ARTICLE SIXTEEN - INSURANCE...............................................28
16.01 TENANT'S INSURANCE......................................28
16.02 FORM OF POLICIES........................................28
16.03 LANDLORD'S INSURANCE....................................29
16.04 WAIVER OF SUBROGATION...................................29
16.05 NOTICE OF CASUALTY......................................30
ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY........................30
17.01 WAIVER OF CLAIMS........................................30
17.02 INDEMNITY BY TENANT.....................................30
ARTICLE EIGHTEEN - RULES AND REGULATIONS..................................31
18.01 RULES...................................................31
18.02 ENFORCEMENT.............................................31
ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS.............................31
ARTICLE TWENTY - ESTOPPEL CERTIFICATE.....................................32
20.01 IN GENERAL..............................................32
20.02 ENFORCEMENT.............................................32
ARTICLE TWENTY-ONE - RELOCATION OF TENANT.................................32
ARTICLE TWENTY-TWO - REAL ESTATE BROKERS..................................32
ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION...............................32
23.01 SUBORDINATION AND ATTORNMENT............................32
ii
<PAGE>
23.02 MORTGAGEE PROTECTION....................................33
ARTICLE TWENTY-FOUR - NOTICES.............................................33
ARTICLE TWENTY-FIVE - MISCELLANEOUS.......................................34
25.01 LATE CHARGES............................................34
25.02 NO JURY TRIAL; VENUE; JURISDICTION......................34
25.03 DEFAULT UNDER OTHER LEASE...............................35
25.04 OPTION..................................................35
25.05 TENANT AUTHORITY........................................35
25.06 ENTIRE AGREEMENT........................................35
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE..........35
25.08 EXCULPATION.............................................35
25.09 ACCORD AND SATISFACTION.................................36
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING..............36
25.11 BINDING EFFECT..........................................36
25.12 CAPTIONS................................................36
25.13 TIME; APPLICABLE LAW; CONSTRUCTION......................36
25.14 ABANDONMENT.............................................37
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES.............37
25.16 SECURITY SYSTEM.........................................37
25.17 NO LIGHT, AIR OR VIEW EASEMENTS.........................37
25.18 RECORDATION.............................................37
25.19 SURVIVAL................................................37
25.20 RIDERS..................................................37
ARTICLE TWENTY-SIX - HAZARDOUS SUBSTANCES DISCLOSURE......................38
iii
<PAGE>
OFFICE LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS - In the event of any conflict between these
Basic Lease Provisions and any other Lease provision, such other Lease
provision shall control.
(1) PROJECT AND ADDRESS:
425 Market Street
San Francisco, California 94105
(2) LANDLORD AND ADDRESS:
Metropolitan Life Insurance Company,
a New York corporation
Notices to Landlord shall be addressed:
Metropolitan Life Insurance Company
c/o The Shorenstein Company, LP
425 Market Street
San Francisco, California 94105
with copies to the following:
Metropolitan Life Insurance Company
101 Lincoln Centre Drive, Suite 600
Foster City, CA 94404
Attention: Assistant Vice President
and
Metropolitan Life Insurance Company
101 Lincoln Centre Drive, Suite 600
Foster City, CA 94404
Attention: Associate General Counsel
(3) TENANT AND CURRENT ADDRESS:
Name: Embarcadero Technologies, Inc.
State of incorporation: a California corporation
Notices to Tenant shall be addressed:
Embarcadero Technologies, Inc.
At the address of the Premises
(4) DATE OF LEASE: as of April 23, 1999
(5) LEASE TERM: Five (5) years
(6) PROJECTED COMMENCEMENT DATE: June 15, 1999
1
<PAGE>
(7) PROJECTED EXPIRATION DATE: Sixty (60) months after the Commencement
Date
(8) MONTHLY BASE RENT:
<TABLE>
<CAPTION>
PERIOD FROM/TO MONTHLY ANNUAL RATE/SF OF RENTABLE AREA
-------------- ------- -------------------------------
<S> <C> <C>
Months 01 - 24 $27,520 $32.00 per rentable square foot
Months 25 - 36 $29,240 $34.00 per rentable square foot
Months 37 - 60 $30,960 $36.00 per rentable square foot
</TABLE>
(9) RENTABLE AREA OF THE BUILDING: 289,909 square feet
(10) RENTABLE AREA OF THE PREMISES: 10,320 square feet
(11) SECURITY DEPOSIT: Thirty Thousand Nine Hundred Sixty
Dollars ($30,960.00)
(12) SUITE NUMBER OF PREMISES: _______________
(13) TENANT'S SHARE: 3.5597%
(14) OPERATING EXPENSES BASE YEAR: The calendar year 1999
(15) TAXES BASE YEAR: The City of San Francisco fiscal year beginning July
1, 1999 and ending June 30, 2000.
(16) TENANT'S USE OF PREMISES: General office use.
(17) BROKERS:
Landlord's Broker: Shorenstein Asset Services, L.P.
Tenant's Broker: Aegis Realty Partners
1.02 ENUMERATION OF EXHIBITS & RIDER(S)
The Exhibits and Rider(s) set forth below and attached to this Lease are
incorporated in this Lease by this reference:
EXHIBIT A Plan of Premises
EXHIBIT B Workletter Agreement (intentionally omitted)
EXHIBIT C Rules and Regulations
RIDER 1 Commencement Date Agreement
RIDER 2 Additional Provisions
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the
Operating Expenses Base Year and Taxes Base Year for which a Rent Adjustment
computation is being made.
AFFILIATE: As defined in Section 10.01(f).
2
<PAGE>
BUILDING: That certain condominium unit (the "Unit") consisting of space on
floors four through fifteen inclusive of the office building located at the
Project, together with those easements appurtenant to the condominium unit
and that certain undivided interest in the Project Areas appurtenant to the
Unit as set forth in the Declaration. For purposes of this Lease, Project
Areas means all Land and any portions of the Real Property located on the
Land and not a part of Landlord's or any other condominium units in the
Project, and includes but is not limited to Common Areas as defined for
purposes of this Lease.
COMMENCEMENT DATE: The date specified in Section 1.01(6) as the Projected
Commencement Date, unless changed by operation of Rider 2.
COMMON AREAS: All areas of the Building made available from time to time for
the general common use or benefit of the tenants of the Building, and their
employees and invitees, or the public, as such areas currently exist and as
they may be changed from time to time.
DECLARATION: The "Declaration of Covenants, Conditions and Restrictions of
the Metropolitan Life Building Condominium Project, San Francisco,
California" dated October 12, 1973 as recorded October 12, 1973 at Book B817,
Page 164 in the Official Records of the City and County of San Francisco,
California as amended by "First Amendment to Declaration of Covenants,
Conditions and Restriction" dated November 1, 1988 as recorded in the San
Francisco, California Recorder's Office May 9, 1989 as Document E362737 in
Reel E866 Image 1302 as hereafter amended from time to time, together with
the "Map of Condominium Plan of the Metropolitan Life Building a Condominium
Project" consisting of 29 pages and recorded October 12, 1973 under
Recorder's Series No. W25240, San Francisco, California.
DECORATION: Tenant Alterations which do not require a building permit and
which do not involve any of the structural elements of the Building, or any
of the Building's systems, including its electrical, mechanical, plumbing,
security, heating, ventilating, air-conditioning, communication, and fire and
life safety systems.
DEFAULT RATE: Two (2) percentage points above the rate then most recently
announced by Bank of America N.T.& S.A. at its San Francisco headquarters as
its corporate base lending rate, from time to time announced, but in no event
higher than the maximum rate permitted by Law. In the event the foregoing
rate is no longer announced, Landlord shall choose a reasonably equivalent
rate.
DELIVERY DATE: The date for Landlord's delivery to Tenant of possession of
the Premises, if different from the Commencement Date, as provided in Rider 2.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or
generation of any Hazardous Material, including the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended,
and the Resource Conservation and Recovery Act of 1976, as amended.
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable
control of Landlord, including water shortages, energy shortages or
governmental preemption in connection with an act of God, a national
emergency, or by reason of Law, or by reason of the conditions of supply and
demand which have been or are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous
or toxic under any Environmental Law; and explosives and firearms,
radioactive material, asbestos, and polychlorinated biphenyls.
3
<PAGE>
INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager and the leasing manager for the Property and
their respective directors, officers, agents and employees.
LAND: The parcel(s) of real estate on which the Building and Project are
located.
LANDLORD WORK: The construction or installation of improvements to be
furnished by Landlord, if any, specifically described in Rider 2 attached
hereto.
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements,
orders, rulings or decisions adopted or made by any governmental body,
agency, department or judicial authority having jurisdiction over the
Property, the Premises or Tenant's activities at the Premises and any
covenants, conditions or restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the
first day of a calendar month in which case beginning on the Commencement
Date), and each subsequent twelve month, or shorter, period until the
Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security
instrument encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays recognized by the
Landlord and the janitorial and other unions servicing the Building in
accordance with their contracts.
OPERATING EXPENSES: All costs, expenses and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay in connection with
the ownership, management, operation, maintenance, replacement and repair of
the Building, including all of its components and the Building's share of
such costs and expenses due from owners of condominium units pursuant to the
Declaration and including the amortized portion of any capital expenditure or
improvement, together with interest thereon and the costs of changing utility
service providers. Operating Expenses shall not include, (i) costs of
alterations of the premises of tenants of the Building, (ii) depreciation
charges, (iii) interest and principal payments on loans (except for loans for
capital improvements which Landlord is allowed to include in Operating
Expenses as provided above), (iv) ground rental payments, (v) real estate
brokerage and leasing commissions, (vi) advertising and marketing expenses,
(vii) costs of Landlord reimbursed by insurance proceeds, (viii) expenses
incurred in negotiating leases of other tenants in the Building or enforcing
lease obligations of other tenants in the Building and (ix) Landlord's or
Landlord's property manager's corporate general overhead or corporate general
administrative expenses. If any Operating Expense, though paid in one year,
relates to more than one calendar year, at the option of Landlord such
expense may be proportionately allocated among such related calendar years.
OPERATING EXPENSES BASE YEAR: The calendar year designated in Section
1.01(14).
PREMISES: The space located in the Building at the Suite Number listed in
Section 1.01(12) and depicted on EXHIBIT A attached hereto, excluding Project
Areas on the floor(s) on which the Premises is located.
PROJECT or PROPERTY: The Project consists of the office building located at the
address specified in Section 1.01(1), together with any and all areas,
improvements, parking garage, sidewalks, landscaping and improvements, included
as part of the condominium established pursuant to the Declaration, and the
Land,
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any associated interests in real property, and the personal property,
fixtures, machinery, equipment, systems and apparatus located in or used in
conjunction with any of the foregoing. The Project may also be referred to as
the Property.
PROJECT AREAS: As defined under the definition of Building above.
REAL PROPERTY: The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment
Deposits, and all other charges, payments, late fees or other amounts
required to be paid by Tenant under this Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses
or Taxes. The Rent Adjustments shall be determined and paid as provided in
Article Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent
Adjustment attributable to each month of the applicable Adjustment Year. On
or before the beginning of each Adjustment Year or with Landlord's Statement
(defined in Article Four), Landlord may estimate and notify Tenant in writing
of its estimate of the excess, if any, of Operating Expenses over those for
the Operating Expenses Base Year and of Taxes over those for the Taxes Base
Year. Prior to the first determination by Landlord of the amount of Operating
Expenses for the Operating Expenses Base Year and of Taxes for the Taxes Base
Year, Landlord may estimate such amounts in the foregoing calculation. The
last estimate by Landlord shall remain in effect as the applicable Rent
Adjustment Deposit unless and until Landlord notifies Tenant in writing of a
change.
RENTABLE AREA OF THE BUILDING: The amount of square footage set forth in
Section 1.01(9). which represents the sum of the rentable area of all space
intended for occupancy in the Building.
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in
Section 1.01(10).
SECURITY DEPOSIT: The funds specified in Section 1.01(11), if any, deposited
by Tenant with Landlord as security for Tenant's performance of its
obligations under this Lease.
STANDARD OPERATING HOURS: Monday through Friday from 7:00 A.M. to 6:00 P.M.,
excluding National Holidays.
SUBSTANTIALLY COMPLETE OR SUBSTANTIAL COMPLETION: The completion of the
Landlord Work or Tenant Work, as the case may be, except for minor
insubstantial details of construction, decoration or mechanical adjustments
which remain to be done.
TAXES: All federal, state and local governmental taxes, assessments and
charges of every kind or nature, whether general, special, ordinary or
extraordinary, which Landlord shall pay or become obligated to pay because of
or in connection with the ownership, leasing, management, control or
operation of the Building (including any personal property used in connection
therewith), including all of its components and the Building's share of such
taxes, assessments and charges of the Project Areas, which may also include
any rental or similar taxes levied in lieu of or in addition to general real
and/or personal property taxes. For purposes hereof, Taxes for any year shall
be Taxes which are assessed for any period of such year, whether or not such
Taxes are billed and payable in a subsequent calendar year. There shall be
included in Taxes for any year the amount of all fees, costs and expenses
(including reasonable attorneys' fees) paid by Landlord during such year in
seeking or obtaining any refund or reduction of Taxes. Taxes for any year
shall be reduced by the net amount of any tax refund received by Landlord
attributable to such year. If a special assessment payable in installments is
levied against any part of the Building, Taxes for any year shall include
only the installment of such assessment and any interest payable or paid
during such year. Taxes shall not include any federal or state inheritance,
general income, gift or estate taxes, except that if a change occurs in the
method of taxation resulting in whole or in part in the substitution of any
such taxes, or any
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other assessment, for any Taxes as above defined, such substituted taxes or
assessments shall be included in the Taxes.
TAXES BASE YEAR: The year designated in Section 1.01(15).
TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant
Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations
or construction in or to the Premises or any Real Property systems serving
the Premises done or caused to be done by Tenant after the date hereof,
whether prior to or after the Commencement Date (including Tenant Work, but
excluding Landlord Work); and any supplementary air-conditioning systems
installed by Landlord or by Tenant at Landlord's request pursuant to Section
6.01(b).
TENANT DELAY: Any event or occurrence which delays the completion of the
Landlord Work which is caused by or is described as follows:
(i) special work, changes, alterations or additions requested or made
by Tenant in the design or finish in any part of the Premises after
approval of the plans and specifications (as described in Rider 2);
(ii) Tenant's delay in submitting plans, supplying information,
approving plans, specifications or estimates, giving authorizations or
otherwise;
(iii) failure to approve and pay for such work as Landlord undertakes
to complete at Tenant's expense;
(iv) the performance or completion by Tenant or any person engaged by
Tenant of any work in or about the Premises; or
(v) failure to perform or comply with any obligation or condition
binding upon Tenant pursuant to Rider 2, including the failure to
approve and pay for such Landlord Work or other items if and to the
extent Rider 2 provides they are to be approved or paid by Tenant.
TENANT WORK: All work installed or furnished to the Premises by Tenant in
connection with Tenant's initial occupancy pursuant to Rider 2.
TENANT'S SHARE: The percentage specified in Section 1.01(13) which represents
the ratio of the Rentable Area of the Premises to the Rentable Area of the
Building.
TERM: The term of this Lease which shall commence on the Commencement Date and
expire on the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
WORKLETTER: (intentionally omitted)
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease.
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2.02 TERM
The Commencement Date shall be the date specified as the Projected Commencement
Date, unless changed by operation of Rider 2.
2.03 FAILURE TO GIVE POSSESSION
(intentionally omitted; see Rider 2)
2.04 AREA OF PREMISES
Landlord and Tenant agree that for all purposes of this Lease the Rentable Area
of the Premises and the Rentable Area of the Building as set forth in Article
One are controlling, and are not subject to revision after the date of this
Lease.
2.05 CONDITION OF PREMISES
The Premises shall be delivered and leased in the condition provided in Rider 2.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the first office specified in Section
1.01(2), or to such other persons, or at such other places designated by
Landlord, without any prior demand therefor in immediately available funds
and without any deduction or offset whatsoever, Rent, including Monthly Base
Rent and Rent Adjustments in accordance with Article Four, during the Term.
Monthly Base Rent shall be paid monthly in advance on the first day of each
month of the Term, except that the first installment of Monthly Base Rent
shall be paid by Tenant to Landlord concurrently with execution of this
Lease. Monthly Base Rent shall be prorated for partial months within the
Term. Unpaid Rent shall bear interest at the Default Rate from the date due
until paid. Tenant's covenant to pay Rent shall be independent of every other
covenant in this Lease.
ARTICLE FOUR
RENT ADJUSTMENTS AND PAYMENTS
4.01 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment
Year as follows:
(i) The Rent Adjustment Deposit representing Tenant's Share of
Operating Expenses for the applicable Adjustment Year in excess of
Operating Expenses for the Operating Expenses Base Year, monthly during
the Term with the payment of Monthly Base Rent; and
(ii) The Rent Adjustment Deposit representing Tenant's Share
of Taxes for the applicable Adjustment Year in excess of Taxes for the
Taxes Base Year, monthly during the Term with the payment of Monthly
Base Rent; and
(iii) Any Rent Adjustments due in excess of the Rent
Adjustment Deposits in accordance with Section 4.02. Rent Adjustments
due from Tenant to Landlord for any Adjustment Year shall be Tenant's
Share of Operating Expenses for such year in excess of Operating
Expenses for the Operating Expenses Base Year and Tenant's Share of
Taxes for such year in excess of Taxes for the Taxes Base Year.
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4.02 STATEMENT OF LANDLORD
As soon as feasible after the expiration of the Operating Expenses Base Year
and the Taxes Base Year, and each Adjustment Year thereafter, Landlord will
furnish Tenant a statement ("Landlord's Statement") showing the following:
(i) Operating Expenses and Taxes for the Operating Expenses
Base Year and Taxes Base Year and thereafter for the last Adjustment
Year;
(ii) The amount of Rent Adjustments due Landlord for the last
Adjustment Year, less credit for Rent Adjustment Deposits paid, if any;
and
(iii) Any change in the Rent Adjustment Deposit due monthly in
the current Adjustment Year, including the amount or revised amount due
for months preceding any such change pursuant to Landlord's Statement.
Tenant shall pay to Landlord within ten (10) days after receipt of such
statement any amounts for Rent Adjustments then due in accordance with
Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to
this Section shall be credited to the Rent Adjustment Deposit next coming
due, or refunded to Tenant if the Term has already expired provided Tenant is
not in default hereunder. No interest or penalties shall accrue on any
amounts which Landlord is obligated to credit or refund to Tenant by reason
of this Section 4.02. Landlord's failure to deliver Landlord's Statement or
to compute the amount of the Rent Adjustments shall not constitute a waiver
by Landlord of its right to deliver such items nor constitute a waiver or
release of Tenant's obligations to pay such amounts. The Rent Adjustment
Deposit shall be credited against Rent Adjustments due for the applicable
Adjustment Year. During the last complete calendar year or during any partial
calendar year in which the Lease terminates, Landlord may include in the Rent
Adjustment Deposit its estimate of Rent Adjustments which may not be finally
determined until after the termination of this Lease. Tenant's obligation to
pay Rent Adjustments survives the expiration or termination of the Lease.
Notwithstanding the foregoing, in no event shall the sum of Monthly Base Rent
and the Rent Adjustments be less than the Monthly Base Rent payable.
4.03 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and
Taxes in accordance with sound accounting and management practices,
consistently applied. The Tenant or its representative (which representative
shall be a certified public accountant licensed to do business in the state
in which the Property is located and whose primary business is certified
public accounting) shall have the right, for a period of thirty (30) days
following the date upon which Landlord's Statement is delivered to Tenant, to
examine the Landlord's books and records with respect to the items in the
foregoing statement of Operating Expenses and Taxes during normal business
hours, upon written notice, delivered at least three (3) business days in
advance. If Tenant does not object in writing to Landlord's Statement within
sixty (60) days of Tenant's receipt thereof, specifying the nature of the
item in dispute and the reasons therefor, then Landlord's Statement shall be
considered final and accepted by Tenant. Any amount due to the Landlord as
shown on Landlord's Statement, whether or not disputed by Tenant as provided
herein shall be paid by Tenant when due as provided above, without prejudice
to any such written exception.
4.04 PARTIAL OCCUPANCY
For purposes of determining Rent Adjustments, if the Project is not fully
occupied during all or a portion of any year during the Term, Landlord may make
appropriate adjustments to the Operating Expenses for such year employing sound
accounting and management principles consistently applied, to determine the
amount of Operating Expenses that would have been paid or incurred by Landlord
had the Project been 100% occupied, and the amount so determined shall be deemed
to have been the amount of Operating Expenses for such year. In the event that
the Real Property is not fully assessed for all or a portion of any year during
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the Term, then Taxes shall be adjusted to an amount which would have been
payable in such year if the Real Property had been fully assessed. In the
event any other tenant in the Building provides itself with a service of a
type which Landlord would supply under the Lease without an additional or
separate charge to Tenant, then Operating Expenses shall be deemed to include
the cost Landlord would have incurred had Landlord provided such service to
such other tenant.
4.05 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits
and other charges to be paid by Tenant, Tenant shall pay to Landlord, upon
demand, any and all taxes payable by Landlord (other than federal or state
inheritance, general income, gift or estate taxes) whether or not now
customary or within the contemplation of the parties hereto: (a) upon,
allocable to, or measured by the Rent payable hereunder, including any gross
receipts tax or excise tax levied by any governmental or taxing body with
respect to the receipt of such rent; or (b) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises or any portion thereof; or (c)
upon the measured value of Tenant's personal property located in the Premises
or in any storeroom or any other place in the Premises or the Property, or
the areas used in connection with the operation of the Property, it being the
intention of Landlord and Tenant that, to the extent possible, such personal
property taxes shall be billed to and paid directly by Tenant; or (d)
resulting from Landlord Work, Tenant Work or Tenant Alterations to the
Premises, whether title thereto is in Landlord or Tenant; or (e) upon this
transaction. Taxes paid by Tenant pursuant to this Section 4.05 shall not be
included in any computation of Taxes payable pursuant to Sections 4.01 and
4.02.
ARTICLE FIVE
SECURITY DEPOSIT
Tenant concurrently with the execution of this Lease shall pay to Landlord in
immediately available funds the Security Deposit. The Security Deposit may be
applied by Landlord to cure, in whole or part, any default of Tenant under
this Lease, and upon notice by Landlord of such application, Tenant shall
replenish the Security Deposit in full by paying to Landlord within ten (10)
days of demand the amount so applied. Landlord's application of the Security
Deposit shall not constitute a waiver of Tenant's default to the extent that
the Security Deposit does not fully compensate Landlord for all losses,
damages, costs and expenses incurred by Landlord in connection with such
default and shall not prejudice any other rights or remedies available to
Landlord under this Lease or by Law. Landlord shall not pay any interest on
the Security Deposit. Landlord shall not be required to keep the Security
Deposit separate from its general accounts. The Security Deposit shall not be
deemed an advance payment of Rent, nor a measure of damages for any default
by Tenant under this Lease, nor shall it be a bar or defense of any action
which Landlord may at any time commence against Tenant. In the absence of
evidence satisfactory to Landlord of an assignment of the right to receive
the Security Deposit or the remaining balance thereof, Landlord may return
the Security Deposit to the original Tenant, regardless of one or more
assignments of this Lease. Upon the transfer of Landlord's interest under
this Lease, Landlord's obligation to Tenant with respect to the Security
Deposit shall terminate upon transfer to the transferee of the Security
Deposit, or any balance thereof. If Tenant shall fully and faithfully comply
with all the terms, provisions, covenants, and conditions of this Lease, the
Security Deposit, or any balance thereof, shall be returned to Tenant within
thirty (30) days after Landlord recovers possession of the Premises or such
longer time as may be permissible under Law. Tenant hereby waives any and all
rights of Tenant under the provisions of Section 1950.7 of the California
Civil Code or other Law regarding security deposits.
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ARTICLE SIX
SERVICES
6.01 LANDLORD'S GENERAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant has
paid all Rent then due, Landlord shall furnish or cause the following services
to be furnished to Tenant:
(1) heat, ventilation and air-conditioning ("HVAC") in the Premises during
Standard Operating Hours, as necessary in Landlord's reasonable
judgment for the comfortable occupancy of the Premises under normal
business operations, subject to compliance with all applicable
voluntary and mandatory regulations and Laws;
(2) tempered and cold water for use in restrooms and lavatories in common
with other tenants from the regular supply of the Building;
(3) customary cleaning and janitorial services in the Premises five (5)
days per week, excluding National Holidays;
(4) washing of the outside windows in the Premises weather permitting at
intervals determined by Landlord;
(5) automatic passenger elevator service in common with other tenants of
the Building and, subject to reasonable scheduling by Landlord and
payment of the standard charges (without mark-up by Landlord), freight
elevator service;
(b) If Tenant uses heat generating machines or equipment in the
Premises to an extent which adversely affects the temperature otherwise
maintained by the air-cooling system or whenever the occupancy or electrical
load adversely affects the temperature otherwise maintained by the air-cooling
system, Landlord reserves the right to install or to require Tenant to install
supplementary air-conditioning units in the Premises. Tenant shall bear all
costs and expenses related to the installation, maintenance and operation of
such units.
(c) Tenant shall pay Landlord at rates fixed by Landlord for all
tenants in the Building, charges for all water furnished to the Premises beyond
that described in Section 6.01(a)(2), including the expenses of installation of
a water line, meter and fixtures.
6.02 ELECTRICAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant has
paid all Rent then due, Landlord shall furnish or cause to be furnished to the
Premises electric current for general business office use, including normal
lighting, normal business office machines, customary janitorial service, and
making alterations or repairs (whether by Landlord or Tenant). Notwithstanding
any provision of the Lease to the contrary, without, in each instance, the prior
written consent of Landlord, which may be withheld in Landlord's sole
discretion, Tenant shall not: (i) make any alterations or additions to the
electric equipment or systems; or (ii) install or use or permit the installation
or use of any computer or electronic data processing equipment in the Premises
other than personal computers, lap-top computers and ancillary equipment.
Tenant's use of electric current shall at no time exceed the lesser of (x) the
capacity of the wiring, feeders and risers providing electric current to the
Premises or the Building; or (y) a connected electrical load for lighting
purposes in excess of the wattage per square foot of Rentable Area of the
Premises required for Building standard amounts of lighting plus a connected
load for all other power requirements of three (3) watts per square foot of
Rentable Area of the Premises. The consent of Landlord to the installation of
electric equipment shall not relieve Tenant from the obligation to limit usage
of electricity to no more than such capacity.
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(b) If and to the extent electric current is furnished to the
Premises in excess of the amount of electric current normally used during
Standard Operating Hours in a general business office in a first class office
building with the type of electrical equipment and normal business office
machines described in subparagraph (a) above, Tenant shall pay Landlord upon
notice from Landlord the cost of such excess electric current, as additional
Rent. The cost of such excess use and all additional costs separately billed
to Tenant pursuant to this Section shall not be included as part of Operating
Expenses. At any time and from time to time, Landlord may in its sole
discretion either (i) install one or more meters to measure electric current
furnished to the Premises or (ii) reasonably estimate electric current
furnished to the Premises. Upon notice from Landlord, Tenant shall pay
Landlord the cost of installing and maintaining all such meters and of any
electrical engineering or consulting firm, if Landlord retains such firm to
estimate the electric current furnished to the Premises in lieu of
installation of a meter. Tenant shall pay Landlord for such excess electric
current at the then current rates charged to Landlord for such electricity
provided to the Property by the utility provider chosen by Landlord plus any
additional cost of Landlord in keeping account of the electric current so
consumed. Landlord's notice shall specify whether such excess use shall be
payable (i) in advance as reasonably estimated by Landlord in monthly
installments at the time prescribed for monthly installments of Monthly Base
Rent or (ii) within ten days after notice from Landlord given from time to
time of the amount due for prior excess use as metered or reasonably
estimated by Landlord.
(c) So long as the Lease is in full force and effect and Tenant has
paid all Rent then due, Landlord shall furnish or cause to be furnished to the
Premises replacement lamps, bulbs, ballasts and starters used in any normal
Building lighting installed in the Premises, except that if the replacement or
repair of such items is a result of negligence of Tenant, its employees, agents,
servants, licensees, subtenants, contractors or invitees, such cost shall be
paid by Tenant within ten days after notice from Landlord and shall not be
included as part of Operating Expenses.
6.03 ADDITIONAL AND AFTER-HOUR SERVICES
At Tenant's written request, Landlord shall request that the condominium
association of the Project furnish additional quantities of any of the services
or utilities specified in Section 6.01on the terms set forth herein. For HVAC:
(a) for service after Standard Operating Hours on Monday through Friday (except
National Holidays), Tenant shall deliver to Landlord a written request before
2:00 P.M. of such day, and (b) for service on a Saturday, Sunday or National
Holiday, Tenant shall deliver to Landlord a written request before 2:00 P.M. on
the last business day prior to the requested service. For services or utilities
requested by Tenant and furnished by Landlord, Tenant shall pay to Landlord as a
charge therefor Landlord's prevailing rates charged from time to time for such
services and utilities. Without limiting the generality of the foregoing, for
HVAC service beyond Standard Operating Hours, as of the date of this Lease, a
two (2) hour minimum usage is required per activation. If Tenant shall fail to
make any such payment, Landlord may, upon notice to Tenant and in addition to
Landlord's other remedies under this Lease, discontinue any or all of such
additional services.
6.04 TELEPHONE SERVICES
All telegraph, telephone, and communication connections which Tenant may desire
shall be subject to Landlord's prior written approval, in Landlord's sole
discretion, and the location of all wires and the work in connection therewith
shall be performed by contractors approved by Landlord and shall be subject to
the direction of Landlord, except that such approval is not required as to
Tenant's telephone equipment (including cabling) within the Premises and from
the Premises in a route designated by Landlord to any telephone cabinet or panel
provided (as existing or as installed as part of Landlord's Work, if any) on
Tenant's floor for Tenant's connection to the telephone cable serving the
Building so long as Tenant's equipment does not require connections different
than or additional to those to the telephone cabinet or panel provided. Except
to the extent of such cabling within the Premises or from the Premises to such
telephone cabinet or panel, Landlord reserves the right to designate and control
the entity or entities providing telephone or other communication cable
installation, removal, repair and maintenance in the Building and to
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restrict and control access to telephone cabinets or panels. In the event
Landlord designates a particular vendor or vendors to provide such cable
installation, removal, repair and maintenance for the Building, Tenant agrees
to abide by and participate in such program. Tenant shall be responsible for
and shall pay all costs incurred in connection with the installation of
telephone cables and communication wiring in the Premises, including any
hook-up, access and maintenance fees related to the installation of such
wires and cables in the Premises and the commencement of service therein, and
the maintenance thereafter of such wire and cables; and there shall be
included in Operating Expenses for the Building all installation, removal,
hook-up or maintenance costs incurred by Landlord in connection with
telephone cables and communication wiring serving the Building which are not
allocable to any individual users of such service but are allocable to the
Building generally. If Tenant fails to maintain all telephone cables and
communication wiring in the Premises and such failure affects or interferes
with the operation or maintenance of any other telephone cables or
communication wiring serving the Building, Landlord or any vendor hired by
Landlord may enter into and upon the Premises forthwith and perform such
repairs, restorations or alterations as Landlord deems necessary in order to
eliminate any such interference (and Landlord may recover from Tenant all of
Landlord's costs in connection therewith). No later than the Termination
Date, Tenant agrees to remove all telephone cables and communication wiring
installed by Tenant for and during Tenant's occupancy, which Landlord shall
request Tenant to remove. Tenant agrees that neither Landlord nor any of its
agents or employees shall be liable to Tenant, or any of Tenant's employees,
agents, customers or invitees or anyone claiming through, by or under Tenant,
for any damages, injuries, losses, expenses, claims or causes of action
because of any interruption, diminution, delay or discontinuance at any time
for any reason in the furnishing of any telephone or other communication
service to the Premises and the Building.
6.05 DELAYS IN FURNISHING SERVICES
(a) Tenant agrees that Landlord shall not be in breach of this Lease
nor be liable to Tenant for damages or otherwise, for any failure to furnish, or
a delay in furnishing, or a change in the quantity or character of any service
when such failure, delay or change is occasioned, in whole or in part, by
repairs, improvements or mechanical breakdowns by the act or default of Tenant
or other parties or by an event of Force Majeure. No such failure, delay or
change shall be deemed to be an eviction or disturbance of Tenant's use and
possession of the Premises, or relieve Tenant from paying Rent or from
performing any other obligations of Tenant under this Lease, without any
deduction or offset. Failure to any extent to make available, or any slowdown,
stoppage, or interruption of, the specified utility services resulting from any
cause, including changes in service provider or Landlord's compliance with any
voluntary or similar governmental or business guidelines now or hereafter
published or any requirements now or hereafter established by any governmental
agency, board, or bureau having jurisdiction over the operation of the Property,
shall not render Landlord liable in any respect for damages to either persons,
property, or business, nor be construed as an eviction of Tenant or work an
abatement of Rent, nor relieve Tenant of Tenant's obligations for fulfillment of
any covenant or agreement hereof. Should any equipment or machinery furnished by
Landlord break down or for any cause cease to function properly, Landlord shall
use reasonable diligence to repair same promptly, but Tenant shall have no claim
for abatement of Rent or damages on account of any interruption of service
occasioned thereby or resulting therefrom.
(b) Tenant acknowledges that all of Landlord's covenants and obligation
under this Article Six are subject to the requirements of the governing
documents for the Project of which the Premises form a part. Accordingly,
Landlord shall have no liability hereunder if the Project fails to provide a
service required to be provided to Tenant hereunder so long as Landlord uses
commercially reasonable efforts, at Landlord's sole expense, to cause the
Project to do so.
6.06 CHOICE OF SERVICE PROVIDER
Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent
permitted by applicable law, elect to change, from time to time, the company or
companies which provide services (including electrical service, gas service,
water, telephone and technical services) to the Building, the Premises and/or
its occupants Notwithstanding anything to the contrary set forth in this Lease,
Tenant acknowledges that
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Landlord has not and does not make any representations or warranties
concerning the identity or identities of the company or companies which
provide services to the Building and the Premises or its occupants and Tenant
acknowledges that the choice of service providers and matters concerning the
engagement and termination thereof shall be solely that of Landlord. The
foregoing provision is not intended to modify, amend, change or otherwise
derogate from any provision of this Lease concerning the nature or type of
service to be provided or any specific information concerning the amount
thereof to be provided. Tenant agrees to cooperate with Landlord and each of
its service providers in connection with any change in service or provider.
6.07 SIGNAGE
Initial Project standard signage will be installed by Landlord in the directory
in the main lobby of the Project and in the directory in the elevator lobby of
the floor on which the Premises is located. Tenant may, at Tenant's sole cost
and expense and in accordance with the Project standard signage, install a sign
identifying Tenant's business at Tenant's main entry door to the Premises. Any
change in such initial signage shall be only with Landlord's prior written
consent, shall conform to Project standard signage and shall be at Tenant's sole
cost and expense.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall occupy and use the Premises only for the uses
specified in Section 1.01(16) to conduct Tenant's business. Tenant shall not
occupy or use the Premises (or permit the use or occupancy of the Premises)
for any purpose or in any manner which: (1) is unlawful or in violation of
any Law or Environmental Law; (2) may be dangerous to persons or property or
which may invalidate any policy of insurance carried on the Building or
Project or covering its operations or which may increase the cost of any such
insurance or insurance carried by any other occupant of the Project unless
such increased cost is paid by Tenant as provided in the rules and
regulations of the Building described in Article Eighteen; (3) is contrary to
or prohibited by the terms and conditions of this Lease or the rules and
regulations of the Building set forth in Article Eighteen; or (4) would tend
to create or continue a nuisance.
(b) Tenant shall comply with all Environmental Laws pertaining to
Tenant's occupancy and use of the Premises and concerning the proper storage,
handling and disposal of any Hazardous Material introduced to the Premises,
the Building or the Property by Tenant or other occupants of the Premises, or
their employees, servants, agents, contractors, customers or invitees.
Landlord shall comply with all Environmental Laws applicable to the Property
other than those to be complied with by Tenant pursuant to the preceding
sentence. Tenant shall not generate, store, handle or dispose of any
Hazardous Material in, on, or about the Property without the prior written
consent of Landlord, which may be withheld in Landlord's sole discretion,
except that such consent shall not be required to the extent of Hazardous
Material packaged and contained in office products for consumer use in
general business offices in quantities for ordinary day-to-day use provided
such use does not give rise to, or pose a risk of, exposure to or release of
Hazardous Material. In the event that Tenant is notified of any investigation
or violation of any Environmental Law arising from Tenant's activities at the
Premises, Tenant shall immediately deliver to Landlord a copy of such notice.
In such event or in the event Landlord reasonably believes that a violation
of Environmental Law exists, Landlord may conduct such tests and studies
relating to compliance by Tenant with Environmental Laws or the alleged
presence of Hazardous Materials upon the Premises as Landlord deems
desirable, all of which shall be completed at Tenant's expense. Landlord's
inspection and testing rights are for Landlord's own protection only, and
Landlord has not, and shall not be deemed to have assumed any responsibility
to Tenant or any other party for compliance with Environmental Laws, as a
result of the exercise, or non-exercise of such rights. Tenant hereby
indemnifies, and agrees to defend, protect and hold harmless, the Indemnitees
from any and all loss, claim, demand, action, expense, liability and cost
(including attorneys' fees and expenses) arising out of or in any way related
to the presence of any Hazardous Material
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introduced to the Premises during the Lease Term by Tenant or other occupants
of the Premises, or their employees, servants, agents, contractors, customers
or invitees. In case of any action or proceeding brought against the
Indemnitees by reason of any such claim, upon notice from Landlord, Tenant
covenants to defend such action or proceeding by counsel chosen by Landlord,
in Landlord's sole discretion. Landlord reserves the right to settle,
compromise or dispose of any and all actions, claims and demands related to
the foregoing indemnity. If any Hazardous Material is released, discharged or
disposed of on or about the Property and such release, discharge or disposal
is not caused by Tenant or other occupants of the Premises, or their
employees, servants, agents, contractors customers or invitees, such release,
discharge or disposal shall be deemed casualty damage under Article Fourteen
to the extent that the Premises are affected thereby; in such case, Landlord
and Tenant shall have the obligations and rights respecting such casualty
damage provided under such Article.
(c) Landlord and Tenant acknowledge that the Americans With
Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and
guidelines promulgated thereunder, as all of the same may be amended and
supplemented from time to time (collectively referred to herein as the "ADA")
establish requirements for business operations, accessibility and barrier
removal, and that such requirements may or may not apply to the Premises, the
Building and the Project depending on, among other things: (1) whether Tenant's
business is deemed a "public accommodation" or "commercial facility", (2)
whether such requirements are "readily achievable", and (3) whether a given
alteration affects a "primary function area" or triggers "path of travel"
requirements. The parties hereby agree that: (a) Landlord shall be responsible
for ADA Title III compliance in the Common Areas, except as provided below, (b)
Tenant shall be responsible for ADA Title III compliance in the Premises,
including any leasehold improvements or other work to be performed in the
Premises under or in connection with this Lease, (c) Landlord may perform, or
require that Tenant perform, and Tenant shall be responsible for the cost of,
ADA Title III "path of travel" requirements in the Common Areas triggered by
Tenant Alterations in the Premises subsequent to the Tenant Work described in
Rider 2, and (d) Landlord may perform, or require Tenant to perform, and Tenant
shall be responsible for the cost of, ADA Title III compliance in the Common
Areas necessitated by the Building being deemed to be a "public accommodation"
instead of a "commercial facility" as a result of Tenant's use of the Premises.
Tenant shall be solely responsible for requirements under Title I of the ADA
relating to Tenant's employees. To the extent Tenant shall occupy a full floor
in the Building, all ADA requirements relating to the restrooms, elevator
lobbies and corridors on such floor shall be the responsibility of Tenant. All
matters relating to "life safety" on such floors shall also be the
responsibility of Tenant.
(d) Landlord and Tenant agree to cooperate and use commercially
reasonable efforts to participate in traffic management programs generally
applicable to businesses located in or about the area and Tenant shall encourage
and support van and car pooling by, and staggered and flexible working hours
for, its office workers and service employees to the extent reasonably permitted
by the requirements of Tenant's business. Neither this Section or any other
provision of this Lease is intended to or shall create any rights or benefits in
any other person, firm, company, governmental entity or the public.
(e) Tenant agrees to cooperate with Landlord and to comply with any and
all guidelines or controls concerning energy management imposed upon Landlord by
federal or state governmental organizations or by any energy conservation
association to which Landlord is a party or which is applicable to the Building.
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes,
ducts, wiring and conduits in and through the Premises, so long as Tenant's use,
layout or design of the Premises is not materially affected or altered. Landlord
or Landlord's agents shall have the right to enter upon the Premises in the
event of an emergency, or to inspect the Premises, to perform janitorial and
other services, to conduct safety and other testing in the Premises and to make
such repairs, alterations, improvements or additions to the Premises or the
Building or other parts of the Property as Landlord may deem necessary or
desirable (including all alterations, improvements and additions in connection
with a change in service provider
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or providers). Janitorial and cleaning services shall be performed after
normal business hours. Any entry or work by Landlord may be during normal
business hours and Landlord shall use reasonable efforts to ensure that any
entry or work shall not materially interfere with Tenant's occupancy of the
Premises.
(b) If Tenant shall not be personally present to permit an entry into
the Premises when for any reason an entry therein shall be necessary or
permissible, Landlord (or Landlord's agents), after attempting to notify Tenant
(unless Landlord believes an emergency situation exists), may enter the Premises
without rendering Landlord or its agents liable therefor, and without relieving
Tenant of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting such
inspections, tests and studies as Landlord may deem desirable or necessary to
confirm Tenant's compliance with all Laws and Environmental Laws or for other
purposes necessary in Landlord's reasonable judgment to ensure the sound
condition of the Property and the systems serving the Property. Landlord shall
give tenant twenty-four (24) hours prior verbal or written notice of any entry
under this Section 7.02(c), except in the event of an emergency no such notice
shall be required. Any such entry may be during normal business hours and
Landlord shall use reasonable efforts to ensure that any entry shall not
materially interfere with Tenant's occupancy of the Premises. Landlord's rights
under this Section 7.02(c) are for Landlord's own protection only, and Landlord
has not, and shall not be deemed to have assumed, any responsibility to Tenant
or any other party as a result of the exercise or non-exercise of such rights,
for compliance with Laws or Environmental Laws or for the accuracy or
sufficiency of any item or the quality or suitability of any item for its
intended use.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise.
(e) The review, approval or consent of Landlord with respect to any
item required or permitted under this Lease is for Landlord's own protection
only, and Landlord has not, and shall not be deemed to have assumed, any
responsibility to Tenant or any other party, as a result of the exercise or
non-exercise of such rights, for compliance with Laws or Environmental Laws or
for the accuracy or sufficiency of any item or the quality or suitability of any
item for its intended use.
(f) To the extent Tenant shall occupy a full floor in the Building, all
ADA requirements relating to the bathrooms, elevator lobbies and corridors on
such floor shall be the responsibility of Tenant. All matters relating to "life
safety" on such floors shall also be the responsibility of Tenant.
7.03 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet
enjoyment, that so long as Tenant is in compliance with the covenants and
conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the covenants and conditions set
forth in the Lease and to the rights of any Mortgagee or ground lessor.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to the provisions of Articles Seven and Fourteen, Landlord shall perform
(or shall cause to be performed) maintenance and necessary repairs to the
foundations, roofs, exterior walls, and the structural elements of the Building
(and Project, as appropriate), the electrical, plumbing, heating, ventilating,
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air-conditioning, mechanical, communication, security and the fire and life
safety systems of the Building and those corridors, washrooms and lobbies
which are Common Areas of the Building, except that: (a) Landlord shall not
be responsible for the maintenance or repair of any floor or wall coverings
in the Premises (or Project, as appropriate) or any of such systems which are
located within the Premises (or Project, as appropriate) and are supplemental
or special to the Building's (or Project, as appropriate) standard systems;
and (b) the cost of performing any of said maintenance or repairs whether to
the Premises or to the Building (or Project as appropriate) caused by the
negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, shall be paid by Tenant, subject to the waivers set
forth in Section 16.04. Landlord shall not be liable to Tenant for any
expense, injury, loss or damage resulting from work done in or upon, or in
connection with the use of, any adjacent or nearby building, land, street, or
alley.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Article Fourteen, Tenant, at its expense, shall
keep and maintain the Premises and all Tenant Additions thereto in good order,
condition and repair and in accordance with all Laws and Environmental Laws.
Tenant shall not permit waste and shall promptly and adequately repair all
damages to the Premises and replace or repair all damaged or broken glass in the
interior of the Premises, fixtures or appurtenances. Any repairs or maintenance
shall be completed with materials of similar quality to the original materials,
all such work to be completed under the supervision of Landlord. Any such
repairs or maintenance shall be performed only by contractors or mechanics
approved by Landlord, which approval shall not be unreasonably withheld, and
whose work will not cause or threaten to cause disharmony or interference with
Landlord or other tenants in the Building and their respective agents and
contractors performing work in or about the Building. If Tenant fails to perform
any of its obligations set forth in this Section 8.02, Landlord may, in its sole
discretion and upon 24 hours prior notice to Tenant (except without notice in
the case of emergencies), perform the same, and Tenant shall pay to Landlord any
costs or expenses incurred by Landlord upon demand.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) The following provisions shall apply to the completion of any
Tenant Alterations:
(1) Tenant shall not, except as provided herein, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
make or cause to be made any Tenant Alterations in or to the Premises
or any Property systems serving the Premises. Prior to making any
Tenant Alterations, Tenant shall give Landlord ten (10) days prior
written notice (or such earlier notice as would be necessary pursuant
to applicable Law) to permit Landlord sufficient time to post
appropriate notices of non-responsibility. Subject to all other
requirements of this Article Nine, Tenant may undertake Decoration work
without Landlord's prior written consent. Tenant shall furnish Landlord
with the names and addresses of all contractors and subcontractors and
copies of all contracts. All Tenant Alterations shall be completed at
such time and in such manner as Landlord may from time to time
designate, and only by contractors or mechanics approved by Landlord,
which approval shall not be unreasonably withheld, provided, however,
that Landlord may, in its sole discretion, specify the engineers and
contractors to perform all work relating to the Building's systems
(including the mechanical, heating, plumbing, security, ventilating,
air-conditioning, electrical, communication and the fire and life
safety systems in the Building). The contractors, mechanics and
engineers who may be used are further limited to those whose work will
not cause or threaten to cause disharmony or interference with Landlord
or other tenants in the Building and their respective agents and
contractors performing work in or about the Building. Landlord may
further condition its consent upon Tenant furnishing to Landlord and
Landlord approving prior to the commencement of any work or delivery of
materials to the Premises related to the Tenant Alterations such of the
following as specified by Landlord: architectural plans and
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specifications, opinions from Landlord's engineers stating that the
Tenant Alterations will not in any way adversely affect the Building's
systems, necessary permits and licenses, certificates of insurance, and
such other documents in such form reasonably requested by Landlord.
Landlord may, in the exercise of reasonable judgment, request that
Tenant provide Landlord with appropriate evidence of Tenant's ability
to complete and pay for the completion of the Tenant Alterations such
as a performance bond or letter of credit. Upon completion of the
Tenant Alterations (other than Decorations), Tenant shall deliver to
Landlord an as-built mylar and digitized (if available) set of plans
and specifications for the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations and the cost of
decorating the Premises and any work to the Property occasioned
thereby. In connection with completion of any Tenant Alterations,
Tenant shall pay Landlord a construction fee and all elevator and
hoisting charges at Landlord's then standard rate. Upon completion of
Tenant Alterations, Tenant shall furnish Landlord with contractors'
affidavits and full and final waivers of lien and receipted bills
covering all labor and materials expended and used in connection
therewith and such other documentation reasonably requested by Landlord
or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i) in accordance with
all Laws, Environmental Laws, all requirements of applicable insurance
companies and in accordance with Landlord's standard construction rules
and regulations, and (ii) in a good and workmanlike manner with the use
of good grades of materials. Tenant shall notify Landlord immediately
if Tenant receives any notice of violation of any Law in connection
with completion of any Tenant Alterations and shall immediately take
such steps as are necessary to remedy such violation. In no event shall
such supervision or right to supervise by Landlord nor shall any
approvals given by Landlord under this Lease constitute any warranty by
Landlord to Tenant of the adequacy of the design, workmanship or
quality of such work or materials for Tenant's intended use or of
compliance with the requirements of Section 9.01(a)(3)(i) and (ii)
above or impose any liability upon Landlord in connection with the
performance of such work.
(b) All Tenant Additions to the Premises, whether installed by Landlord
or Tenant, shall without compensation or credit to Tenant, become part of the
Premises and the property of Landlord at the time of their installation and
shall remain in the Premises, unless pursuant to Article Twelve, Tenant may
remove them or is required to remove them at Landlord's request.
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer
or supplier or any other lien to be filed against the Building, the Land, the
Premises, or any other part of the Property arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filed, Tenant shall within ten
(10) days of receiving notice of such lien or claim (a) have such lien or
claim for lien released of record or (b) deliver to Landlord a bond in form,
content, amount, and issued by surety, satisfactory to Landlord,
indemnifying, protecting, defending and holding harmless the Indemnitees
against all costs and liabilities resulting from such lien or claim for lien
and the foreclosure or attempted foreclosure thereof. If Tenant fails to take
any of the above actions, Landlord, in addition to its rights and remedies
under Article Eleven, without investigating the validity of such lien or
claim for lien, may pay or discharge the same and Tenant shall, as payment of
additional Rent hereunder, reimburse Landlord upon demand for the amount so
paid by Landlord, including Landlord's expenses and attorneys' fees.
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ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, Tenant may not sublease, assign,
mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of
this Lease or the encumbering of Tenant's interest therein in whole or in part,
by operation of Law or otherwise or permit the use or occupancy of the Premises,
or any part thereof, by anyone other than Tenant, provided, however, if Landlord
chooses not to recapture the space proposed to be subleased or assigned as
provided in Section 10.02, Landlord shall not unreasonably withhold its consent
to a subletting or assignment under this Section 10.01. Tenant agrees that the
provisions governing sublease and assignment set forth in this Article Ten shall
be deemed to be reasonable. If Tenant desires to enter into any sublease of the
Premises or assignment of this Lease, Tenant shall deliver written notice
thereof to Landlord ("Tenant's Notice"), together with the identity of the
proposed subtenant or assignee (and certified financial statements thereof for
the prior three (3) years) and the proposed principal terms thereof and further
financial and other information sufficient for Landlord to make an informed
judgment with respect to such proposed subtenant or assignee at least sixty (60)
days prior to the commencement date of the term of the proposed sublease or
assignment. If Tenant proposes to sublease less than all of the Rentable Area of
the Premises, the space proposed to be sublet and the space retained by Tenant
must each be a marketable unit as reasonably determined by Landlord and
otherwise in compliance with all Laws. Landlord shall notify Tenant in writing
of its approval or disapproval of the proposed sublease or assignment or its
decision to exercise its rights under Section 10.02 within thirty (30) days
after receipt of Tenant's Notice (and all required information). In no event may
Tenant sublease any portion of the Premises or assign the Lease to any other
tenant of the Building. Tenant shall submit for Landlord's approval (which
approval shall not be unreasonably withheld) any advertising which Tenant or its
agents intend to use with respect to the space proposed to be sublet.
(b) With respect to Landlord's consent to an assignment or sublease,
Landlord may take into consideration any factors which Landlord may deem
relevant, and the reasons for which Landlord's denial shall be deemed to be
reasonable shall include the following:
(i) the business reputation or creditworthiness of any proposed
subtenant or assignee is not acceptable to Landlord; or
(ii) in Landlord's reasonable judgment the proposed assignee or
subtenant would diminish the value or reputation of the Building or
Landlord; or
(iii) any proposed assignee's or subtenant's use of the Premises
would violate Section 7.01 of the Lease or would violate the
provisions of any other leases of tenants in the Project;
(iv) the proposed assignee or subtenant is either a governmental
agency, a school or similar operation, or a medical related practice;
or
(v) the proposed subtenant or assignee is a bona fide prospective
tenant of Landlord in the Project as demonstrated by a written proposal
dated within ninety (90) days prior to the date of Tenant's request; or
(vi) the proposed subtenant or assignee would materially increase the
estimated pedestrian and vehicular traffic to and from the Premises and
the Building.
In no event shall Landlord be obligated to consider a consent to any proposed
assignment of the Lease which would assign less than the entire Premises. In
the event Landlord wrongfully withholds its consent to any proposed sublease
of the Premises or assignment of the Lease, Tenant's sole and exclusive
remedy
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therefor shall be to seek specific performance of Landlord's obligations to
consent to such sublease or assignment.
(c) Any sublease or assignment shall be expressly subject to the terms
and conditions of this Lease. Any subtenant or assignee shall execute such
documents as Landlord may reasonably require to evidence such subtenant or
assignee's assumption of the obligations and liabilities of Tenant under this
Lease. Tenant shall deliver to Landlord a copy of all agreements executed by
Tenant and the proposed subtenant and assignee with respect to the Premises.
Landlord's approval of a sublease, assignment, hypothecation, transfer or third
party use or occupancy shall not constitute a waiver of Tenant's obligation to
obtain Landlord's consent to further assignments or subleases, hypothecations,
transfers or third party use or occupancy.
(d) For purposes of this Article Ten, an assignment shall be deemed to
include a change in the majority control of Tenant, resulting from any transfer,
sale or assignment of shares of stock or membership interests of Tenant
occurring by operation of Law or otherwise, and includes any merger,
acquisition, consolidation or reorganization, except as otherwise provided
below. Notwithstanding any provision of this Section to the contrary, an
assignment for purposes of this Article does not include any transfer of control
of the stock or membership interests of Tenant through (i) any public offering
of shares of stock in Tenant in accordance with applicable State and Federal
law, rules, regulations and orders if thereafter the stock shall be listed and
publicly traded through the New York Stock Exchange, American Stock Exchange or
Pacific Stock Exchange, or listed and publicly traded through the NASDAQ
national market and its price listed at least daily in the WALL STREET JOURNAL;
or (ii) public sale of such stock effected through such Exchanges or the NASDAQ
national market. If Tenant is a partnership, any change in the partners of
Tenant shall be deemed to be an assignment.
(e) Notwithstanding anything to the contrary in Sections 10.01(a) and
10.02, but subject to Section 10.03, Tenant shall have the right, without the
prior written consent of Landlord, to assign this Lease to an Affiliate or to
sublease the Premises or any part thereof to an Affiliate (defined below)
provided that (i) Landlord receives thirty (30) days prior written notice of an
assignment or sublease; (ii) the Affiliate's net worth after the assignment or
subletting is not less than Tenant's net worth immediately prior to the
assignment or subletting; (iii) the Affiliate has proven experience in the
operation of a first-class business of a type consistent with the use of the
Building as a first class office Building; (iv) the Affiliate remains an
Affiliate for the duration of the sublease or the balance of the Term in the
event of an assignment; (v) the Affiliate assumes (except in the event of a
sublease) in writing satisfactory to Landlord all of Tenant's obligations and
liability under this Lease and delivers to Landlord a proposed assumption no
later than fifteen (15) days prior to the effective date of the assignment and a
fully executed original of such assumption promptly after the effective date;
(vii) Landlord receives a fully executed copy of an assignment or sublease
agreement between Tenant and the Affiliate; and (viii) promptly after Landlord's
written request, Tenant and the Affiliate provide such reasonable documents or
information which Landlord reasonably requests for the purpose of substantiating
whether or not the assignment or sublease is to an Affiliate.
(f) For purposes of this Lease, Affiliate shall mean any Person (as
defined below) which: (i) is controlled by, controls, or is under common control
with Tenant; or (ii) is the corporation or other entity (the "Successor")
resulting from a merger, consolidation or non-bankruptcy reorganization with
Tenant; or (iii) purchases substantially all the assets of Tenant as a going
concern. The word Person means an individual, corporation, limited liability
company, partnership, trust, firm or other entity. For purposes of this
definition, the word "control," shall mean, with respect to a Person that is a
corporation or a limited liability company, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares or membership interests of the controlled Person and, with respect to
a Person that is not a corporation, the possession, directly or indirectly, of
the power at all times to direct or cause the direction of the management of the
controlled Person.
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10.02 RECAPTURE
Except as provided in Section 10.01(e) Landlord shall have the option to exclude
from the Premises covered by this Lease ("recapture"), the space proposed to be
sublet or subject to the assignment, effective as of the proposed commencement
date of such sublease or assignment. If Landlord elects to recapture, Tenant
shall surrender possession of the space proposed to be subleased or subject to
the assignment to Landlord on the effective date of recapture of such space from
the Premises, such date being the Termination Date for such space. Effective as
of the date of recapture of any portion of the Premises pursuant to this
section, the Monthly Base Rent, Rentable Area of the Premises and Tenant's Share
shall be adjusted accordingly.
10.03 EXCESS RENT
Tenant shall pay Landlord on the first day of each month during the term of the
sublease or assignment, one hundred percent (100%) of the amount by which the
sum of all rent and other consideration (direct or indirect) due from the
subtenant or assignee for such month exceeds: (i) that portion of the Monthly
Base Rent and Rent Adjustments due under this Lease for said month which is
allocable to the space sublet or assigned; and (ii) the following costs and
expenses for the subletting or assignment of such space: (1) brokerage
commissions and attorneys' fees and expenses, (2) the actual costs paid in
making any improvements or substitutions in the Premises required by any
sublease or assignment; and (3) "free rent" periods, costs of any inducements or
concessions given to subtenant or assignee, moving costs, and other amounts in
respect of such subtenant's or assignee's other leases or occupancy
arrangements. All such costs and expenses shall be amortized over the term of
the sublease or assignment pursuant to sound accounting principles.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent such exercise is
expressly permitted by Landlord. Tenant's liability shall remain primary, and in
the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said subtenant, assignee or successor. After any assignment,
Landlord may consent to subsequent assignments or subletting of this Lease, or
amendments or modifications of this Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto, and such action shall not relieve Tenant or any successor of
Tenant of liability under this Lease. If Landlord grants consent to such
sublease or assignment, Tenant shall pay all reasonable attorneys' fees and
expenses incurred by Landlord with respect to such assignment or sublease. In
addition, if Tenant has any options to extend the term of this Lease or to add
other space to the Premises, such options shall not be available to any
subtenant or assignee, directly or indirectly without Landlord's express written
consent, which may be withheld in Landlord's sole discretion.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assume all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord and furnished to Landlord not later than
fifteen (15) days prior to the effective date of the assignment. If Tenant shall
sublease the Premises as permitted herein, Tenant shall, at Landlord's option,
within fifteen (15) days following any request by Landlord, obtain and furnish
to Landlord the written agreement of such subtenant to the effect that the
subtenant will attorn to Landlord and will pay all subrent directly to Landlord.
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ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of
Rent including Rent Adjustment Deposits or Rent Adjustments within
three (3) days after the date when due;
(ii) Tenant fails to observe or perform any of the other
covenants, conditions or provisions of this Lease or the Workletter and
fails to cure such default within fifteen (15) days after written
notice thereof to Tenant, unless the default involves a hazardous
condition, which shall be cured forthwith or unless the failure to
perform is a Default for which this Lease specifies there is no cure or
grace period;
(iii) the interest of Tenant in this Lease is levied upon
under execution or other legal process;
(iv) a petition is filed by or against Tenant to declare
Tenant bankrupt or seeking a plan of reorganization or arrangement
under any Chapter of the Bankruptcy Act, or any amendment, replacement
or substitution therefor, or to delay payment of, reduce or modify
Tenant's debts, which in the case of an involuntary action is not
discharged within thirty (30) days;
(v) Tenant is declared insolvent by Law or any assignment of
Tenant's property is made for the benefit of creditors;
(vi) a receiver is appointed for Tenant or Tenant's property,
which appointment is not discharged within thirty (30) days;
(vii) any action taken by or against Tenant to reorganize or
modify Tenant's capital structure in a materially adverse way which in
the case of an involuntary action is not discharged within thirty (30)
days;
(viii) upon the dissolution of Tenant; or
(ix) upon the third occurrence within any Lease Year that
Tenant fails to pay Rent when due or has breached a particular covenant
of this Lease (whether or not such failure or breach is thereafter
cured within any stated cure or grace period or statutory period).
11.02 LANDLORD'S REMEDIES
(a) A Default shall constitute a breach of the Lease for which
Landlord shall have the rights and remedies set forth in this Section 11.02
and all other rights and remedies set forth in this Lease or now or hereafter
allowed by Law, whether legal or equitable, and all rights and remedies of
Landlord shall be cumulative and none shall exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate
Tenant's right to possession by written notice to Tenant stating such
election. Any written notice required pursuant to Section 11.01 shall
constitute notice of unlawful detainer pursuant to California Code of Civil
Procedure Section 1161 if, at Landlord's sole discretion, it states
Landlord's election that Tenant's right to possession is terminated after
expiration of any period required by Law or any longer period required by
Section 11.01. Upon the expiration of the period stated in Landlord's written
notice of termination (and unless such notice provides an option to
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cure within such period and Tenant cures the Default within such period),
Tenant's right to possession shall terminate and this Lease shall terminate,
and Tenant shall remain liable as hereinafter provided. Upon such termination
in writing of Tenant's right to possession, Landlord shall have the right,
subject to applicable Law, to re-enter the Premises and dispossess Tenant and
the legal representatives of Tenant and all other occupants of the Premises
by unlawful detainer or other summary proceedings, or otherwise as permitted
by Law, regain possession of the Premises and remove their property
(including their trade fixtures, personal property and those Tenant Additions
which Tenant is required or permitted to remove under Article Twelve), but
Landlord shall not be obligated to effect such removal, and such property
may, at Landlord's option, be stored elsewhere, sold or otherwise dealt with
as permitted by Law, at the risk of, expense of and for the account of
Tenant, and the proceeds of any sale shall be applied pursuant to Law.
Landlord shall in no event be responsible for the value, preservation or
safekeeping of any such property. Tenant hereby waives all claims for damages
that may be caused by Landlord's removing or storing Tenant's personal
property pursuant to this Section or Section 12.01, and Tenant hereby
indemnifies, and agrees to defend, protect and hold harmless, the Indemnitees
from any and all loss, claims, demands, actions, expenses, liability and cost
(including attorneys' fees and expenses) arising out of or in any way related
to such removal or storage. Upon such written termination of Tenant's right
to possession and this Lease, Landlord shall have the right to recover
damages for Tenant's Default as provided herein or by Law, including the
following damages provided by California Civil Code Section 1951.2:
(1) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination;
(2) 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 Rent loss that Tenant proves
could reasonably have been avoided;
(3) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the term of this Lease after the time of
award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; and
(4) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The word "rent" as used in this
Section 11.02 shall have the same meaning as the defined term Rent in
this Lease. The "worth at the time of award" of the amount referred to
in clauses (1) and (2) above is computed by allowing interest at the
Default Rate. The worth at the time of award of the amount referred to
in clause (3) above is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time
of award plus one percent (1%). For the purpose of determining unpaid
Rent under clause (3) above, the monthly Rent reserved in this Lease
shall be deemed to be the sum of the Monthly Base Rent, monthly storage
space rent, if any, and the amounts last payable by Tenant as Rent
Adjustments for the calendar year in which Landlord terminated this
Lease as provided hereinabove.
(c) Even if Tenant is in Default and/or has abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession by written notice as provided in Section 11.02(b)
above, and Landlord may enforce all its rights and remedies under this Lease,
including the right to recover Rent as it becomes due under this Lease. In such
event, Landlord shall have all of the rights and remedies of a landlord under
California Civil Code Section 1951.4 (lessor may continue Lease in effect after
Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable limitations), or
any successor statute. During such time as Tenant is in Default, if Landlord has
not terminated this Lease by written notice and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises, subject to
Landlord's option to recapture pursuant to Section 10.02, Landlord shall not
unreasonably withhold its consent to such assignment or sublease. Tenant
acknowledges and agrees that the provisions of Article Ten shall be deemed to
constitute reasonable limitations of Tenant's right to assign or sublet. Tenant
acknowledges and
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agrees that in the absence of written notice pursuant to Section 11.02(b)
above terminating Tenant's right to possession, no other act of Landlord
shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, including acts of
maintenance or preservation or efforts to relet the Premises or the
appointment of a receiver upon initiative of Landlord to protect Landlord's
interest under this Lease or the withholding of consent to a subletting or
assignment, or terminating a subletting or assignment, if in accordance with
other provisions of this Lease.
(d) In the event that Landlord seeks an injunction with respect to a
breach or threatened breach by Tenant of any of the covenants, conditions or
provisions of this Lease, Tenant agrees to pay the premium for any bond required
in connection with such injunction.
(e) Tenant hereby waives any and all rights to relief from forfeiture,
redemption or reinstatement granted by Law (including California Civil Code of
Procedure Sections 1174 and 1179) in the event of Tenant being evicted or
dispossessed for any cause or in the event of Landlord obtaining possession of
the Premises by reason of Tenant's Default or otherwise;
(f) When this Lease requires giving or service of a notice, that notice
shall replace rather than supplement any equivalent or similar statutory notice,
including any notices required by California Code of Civil Procedure Section
1161 or any similar or successor statute. When a statute requires service of a
notice in a particular manner, service of that notice (or a similar notice
required by this Lease) in the manner required by Article Twenty-four shall
replace and satisfy the statutory service-of-notice procedures, including those
required by Code of Civil Procedure section 1162 or any similar or successor
statute.
(g) The voluntary or other surrender or termination of this Lease, or a
mutual termination or cancellation thereof, shall not work a merger and shall
terminate all or any existing assignments, subleases, subtenancies or
occupancies permitted by Tenant, except if and as otherwise specified in writing
by Landlord.
(h) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its rights
pursuant to Section 25.15 to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver. No
provision of this Lease shall be deemed waived by Landlord unless such waiver is
in a writing signed by Landlord. The waiver by Landlord of any breach of any
provision of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other provision of this Lease.
11.03 ATTORNEY'S FEES
In the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Lease, the prevailing party (as determined
by the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of investigation as
actually incurred, including court costs, expert witness fees, costs and
expenses of investigation, and all attorneys' fees, costs and expenses in any
such suit or proceeding (including in any action or participation in or in
connection with any case or proceeding under the Bankruptcy Code, 11 United
States Code Sections 101 ET SEQ., or any successor statutes, in establishing or
enforcing the right to indemnification, in appellate proceedings, or in
connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the Bankruptcy
Code where the trustee of Tenant elects to assume this Lease for the purposes of
assigning it, such election or assignment,
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may only be made upon compliance with the provisions of (b) and (c) below,
which conditions Landlord and Tenant acknowledge to be commercially
reasonable. In the event the trustee elects to reject this Lease then
Landlord shall immediately be entitled to possession of the Premises without
further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate assurance
that it will cure all monetary defaults under this Lease within fifteen
(15) days from the date of assumption and it will cure all nonmonetary
defaults under this Lease within thirty (30) days from the date of
assumption. Landlord and Tenant acknowledge such condition to be
commercially reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance (as herein defined), of all of the obligations imposed on Tenant
under this Lease.
For the purposes hereof, "adequate assurance of future performance"
means that Landlord has ascertained that each of the following
conditions has been satisfied:
(i) The assignee has submitted a current financial statement,
certified by its chief financial officer, which shows a net worth and
working capital in amounts sufficient to assure the future performance
by the assignee of Tenant's obligations under this Lease; and
(ii) Landlord has obtained consents or waivers from any third
parties which may be required under a lease, mortgage, financing
arrangement, or other agreement by which Landlord is bound, to enable
Landlord to permit such assignment.
(d) Landlord's acceptance of rent or any other payment from any
trustee, receiver, assignee, person, or other entity will not be deemed to
have waived, or waive, the requirement of Landlord's consent, Landlord's
right to terminate this Lease for any transfer of Tenant's interest under
this Lease without such consent, or Landlord's claim for any amount of Rent
due from Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days after the receipt by Landlord
of written notice from Tenant of the alleged failure to perform. In no event
shall Tenant have the right to terminate or rescind this Lease as a result of
Landlord's default as to any covenant or agreement contained in this Lease.
Tenant hereby waives such remedies of termination and rescission and hereby
agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement shall be limited to a suit for damages and/or injunction.
In addition, Tenant hereby covenants that, prior to the exercise of any such
remedies, it will give the Mortgagee notice and a reasonable time to cure any
default by Landlord.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and tear, and damage caused by Landlord
excepted. Tenant shall deliver to Landlord all keys to the Premises. Tenant
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shall remove from the Premises all movable personal property of Tenant and
Tenant's trade fixtures, including, subject to Section 6.04, cabling for any of
the foregoing. Tenant shall be entitled to remove such Tenant Additions which at
the time of their installation Landlord and Tenant agreed may be removed by
Tenant. Tenant shall also remove such other Tenant Additions as required by
Landlord, including any Tenant Additions containing Hazardous Materials. Tenant
immediately shall repair all damage resulting from removal of any of Tenant's
property, furnishings or Tenant Additions, shall close all floor, ceiling and
roof openings and shall restore the Premises to a tenantable condition as
reasonably determined by Landlord. If any of the Tenant Additions which were
installed by Tenant involved the lowering of ceilings, raising of floors or the
installation of specialized wall or floor coverings or lights, then Tenant shall
also be obligated to return such surfaces to their condition prior to the
commencement of this Lease. Tenant shall also be required to close any
staircases or other openings between floors. In the event possession of the
Premises is not delivered to Landlord when required hereunder, or if Tenant
shall fail to remove those items described above, Landlord may (but shall not be
obligated to), at Tenant's expense, remove any of such property and store, sell
or otherwise deal with such property as provided in Section 11.02(b), including
the waiver and indemnity obligations provided in that Section, and undertake, at
Tenant's expense, such restoration work as Landlord deems necessary or
advisable.
12.02 LANDLORD'S RIGHTS
All property which may be removed from the Premises by Landlord shall be
conclusively presumed to have been abandoned by Tenant and Landlord may deal
with such property as provided in Section 11.02(b), including the waiver and
indemnity obligations provided in that Section. Tenant shall also reimburse
Landlord for all costs and expenses incurred by Landlord in removing any of
Tenant Additions and in restoring the Premises to the condition required by this
Lease at the Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord the greater of (i) one hundred and fifty percent
(150%) of the monthly Rent payable for the month immediately preceding the
holding over (including increases for Rent Adjustments which Landlord may
reasonably estimate) or, (ii) one hundred and fifty percent (150%) of the fair
market rental value of the Premises as reasonably determined by Landlord for
each month or portion thereof that Tenant retains possession of the Premises, or
any portion thereof, after the Termination Date (without reduction for any
partial month that Tenant retains possession). Tenant shall also pay all damages
sustained by Landlord by reason of such retention of possession. The provisions
of this Article shall not constitute a waiver by Landlord of any re-entry rights
of Landlord and Tenant's continued occupancy of the Premises shall be as a
tenancy in sufferance. If Tenant retains possession of the Premises, or any part
thereof for thirty (30) days after the Termination Date then at the sole option
of Landlord expressed by written notice to Tenant, but not otherwise, such
holding over shall constitute an extension of the Term of this Lease for a
period of one (1) year on the same terms and conditions (including those with
respect to the payment of Rent) as provided in this Lease, except that the
Monthly Base Rent for such period shall be equal to the greater of (i) 150% of
the Monthly Base Rent payable during the month preceding the Termination Date,
or (ii) 150% of the monthly base rent then being quoted by Landlord for similar
space in the Building.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured)
renders all or a substantial portion of the Premises, the Building or the
Project untenantable, Landlord shall, with reasonable promptness after the
occurrence of such damage, estimate the length of time that will be required to
substantially complete the repair and restoration and shall by notice advise
Tenant of such estimate ("Landlord's Notice"). If Landlord estimates that the
amount of time required to substantially complete such repair and restoration
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will exceed one hundred eighty (180) days from the date such damage occurred,
then Landlord, or Tenant if all or a substantial portion of the Premises is
rendered untenantable, shall have the right to terminate this Lease as of the
date of such damage upon giving written notice to the other at any time within
twenty (20) days after delivery of Landlord's Notice, provided that if Landlord
so chooses, Landlord's Notice may also constitute such notice of termination.
(b) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored, provided, however,
if this Lease is not terminated and the parties proceed to repair and restore
Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of
Tenant's insurance covering Tenant Additions, such proceeds shall be applied to
reimburse Tenant for its cost of repairing and restoring Tenant Additions.
(c) Notwithstanding anything to the contrary herein set forth: (i)
Landlord shall have no duty pursuant to this Section to repair or restore any
portion of any Tenant Additions or to expend for any repair or restoration of
the Premises or Building or Project amounts in excess of insurance proceeds
payable and available for repair or restoration, and if such proceeds are
insufficient Landlord shall have the right to terminate this Lease upon giving
written notice to Tenant within a reasonable time after determining such
proceeds will be insufficient; and (ii) Tenant shall not have the right to
terminate this Lease pursuant to this Section if any damage or destruction was
caused by the act or neglect of Tenant, its agent or employees. Whether or not
the Lease is terminated pursuant to this Article Fourteen, in no event shall
Tenant be entitled to any compensation or damages for loss of the use of the
whole or any part of the Premises or for any inconvenience or annoyance
occasioned by any such damage, destruction, rebuilding or restoration of the
Premises or the Building or access thereto.
(d) Unless this Lease is terminated as provided in the preceding
subparagraphs, Landlord shall proceed with reasonable promptness to repair and
restore the Premises to its condition as existed prior to such casualty, subject
to reasonable delays for insurance adjustments and Force Majeure delays, and
also subject to zoning Laws and building codes then in effect. Landlord shall
have no liability to Tenant, and Tenant shall not be entitled to terminate this
Lease if such repairs and restoration are not in fact completed within the time
period estimated by Landlord so long as Landlord shall proceed with reasonable
diligence to complete such repairs and restoration.
(e) Any repair or restoration of the Premises performed by Tenant shall
be in accordance with the provisions of Article Nine hereof.
(f) The provisions of this Article Fourteen are subject and subordinate
to the provisions of the Declaration.
(g) Notwithstanding anything to the contrary provided herein, Landlord
shall have no obligation to repair the Premises, the Building or Project in the
event of a decision of the owners of the condominium units in the Building,
pursuant to the provisions of the Declaration not to repair or restore following
any damage or destruction. In such event, Landlord shall encourage the owners of
the condominium units to make a prompt decision to repair and restore or not (a
"Repair Decision") , and Landlord shall give prompt written notice of such
Repair Decision to Tenant and this Lease shall automatically terminate upon the
date of any such decision not to repair or restore. Tenant may from time to time
inquire whether a Repair Decision has been made, and Landlord shall promptly
respond to any such inquiry. If Landlord has not notified Tenant of the Repair
Decision within ninety (90) days of the date of the damage, then, at any time
until Landlord informs Tenant of the Repair Decision, Tenant may notify Landlord
in writing of Tenant's election to terminate this Lease if Tenant does not
receive notice of the Repair Decision by the date (the "Potential Termination
Date") which is ten (10) business days after the date Landlord receives Tenant's
notice. If Landlord does not inform Tenant of the Repair Decision on or before
the Potential Termination
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Date, this Lease shall terminate on the Potential Termination Date.
14.02 INSUBSTANTIAL UNTENANTABILITY
If the Premises or the Building is damaged by a casualty but neither is rendered
substantially untenantable and Landlord estimates that the time to substantially
complete the repair or restoration will not exceed one hundred eighty (180) days
from the date such damage occurred, then Landlord shall proceed to repair and
restore the Building or the Premises other than Tenant Additions, with
reasonable promptness, unless such damage is to the Premises and occurs during
the last six (6) months of the Term, in which event either Tenant or Landlord
shall have the right to terminate this Lease as of the date of such casualty by
giving written notice thereof to the other within twenty (20) days after the
date of such casualty. Notwithstanding the foregoing, Landlord's obligation to
repair shall be limited in accordance with the provisions of Section 14.01
above.
14.03 RENT ABATEMENT
If all or any part of the Premises are rendered untenantable by fire or other
casualty and this Lease is not terminated, Monthly Base Rent and Rent
Adjustments shall abate for that part of the Premises which is untenantable on a
per diem basis from the date of the casualty until Landlord has Substantially
Completed the repair and restoration work in the Premises which it is required
to perform, provided, that as a result of such casualty, Tenant does not occupy
the portion of the Premises which is untenantable during such period. The
foregoing rent abatement shall not apply in the event the Premises are rendered
untenantable by reason of a fire or other casualty caused in whole or in part by
the negligence or willful act of Tenant or its agents, employees, contractors or
invitees if such abatement would adversely affect Landlord's or Tenant's ability
to collect under any of its insurance policies providing coverage for rental or
business interruptions.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, the Premises or the Property or any part of either, and
any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California
Civil Code, with respect to any rights or obligations concerning damage or
destruction shall have no application to this Lease or to any damage to or
destruction of all or any part of the Premises or the Property or any part of
either, and are hereby waived.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Premises, the Building or
the Project is taken or condemned by any competent authority for any public use
or purpose (including a deed given in lieu of condemnation) and is thereby
rendered untenantable, this Lease shall terminate as of the date title vests in
such authority, and Monthly Base Rent and Rent Adjustments shall be apportioned
as of the Termination Date. Notwithstanding anything to the contrary herein set
forth, in the event the taking is temporary (for less than the remaining term of
the Lease), Landlord may elect either (i) to terminate this Lease or (ii) permit
Tenant to receive the entire award attributable to the Premises in which case
Tenant shall continue to pay Rent and this Lease shall not terminate.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce or increase, as
the case may be, the Monthly Base Rent and Tenant's Proportionate Share to
reflect
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the Rentable Area of the Premises or Building, as the case may be, remaining
after any such taking or condemnation. Landlord, upon receipt and to the
extent of the award in condemnation (or proceeds of sale) shall make
necessary repairs and restorations to the Premises (exclusive of Tenant
Additions) and to the Building to the extent necessary to constitute the
portion of the Building not so taken or condemned as a complete architectural
and economically efficient unit. Notwithstanding the foregoing, if as a
result of any taking, or a governmental order that the grade of any street or
alley adjacent to the Building is to be changed and such taking or change of
grade makes it necessary or desirable to substantially remodel or restore the
Building or Project or prevents the economical operation of the Building or
Project, Landlord shall have the right to terminate this Lease upon ninety
(90) days prior written notice to Tenant.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions
paid for by Tenant without any credit or allowance from Landlord so long as
there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies acceptable to Landlord, during the Term: (a) Commercial General
Liability Insurance on a primary basis and without any right of contribution
from any insurance carried by Landlord covering the Premises on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions
in this Lease. Such insurance shall be for such limits that are reasonably
required by Landlord from time to time but not less than a combined single limit
of Five Million and No/100 Dollars ($5,000,000.00); (b) Workers' Compensation
and Employers' Liability Insurance to the extent required by and in accordance
with the Laws of the State of California; (c) "All Risks" property insurance in
an amount adequate to cover the full replacement cost of all Tenant Additions to
the Premises, equipment, installations, fixtures and contents of the Premises in
the event of loss; (d) In the event a motor vehicle is to be used by Tenant in
connection with its business operation from the Premises, Comprehensive
Automobile Liability Insurance coverage with limits of not less than Three
Million and No/100 Dollars ($3,000,000.00) combined single limit coverage
against bodily injury liability and property damage liability arising out of the
use by or on behalf of Tenant, its agents and employees in connection with this
Lease, of any owned, non-owned or hired motor vehicles; and (e) such other
insurance or coverages as Landlord reasonably requires.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of California reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without thirty (30) days' prior written notice to the Landlord, and
(v) each policy of "All-Risks" property insurance shall provide that the policy
shall not be invalidated should the insured waive in writing prior to a loss,
any or all rights of recovery against any other party for losses covered by such
policies. Tenant shall deliver to Landlord, certificates of insurance and at
Landlord's request, copies of all policies and renewals thereof to be maintained
by Tenant hereunder, not less than ten (10) days prior to the Commencement Date
and not less than ten (10) days prior to the expiration date of each policy.
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16.03 LANDLORD'S INSURANCE
Landlord agrees to purchase (or cause to be purchased) and keep in full force
and effect (or cause to be kept in effect) during the Term hereof, including
any extensions or renewals thereof, insurance under policies issued by
insurers of recognized responsibility, qualified to do business in the State
of California on the Building in amounts not less than the greater of eighty
(80%) percent of the then full replacement cost (without depreciation) of the
Building (above foundations and excluding Tenant Additions to the Premises)
or an amount sufficient to prevent Landlord from becoming a co-insurer under
the terms of the applicable policies, against fire and such other risks as
may be included in standard forms of all risk coverage insurance reasonably
available from time to time. Landlord agrees to maintain in force during the
Term, Commercial General Liability Insurance covering the Building on an
occurrence basis against all claims for personal injury, bodily injury, death
and property damage. Such insurance shall be for a combined single limit of
Five Million and No/100 Dollars ($5,000,000.00). Neither Landlord's
obligation to carry such insurance nor the carrying of such insurance shall
be deemed to be an indemnity by Landlord with respect to any claim,
liability, loss, cost or expense due, in whole or in part, to Tenant's
negligent acts or omissions or willful misconduct. Without obligation to do
so, Landlord may, in its sole discretion from time to time, carry insurance
in amounts greater and/or for coverage additional to the coverage and amounts
set forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, it will include in its "All Risks" policies appropriate clauses
pursuant to which the insurance companies (i) waive all right of subrogation
against Tenant with respect to losses payable under such policies and/or (ii)
agree that such policies shall not be invalidated should the insured waive in
writing prior to a loss any or all right of recovery against any party for
losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under the laws of the
State of California, in its "All Risks" insurance policy or policies on Tenant
Additions to the Premises, whether or not removable, and on Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions of this Lease appropriate clauses pursuant to which the insurance
company or companies (i) waive the right of subrogation against Landlord and/or
any tenant of space in the Building with respect to losses payable under such
policy or policies and/or (ii) agree that such policy or policies shall not be
invalidated should the insured waive in writing prior to a loss any or all right
of recovery against any party for losses covered by such policy or policies. If
Tenant is unable to obtain in such policy or policies either of the clauses
described in the preceding sentence, Tenant shall, if legally possible and
without necessitating a change in insurance carriers, have Landlord named in
such policy or policies as an additional insured. If Landlord shall be named as
an additional insured in accordance with the foregoing, Landlord agrees to
endorse promptly to the order of Tenant, without recourse, any check, draft, or
order for the payment of money representing the proceeds of any such policy or
representing any other payment growing out of or connected with said policies,
and Landlord does hereby irrevocably waive any and all rights in and to such
proceeds and payments.
(c) Provided that Landlord's right of full recovery under its policy or
policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Real Property and the fixtures, appurtenances and equipment therein, to
the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its aforesaid policy or policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, and employees and against every
other tenant of the Real Property who shall have executed a similar waiver as
set forth in this Section 16.04 (c) for loss or damage to Tenant Additions,
whether or not removable, and to Tenant's furniture, furnishings, fixtures and
other property removable by Tenant under the provisions hereof to the extent the
same is
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coverable by Tenant's insurance required under this Lease, notwithstanding
that such loss or damage may result from the negligence or fault of Landlord,
its servants, agents or employees, or such other tenant and the servants,
agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if
the clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly
of any cancellation or change of the terms of any such policy which would affect
such clauses or naming. All such policies which name both Landlord and Tenant as
additional insureds shall, to the extent obtainable, contain agreements by the
insurers to the effect that no act or omission of any additional insured will
invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to person or property sustained by the Tenant or any
occupant of the Premises or the Property resulting directly or indirectly from
any existing or future condition, defect, matter or thing in and about the
Premises or the Property or any part of either or any equipment or appurtenance
therein, or resulting from any accident in or about the Premises or the
Property, or resulting directly or indirectly from any act or neglect of any
tenant or occupant of the Property or of any other person, including Landlord's
agents and servants, except to the extent caused by the willful and wrongful act
of any of the Indemnitees. To the extent permitted by Law, Tenant hereby waives
any consequential damages, compensation or claims for inconvenience or loss of
business, rents, or profits as a result of such injury or damage, whether or not
caused by the willful and wrongful act of any of the Indemnitees. If any such
damage, whether to the Premises or the Property or any part of either, or
whether to Landlord or to other tenants in the Property, results from any act or
neglect of Tenant, its employees, servants, agents, contractors, invitees or
customers, Tenant shall be liable therefor and Landlord may, at Landlord's
option, repair such damage and Tenant shall, upon demand by Landlord, as payment
of additional Rent hereunder, reimburse Landlord within ten (10) days of demand
for the total cost of such repairs, in excess of amounts, if any, paid to
Landlord under insurance covering such damages. Tenant shall not be liable for
any such damage caused by its acts or neglect if Landlord or a tenant has
recovered the full amount of the damage from proceeds of insurance policies and
the insurance company has waived its right of subrogation against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by Law, Tenant hereby indemnifies, and agrees to
protect, defend and hold the Indemnitees harmless, against any and all actions,
claims, demands, liability, costs and expenses, including attorneys' fees and
expenses for the defense thereof, arising from Tenant's occupancy of the
Premises, from the undertaking of any Tenant Additions or repairs to the
Premises, from the conduct of Tenant's business on the Premises, or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any willful act or negligence of Tenant, its agents, contractors,
servants, employees, customers or invitees, in or about the Premises or the
Property or any part of either. In case of any action or proceeding brought
against the Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such
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action or proceeding by counsel chosen by Landlord, in Landlord's sole
discretion. Landlord reserves the right to settle, compromise or dispose of
any and all actions, claims and demands related to the foregoing indemnity.
The foregoing indemnity shall not operate to relieve Indemnitees of liability
to the extent such liability is caused by the willful and wrongful act of
Indemnitees. Further, the foregoing indemnity is subject to and shall not
diminish any waivers in effect in accordance with Section 16.04 by Landlord
or its insurers to the extent of amounts, if any, paid to Landlord under its
"All-Risks" property insurance.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with the rules and regulations listed on EXHIBIT C attached hereto and
with all modifications and additions thereto which Landlord may make from time
to time.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth on EXHIBIT C or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and the Landlord shall not be liable to the Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Building in a uniform and non-discriminatory
manner.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for offset or abatement
of Rent: (1) to change the Project's name or street address upon thirty (30)
days' prior written notice to Tenant; (2) to install, affix and maintain all
signs on the exterior and/or interior of the Building or Project; (3) to
designate and/or approve prior to installation, all types of signs, window
shades, blinds, drapes, awnings or other similar items, and all internal
lighting that may be visible from the exterior of the Premises; (4) upon
reasonable notice to Tenant, to display the Premises to prospective purchasers
at reasonable hours at any time during the Term and to prospective tenants at
reasonable hours during the last twelve (12) months of the Term; (5) to grant to
any party the exclusive right to conduct any business or render any service in
or to the Building or Project, provided such exclusive right shall not operate
to prohibit Tenant from using the Premises for the purpose permitted hereunder;
(6) to change the arrangement and/or location of entrances or passageways, doors
and doorways, corridors, elevators, stairs, washrooms or public portions of the
Building or Project, and to close entrances, doors, corridors, elevators or
other facilities, provided that such action shall not materially and adversely
interfere with Tenant's access to the Premises or the Building; (7) to have
access for Landlord and other tenants of the Project to any mail chutes and
boxes located in or on the Premises as required by any applicable rules of the
United States Post Office; and (8) to close the Project after Standard Operating
Hours, except that Tenant and its employees and invitees shall be entitled to
admission at all times, under such regulations as Landlord prescribes for
security purposes.
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ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (i) that this Lease is unmodified and in full force and effect (or
if there have been modifications, a description of such modifications and
that this Lease as modified is in full force and effect); (ii) the dates to
which Rent has been paid; (iii) that Tenant is in the possession of the
Premises if that is the case; (iv) that Landlord is not in default under this
Lease, or, if Tenant believes Landlord is in default, the nature thereof in
detail; (v) that Tenant has no offsets or defenses to the performance of its
obligations under this Lease (or if Tenant believes there are any offsets or
defenses, a full and complete explanation thereof); (vi) that the Premises
have been completed in accordance with the terms and provisions hereof, that
Tenant has accepted the Premises and the condition thereof and of all
improvements thereto and has no claims against Landlord or any other party
with respect thereto; (vii) that if an assignment of rents or leases has been
served upon the Tenant by a Mortgagee, Tenant will acknowledge receipt
thereof and agree to be bound by the provisions thereof; (viii) that Tenant
will give to the Mortgagee copies of all notices required or permitted to be
given by Tenant to Landlord; and (ix) to any other information reasonably
requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate, then such
failure shall be a Default for which there shall be no cure or grace period.
In addition to any other remedy available to Landlord, Landlord may impose a
charge equal to $500.00 for each day that Tenant fails to deliver an Estoppel
Certificate and Tenant shall be deemed to have irrevocably appointed Landlord
as Tenant's attorney-in-fact to execute and deliver such Estoppel Certificate.
ARTICLE TWENTY-ONE
RELOCATION OF TENANT
(Intentionally omitted.)
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for the broker(s) listed in Section 1.01(17),
Tenant has not dealt with any real estate broker, sales person, or finder in
connection with this Lease, and no such person initiated or participated in
the negotiation of this Lease, or showed the Premises to Tenant. Tenant
hereby agrees to indemnify, protect, defend and hold Landlord and the
Indemnitees, harmless from and against any and all liabilities and claims for
commissions and fees arising out of a breach of the foregoing representation.
Landlord agrees to pay any commission to which Landlord's Broker listed in
Section 1.01(17) is entitled in connection with this Lease pursuant to
Landlord's written agreement with such broker. Landlord and Tenant agree that
any commission payable to Tenant's Broker shall be paid by Tenant except to
the extent Tenant's Broker and Landlord's Broker have entered into a separate
agreement between themselves to share the commission paid to Landlord's
Broker by Landlord.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
This Lease is and shall be expressly subject and subordinate at all times to the
Declaration and all other documents relating to the condominium of which the
Building forms a part and to (i) any ground or underlying
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lease of the Real Property, now or hereafter existing, and all amendments,
extensions, renewals and modifications to any such lease, and (ii) the lien
of any mortgage or trust deed now or hereafter encumbering fee title to the
Real Property and/or the leasehold estate under any such lease, and all
amendments, extensions, renewals, replacements and modifications of such
mortgage or trust deed and/or the obligation secured thereby, unless such
ground lease or ground lessor, or mortgage, trust deed or Mortgagee,
expressly provides or elects that the Lease shall be superior to such lease
or mortgage or trust deed. If any such mortgage or trust deed is foreclosed
(including any sale of the Real Property pursuant to a power of sale), or if
any such lease is terminated, upon request of the Mortgagee or ground lessor,
as the case may be, Tenant shall attorn to the purchaser at the foreclosure
sale or to the ground lessor under such lease, as the case may be, provided,
however, that such purchaser or ground lessor shall not be (i) bound by any
payment of Rent for more than one month in advance except payments in the
nature of security for the performance by Tenant of its obligations under
this Lease; (ii) subject to any offset, defense or damages arising out of a
default of any obligations of any preceding Landlord; or (iii) bound by any
amendment or modification of this Lease made without the written consent of
the Mortgagee or ground lessor; or (iv) liable for any security deposits not
actually received in cash by such purchaser or ground lessor. This
subordination shall be self-operative and no further certificate or
instrument of subordination need be required by any such Mortgagee or ground
lessor. In confirmation of such subordination, however, Tenant shall execute
promptly any reasonable certificate or instrument that Landlord, Mortgagee or
ground lessor may request. Tenant hereby constitutes Landlord as Tenant's
attorney-in-fact to execute such certificate or instrument for and on behalf
of Tenant upon Tenant's failure to do so within fifteen (15) days of a
request to do so. Upon request by such successor in interest, Tenant shall
execute and deliver reasonable instruments confirming the attornment provided
for herein.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice (by way of service
on Tenant of a copy of an assignment of rents and leases, or otherwise) of the
address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagee or ground lessor shall have an additional thirty
(30) days after receipt of notice thereof within which to cure such default or
if such default cannot be cured within that time, then such additional notice
time as may be necessary, if, within such thirty (30) days, any Mortgagee or
ground lessor has commenced and is diligently pursuing the remedies necessary to
cure such default (including commencement of foreclosure proceedings or other
proceedings to acquire possession of the Real Property, if necessary to effect
such cure). Such period of time shall be extended by any period within which
such Mortgagee or ground lessor is prevented from commencing or pursuing such
foreclosure proceedings or other proceedings to acquire possession of the Real
Property by reason of Landlord's bankruptcy. Until the time allowed as aforesaid
for Mortgagee or ground lessor to cure such defaults has expired without cure,
Tenant shall have no right to, and shall not, terminate this Lease on account of
default. This Lease may not be modified or amended so as to reduce the Rent or
shorten the Term, or so as to adversely affect in any other respect to any
material extent the rights of the Landlord, nor shall this Lease be canceled or
surrendered, without the prior written consent, in each instance, of the ground
lessor or the Mortgagee.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be
given pursuant to this Lease must be in writing and shall be personally
delivered, sent by Federal Express or other reputable overnight courier service,
or mailed by first class, registered or certified United States mail, return
receipt requested, postage prepaid.
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(b) All notices, demands or requests to be sent pursuant to this
Lease shall be deemed to have been properly given or served by delivering or
sending the same in accordance with this Section, addressed to the parties
hereto at their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier
service as described above shall be effective upon deposit in the mail or
with such courier service. However, the time period in which a response to
any such notice, demand or request must be given shall commence to run from
(i) in the case of delivery by mail, the date of receipt on the return
receipt of the notice, demand or request by the addressee thereof, or (ii) in
the case of delivery by Federal Express or other overnight courier service,
the date of acceptance of delivery by an employee, officer, director or
partner of Landlord or Tenant. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given,
as indicated by advice from Federal Express or other overnight courier
service or by mail return receipt, shall be deemed to be receipt of notice,
demand or request sent. Notices may also be served by personal service upon
any officer, director or partner of Landlord or Tenant, and shall be
effective upon such service.
(d) By giving to the other party at least thirty (30) days written
notice thereof, either party shall have the right from time to time during
the term of this Lease to change their respective addresses for notices,
statements, demands and requests, provided such new address shall be within
the United States of America.
ARTICLE TWENTY-FIVE
MISCELLANEOUS
25.01 LATE CHARGES
(a) All payments required hereunder (other than the Monthly Base
Rent, Rent Adjustments, and Rent Adjustment Deposits, which shall be due as
hereinbefore provided) to Landlord shall be paid within ten (10) days after
Landlord's demand therefor. All such amounts (including Monthly Base Rent,
Rent Adjustments, and Rent Adjustment Deposits) not paid when due shall bear
interest from the date due until the date paid at the Default Rate in effect
on the date such payment was due.
(b) In the event Tenant is more than five (5) days late in paying
any installment of Rent due under this Lease, Tenant shall pay Landlord a
late charge equal to five percent (5%) of the delinquent installment of Rent.
The parties agree that (i) such delinquency will cause Landlord to incur
costs and expenses not contemplated herein, the exact amount of which will be
difficult to calculate, including the cost and expense that will be incurred
by Landlord in processing each delinquent payment of rent by Tenant, (b) the
amount of such late charge represents a reasonable estimate of such costs and
expenses and that such late charge shall be paid to Landlord for each
delinquent payment in addition to all Rent otherwise due hereunder. The
parties further agree that the payment of late charges and the payment of
interest provided for in subparagraph (a) above are distinct and separate
from one another in that the payment of interest is to compensate Landlord
for its inability to use the money improperly withheld by Tenant, while the
payment of late charges is to compensate Landlord for its additional
administrative expenses in handling and processing delinquent payments.
(c) Payment of interest at the Default Rate and/or of late charges
shall not excuse or cure any default by Tenant under this Lease, nor shall
the foregoing provisions of this Article or any such payments prevent
Landlord from exercising any right or remedy available to Landlord upon
Tenant's failure to pay Rent when due, including the right to terminate this
Lease.
25.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal
representative of a party) shall not seek a jury trial, hereby waives trial
by jury, and hereby further waives any objection to venue in the County in
which the Building is located, and agrees and consents to personal
jurisdiction of the courts of the
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State of California, in any action or proceeding or counterclaim brought by
any party hereto against the other on any matter whatsoever arising out of or
in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise, whether any of the foregoing is based on this Lease or on tort
law. No party will seek to consolidate any such action in which a jury has
been waived with any other action in which a jury trial cannot or has not
been waived. It is the intention of the parties that these provisions shall
be subject to no exceptions. By execution of this Lease the parties agree
that this provision may be filed by any party hereto with the clerk or judge
before whom any action is instituted, which filing shall constitute the
written consent to a waiver of jury trial pursuant to and in accordance with
Section 631 of the California Code of Civil Procedure. No party has in any
way agreed with or represented to any other party that the provisions of this
Section will not be fully enforced in all instances. The provisions of this
Section shall survive the expiration or earlier termination of this Lease.
25.03 DEFAULT UNDER OTHER LEASE
It shall be a Default under this Lease if Tenant or any Affiliate holding any
other lease with Landlord for premises in the Building defaults under such
lease and as a result thereof such lease is terminated or terminable.
25.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant. The submission of the Lease to
Tenant does not constitute a reservation of or option for the Premises, but
when executed by Tenant and delivered to Landlord, the Lease shall constitute
an irrevocable offer by Tenant in effect for fifteen (15) days to lease the
Premises on the terms and conditions herein contained.
25.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and
power to enter into and perform its obligations under this Lease, that the
person executing this Lease is fully empowered to do so, and that no consent
or authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
25.06 ENTIRE AGREEMENT
This Lease, the Exhibits and Rider(s) attached hereto contain the entire
agreement between Landlord and Tenant concerning the Premises and there are
no other agreements, either oral or written, and no other representations or
statements, either oral or written, on which Tenant has relied. This Lease
shall not be modified except by a writing executed by Landlord and Tenant.
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall
not result in any increased cost or expense to Tenant or in any other
substantial and adverse change in the rights and obligations of Tenant
hereunder, then Tenant agrees that the Lease may be so modified.
25.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns,
that any liability or obligation under this Lease shall only be enforced
against Landlord's equity interest in the Property up to a maximum of Five
Million Dollars ($5,000,000.00) and in no event against any other assets of
the Landlord, or Landlord's officers or directors or partners, and that any
liability of Landlord with respect to this Lease shall be so limited and
Tenant shall not be entitled to any judgment in excess of such amount.
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25.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term. Receipt
or acceptance of payment from anyone other than Tenant, including an assignee of
Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept
such payment on account of the amount due without prejudice to Landlord's right
to pursue any remedies available to Landlord.
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
and any remaining liability of Landlord with respect to this Lease shall be
limited to the dollar amount specified in Section 25.08 and Tenant shall not be
entitled to any judgment in excess of such amount.
25.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
25.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
25.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence of this Lease and each and all of its provisions. This
Lease shall be construed in accordance with the Laws of the State of California.
If more than one person signs this Lease as Tenant, the obligations hereunder
imposed shall be joint and several. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each item, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by Law. Wherever the term
"including" or "includes" is used in this Lease, it shall have the same meaning
as if followed by the phrase "but not limited to". The language in all parts of
this Lease shall be construed according to its normal and usual meaning and not
strictly for or against either Landlord or Tenant.
25.14 ABANDONMENT
In the event Tenant vacates or abandons the Premises but is otherwise in
compliance with all the terms, covenants and conditions of this Lease, Landlord
shall (i) have the right to enter into the Premises in order to show the space
to prospective tenants, (ii) have the right to reduce the services provided to
Tenant pursuant to the terms of this Lease to such levels as Landlord reasonably
determines to be adequate services for an unoccupied premises and (iii) during
the last six (6) months of the Term, have the right to prepare the Premises for
occupancy by another tenant upon the end of the Term. Tenant expressly
acknowledges that in the absence of written notice pursuant to Section 11.02(b)
or pursuant to California Civil Code Section
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1951.3 terminating Tenant's right to possession, none of the foregoing acts
of Landlord or any other act of Landlord shall constitute a termination of
Tenant's right to possession or an acceptance of Tenant's surrender of the
Premises, and the Lease shall continue in effect.
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
If Tenant fails timely to perform any of its duties under this Lease,
Landlord shall have the right (but not the obligation), to perform such duty
on behalf and at the expense of Tenant without prior notice to Tenant, and
all sums expended or expenses incurred by Landlord in performing such duty
shall be deemed to be additional Rent under this Lease and shall be due and
payable upon demand by Landlord.
25.16 SECURITY SYSTEM
Landlord shall not be obligated to provide or maintain any security patrol or
security system. Landlord shall not be responsible for the quality of any
such patrol or system which may be provided hereunder or for damage or injury
to Tenant, its employees, invitees or others due to the failure, action or
inaction of such patrol or system.
25.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which
may be erected on lands of or adjacent to the Project shall in no way affect
this Lease or impose any liability on Landlord.
25.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof,
shall be recorded by Tenant. Any such unauthorized recording shall be a
Default for which there shall be no cure or grace period. Tenant agrees to
execute and acknowledge, at the request of Landlord, a memorandum of this
Lease, in recordable form.
25.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or
rights, the releases and the obligations of Tenant under this Lease to
indemnify, protect, defend and hold harmless Landlord and/or Indemnitees
shall survive the expiration or termination of this Lease, and so shall all
other obligations or agreements which by their terms survive expiration or
termination of the Lease.
25.20 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
37
<PAGE>
ARTICLE TWENTY-SIX
HAZARDOUS SUBSTANCES DISCLOSURE
California law requires landlords to disclose to tenants the existence of
certain hazardous substances. Accordingly, Tenant is hereby notified of the
existence of asbestos containing materials ("ACM"). Certain areas of the
Building contain ACM, but these areas are generally inaccessible to tenants,
such as machinery rooms, the inside of sealed walls and above suspended
ceilings. Tenant agrees not to expose or disturb any ACM unless Landlord has
given Tenant prior written consent thereto and Tenant complies with all
applicable legal requirements and the Building's written procedures for
handling ACM. Tenant may obtain a copy of the Building's written procedures
for handling asbestos from the Building office.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
TENANT: LANDLORD:
Embarcadero Technologies, Inc., Metropolitan Life Insurance Company,
a California corporation a New York corporation
By /s/ Stephen Wong By /s/ Edward J. Hayes
--------------------------------- ---------------------------------
Stephen Wong Edward J. Hayes
--------------------------------- ---------------------------------
Print name Print name
Its Chairman Its Assistant Vice President
--------------------------------- ---------------------------------
(Chairman of Board, President or
Vice President)
By /s/ Ann M. Roesch
---------------------------------
Ann M. Roesch
---------------------------------
Print name
Its Assistant Secretary
---------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
38
<PAGE>
EXHIBIT A
PLAN OF PREMISES
Exhibit A - Page 1
<PAGE>
EXHIBIT B
WORKLETTER AGREEMENT
(intentionally omitted)
Exhibit B - Page 1
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
As used here, all capitalized terms, including, for example, Premises,
Landlord, Tenant, Building and Project, shall have the meanings set forth in the
Lease of which these Rules and Regulations form a part.
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside or
inside of the Building or Project or elsewhere on or within the Premises, except
in the interior of the Premises, unless approved by the Landlord. Nothing shall
be placed near the glass of any window, door, partition, or wall which may
appear unsightly from outside the Project and no curtains, draperies, blinds,
shutters, shades, screens or other coverings, hangings or decorations shall be
attached to, hung or placed in, or used in connection with, any window in the
Premises unless approved by the Landlord. In any event, where approved by the
Landlord, all such items shall be installed inboard of the standard draperies
provided for the Premises and shall in no way be visible from the exterior of
the Project. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into the halls or other places of the Building shall not
be covered or obstructed.
2. Except for any food and/or beverage services and except for any
vending machine services approved by the Landlord for operation in the Project,
no part of the Premises shall be used to manufacture any commodity or to prepare
or dispense any food or beverage, nor shall any cooking be done or permitted in
or about the Premises, and no vending machine or machines of any description
which dispense or sell any food, beverage or product shall be installed,
maintained or operated in or about the Premises.
3. Nothing shall be done or permitted in or about the Premises, or
brought or kept therein, which shall in any way increase the rate of or cause a
cancellation of or otherwise affect any fire or other insurance upon the
Building, the Project or any property kept therein, or conflict with any fire
laws or regulations or with any insurance policy upon the Premises or any part
thereof. Unless approved by the Landlord, no kerosene, gasoline or inflammable
or combustible fluid or material shall be used or kept in or about the Premises;
nor shall any method of heating or air conditioning be used for the Premises
other than that supplied by the Landlord. The Tenant shall comply with all fire
regulations that may be approved by the Landlord. In the event any use or
activity shall lead to an increase in fire or other insurance premiums payable
on the insurance obtained by the Landlord, or insurance covering Project Areas
for which the Building pays a share, or insurance procured by an individual
tenant, the party causing such increase shall be liable for payment of the same
to the Landlord, the owners of the Project or such individual tenant, as the
case may be. The party so charged with increasing premium costs shall have the
right to contest the validity of such increase.
4. Nothing shall be done or permitted in or about the Premises which
shall in any way obstruct or interfere with the use of the Premises for their
intended purposes, or obstruct or interfere with the rights of any Tenant or
occupant of the Project, or injure or annoy them, nor shall the Premises or any
part thereof be used for any immoral, unlawful, disorderly or extra-hazardous
purpose, or for lodging or sleeping, nor shall any nuisance be caused,
maintained or permitted in or about the Premises, nor shall any animals or birds
be brought or kept in or about the Premises.
5. The floors of the Building shall not be overloaded, nor shall any
safe or other heavy object be installed in the Premises without sufficient
provision being made for the proper distribution of the weight thereof.
6. Tenant shall not install any radio or television antenna,
loudspeaker or any other device on the exterior of the office building of which
the Building is a part.
7. Tenant shall keep its Premises in a good state of preservation and
cleanliness. It shall not allow anything whatever to fall from the windows or
doors of the Premises, nor shall it sweep or throw from the Premises any dirt or
other substance into any of the corridors or halls, elevators, ventilators or
elsewhere
Exhibit C - Page 1
<PAGE>
in the Building or the Project. Refuse shall be placed in containers in such
manner and at such times and places as may be directed by the Landlord, the
manager of the Building or Project, or its agents.
8. The sidewalks, entrances, elevators, vestibules, stairways,
corridors, halls, landings and fire exits must not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from
the Premises, the Building and the Project.
9. Tenant and occupants shall not cause or permit any disturbing
noises or objectionable odors to be produced upon or to emanate from the
Premises.
10. Water closets and other water apparatus in the Building shall
not be used for any purpose other than those for which they were designed,
nor shall any sweepings, rubbish, rags or other articles be thrown into same.
Any damage resulting from misuse of any water closets or other apparatus in
the Premises shall be repaired and paid for by Tenant.
11. No vehicle belonging to a Tenant or to an employee, licensee,
invitee, contractor, agent, client or visitor of a Tenant or occupant shall
be parked in such manner as to impede or prevent ready access by any other
vehicle to any entrance to or exit from the Building, Project or parking
garage.
12. Tenant and occupants and employees, licensees, invitees,
contractor, agents, clients or visitors shall not at any time or for any
reason whatsoever enter upon or attempt to enter upon the roof of the office
building of which the Building is a part.
13. Canvassing, soliciting and peddling in or about the Premises
shall be prohibited and Tenant and occupants of the Premises shall cooperate
to prevent the same.
14. Unless approved by the Landlord, no hand trucks, except those
equipped with rubber tires and side guards, shall be used in or about the
Project, and no other carts or vehicles of any kind shall be used in or about
the Building except for those which are permitted to be used in the Project's
parking garage.
15. No furniture, freight, or equipment of any kind shall be brought
into or received in the Project or carried in the elevators, except at such
time and in such manner as shall be approved by the Landlord or by the
manager of the Building or Project.
16. The bulletin board or directory of the Project shall be used
exclusively for the display of the names and locations of the tenants and
occupants of the Project, and Landlord reserves the right to exclude any
other names therefrom, to limit the number of names associated with
particular occupants of the Building to be identified thereon, and to charge
for names associated with such occupants at rates applicable to all occupants
of the Building.
17. Tenant shall see that the exterior doors of its Premises are
closed and securely locked on Saturdays, Sundays and legal holidays and not
later than 7:00 P.M. of each other day. Tenant shall exercise care and
caution that all water faucets or water apparatus are entirely shut off
before Tenant or its employees leave the Premises, and that all utilities,
electricity, gas or air, shall likewise be carefully shut off so as to
prevent waste or damage.
18. Tenant shall comply with such security measures and procedures
as may be approved by Landlord for the operation of the Building and the
conduct of business therein.
19. Complaints regarding services or operation of the Building shall
be made in writing to Landlord or the manager of the Building.
20. All work performance by or on behalf of Tenant shall be
performed in compliance with the 425 Market Street Tenant Construction
Standards and in accordance with the Conditions for Construction
Exhibit C - Page 2
<PAGE>
and Asbestos Procedures.
21. These rules and regulations and any consent or approval given
hereunder may be added to, amended or repealed at any time by Landlord.
Exhibit C - Page 3
<PAGE>
RIDER 1
COMMENCEMENT DATE AGREEMENT
Metropolitan Life Insurance Company, a New York corporation ("Landlord"), and
Embarcadero Technologies, Inc., a California corporation ("Tenant"), have
entered into a certain Office Lease dated as of __________________, 1999 (the
"Lease").
WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement
Date and Expiration Date of the Lease as provided for in Section 2.02(b) of the
Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have
the same meaning ascribed to them in the Lease.
2. The Commencement Date (as defined in the Lease) of the Lease
is _______________.
3. The Expiration Date (as defined in the Lease) of the Lease
is ______________.
4. Tenant hereby confirms the following:
(a) That it has accepted possession of the premises pursuant
to the terms of the Lease;
(b) That the Landlord Work, if any, is Substantially Complete;
and
(c) That the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
6. The Lease and this Commencement Date Agreement contain all of the
terms, covenants, conditions and agreements between the Landlord and the Tenant
relating to the subject matter herein. No prior other agreements or
understandings pertaining to such matters are valid or of any force and effect.
TENANT: LANDLORD:
- ------ --------
Embarcadero Technologies, Inc., Metropolitan Life Insurance Company,
a California corporation a New York corporation
By By
-------------------------------- ---------------------------------
Print name Print name
Its Its
-------------------------------- ---------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
Rider 1 - Page 1
<PAGE>
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
Rider 1 - Page 2
<PAGE>
RIDER 2
ADDITIONAL PROVISIONS
This Rider 2 ("Rider") is attached to and a part of a certain Office
Lease dated as of ____________, 1999 executed concurrently herewith by
Metropolitan Life Insurance Company, a New York corporation, as Landlord, and
Embarcadero Technologies, Inc., a California corporation, as Tenant, for the
Premises as described therein (the "Lease").
SECTION 1. DEFINED TERMS; FORCE AND EFFECT
Capitalized terms used in this Rider shall have the same meanings set forth in
the Lease except as otherwise specified herein and except for terms capitalized
in the ordinary course of punctuation. This Rider forms a part of the Lease.
Without limiting the generality of the foregoing, any default by any party
hereunder shall have the same force and effect as a default under the Lease.
Should any inconsistency arise between this Rider and any other provision of the
Lease as to the specific matters which are the subject of this Rider, the terms
and conditions of this Rider shall control.
SECTION 2. PREMISES LEASED "AS-IS"; DELIVERY; COMMENCEMENT DATE; AND
CONSTRUCTION
2.1. AS-IS; DELIVERY; COMMENCEMENT DATE. Notwithstanding any provision
of the Lease to the contrary:
(a) AS-IS. Except to the extent of any Landlord Work and
Landlord Maximum Contribution described below: (i) Landlord shall deliver the
Premises to Tenant in its AS IS condition, without any express or implied
representations or warranties of any kind by Landlord, its brokers, manager or
agents, or the employees of any of them regarding the Premises; and (ii)
Landlord shall not have any obligation to construct or install any tenant
improvements or alterations or to pay for any such construction or installation.
(b) DELIVERY & COMMENCEMENT DATE. Landlord shall tender to
Tenant possession of the Premises June 1, 1999 (the "Delivery Date"). Possession
will be adequately tendered to Tenant by Landlord either delivering the keys (or
other means of access) to Tenant or Tenant's Broker, or by Landlord giving
written notice that the keys (or other means of access) to the Premises are
available for Tenant or its representative to pick up at the office of Landlord
or of the Property Manager of the Building. Tenant's possession from the
Delivery Date (or from any earlier date Tenant takes possession in the event
that Landlord, in its sole discretion, tenders possession earlier) to the
Commencement Date may be referred to as the Interim Term, and is to provide some
time for purposes of design and construction of Tenant Work and Landlord Work,
fixturing and moving. Tenant's possession of the space shall be subject to all
of the terms, covenants and conditions of this Lease, including any amounts
payable under this Lease, except that Monthly Base Rent shall not be payable by
Tenant and the initial Term shall not commence until the Commencement Date. The
Commencement Date shall be the date specified as the Projected Commencement
Date.
(c) DELAY IN DELIVERY. If Landlord does not obtain and tender
possession of the Premises by the Delivery Date by reason of the following: (i)
the holding over or retention of possession of any tenant, tenants or occupants,
or (ii) for any other reason, then Landlord shall not be subject to any
liability for the failure to give possession on said date. Under such
circumstances the Commencement Date shall be delayed by a number of days equal
to the days of delay in Landlord's delivery of possession to Tenant. No such
failure to give possession shall affect the validity of this Lease or the
obligations of the Tenant hereunder. Within thirty (30) days following the
occurrence of the Commencement Date, Landlord and Tenant shall enter into an
agreement (which is attached to this Lease as RIDER 1) confirming the
Rider 2 - Page 1
<PAGE>
Commencement Date and the Expiration Date. If Tenant fails to enter into such
agreement, then the Commencement Date and the Expiration Date shall be the
dates designated by Landlord in such agreement.
2.2 LANDLORD WORK. Notwithstanding any provision of the Lease to the
contrary:
(a) DEFINITION. Landlord shall be responsible for, but may
include in Operating Expenses the cost of, the following (the "Landlord's
Work"): upgrades and modifications if and to the extent necessary so that the
existing core restrooms on the floor on which the Premises is located and a path
of travel through the Common Areas to the Premises comply with Title 24
accessibility standards, as applicable and as interpreted at the time of
execution of this Lease.
(b) RIGHT OF ENTRY; TENANT'S RESPONSIBILITIES. Landlord shall
select a general contractor who shall commence the Landlord Work within a
reasonable time after the Delivery Date and thereafter shall complete it with
reasonable diligence. To the extent that design and construction of any or all
of the Landlord Work pursuant to this Rider will require access, work or
construction within or through the Premises, Landlord and Landlord's
representatives and contractors shall have the right to enter the Premises to
perform such work, and Tenant agrees that such entry and work shall not
constitute an eviction of Tenant in whole or in part and that rent and other
sums due and payable by Tenant under the Lease with respect to the Premises
after the Commencement Date shall in no way be abated or reduced by reason of
inconvenience, annoyance, disturbance or injury to the business of Tenant due to
such access, work or construction. Tenant shall cooperate with Landlord and
Landlord's contractors(s) to allow such access and any necessary coordination of
construction.
(c) ACCEPTANCE OF LANDLORD WORK. Tenant shall notify Landlord
in writing within thirty (30) days after the Commencement Date of any defects
claimed by Tenant in the Landlord Work. Except for defects stated in such thirty
(30) day notice and Latent Defects (defined below) (collectively, "Defects") of
which Tenant gives Landlord notice ten (10) months after Substantial Completion
of the Landlord Work, Tenant shall be conclusively deemed to have accepted the
Landlord Work "AS IS" in the condition existing on the date Tenant first takes
possession, and to have waived all claims relating to its condition. Landlord
shall proceed diligently to correct the Defects stated in the applicable notice
unless Landlord disputes the existence of any such Defects. For purposes of this
Lease, "Latent Defects" shall mean defects in Landlord Work which were not
readily apparent when the thirty (30) day notice was due.
2.3. TENANT WORK GENERALLY. Landlord and Tenant acknowledge and
agree that notwithstanding any provisions of the Lease to the contrary: (a)
Tenant shall be responsible for all design, demolition, repair, remodeling,
improvement or alteration in connection with its initial occupancy, which for
purposes of this Lease is referred to as the Tenant Work; (b) all Tenant
Work, if any, shall be done as Tenant Alterations within the meaning of
Article Nine of the Lease, subject to and in compliance with all conditions
and provisions of the Lease applicable to Tenant Alterations, except as
otherwise expressly provided in this Rider; (c) without limiting the
generality of any provisions of Article Nine, Tenant's selection of Tenant's
space planner and/or architect and Tenant's selection of contractor(s) shall
be subject to Landlord's prior written approval, which shall not unreasonably
be withheld; (d) if the Tenant Work does not exceed the amount of Landlord's
Maximum Contribution, Tenant shall not be required to obtain a completion and
lien indemnity bond for the Tenant Work; (e) such work, including all design,
plan review, obtaining all approvals and permits, and construction shall be
at Tenant's sole cost and expense (subject to reimbursement from Landlord's
Maximum Contribution), including delivery to Landlord of plans and
specifications of such Tenant Work (including 3 mylar copies of as-built
plans and specifications upon completion); and (f) Tenant shall pay Landlord
a fee ("Construction Monitoring Fee") equal to five percent (5%) of the
construction costs (exclusive of Soft Costs, as defined below) for the review
and approval of Tenant's plans and specifications, monitoring related to the
Tenant Work, access, elevator usage during normal business hours and power.
Landlord shall be entitled to deduct and retain such portions of the
Construction Monitoring Fee as are payable from time to time to the extent
funds are available out of Landlord's Maximum Contribution. Notwithstanding
the foregoing, in the event the Tenant shall select and engage Shorenstein
Company L. P. as Tenant's general contractor for the Tenant Work, no
Construction Monitoring Fee shall be due as long as such company
Rider 2 - Page 2
<PAGE>
performs the Tenant Work noted above.
2.4. DESIGN & CONSTRUCTION RESPONSIBILITY FOR ANY TENANT WORK.
Tenant shall be responsible for the suitability for the Tenant's needs and
business of the design and function of all Tenant Work and for its
construction in compliance with all Law as applicable and as interpreted at
the time of construction of the Tenant Work, including all building codes and
the ADA (as defined in the Lease). In the event that this Lease or any
improvements or alterations in connection herewith triggers any upgrades or
modifications of existing improvements in the Premises to comply with Law,
Tenant shall also be responsible for such upgrades and modifications, except
to the extent of any Landlord Work and Landlord Maximum Contribution. Tenant,
through its architects and/or space planners ("Tenant's Architect"), shall
prepare all architectural plans and specifications, and engineering plans and
specifications, for the real property improvements to be constructed by
Tenant in the Premises in sufficient detail to be submitted to Landlord for
approval, as required pursuant to Article Nine of the Lease, and to be
submitted by Tenant for governmental approvals and building permits and to
serve as the detailed construction drawings and specifications for the
contractor, and shall include, among other things, all partitions, doors,
heating, ventilating and air conditioning installation and distribution,
ceiling systems, light fixtures, plumbing installations, electrical
installations and outlets, telephone installations and outlets, any other
installations required by Tenant, fire and life-safety systems, wall finishes
and floor coverings, whether to be newly installed or requiring changes from
the as-is condition of the Premises as of the date of execution of the Lease.
Tenant shall be responsible for the oversight, supervision and construction
of all Tenant Work in compliance with this Lease, including compliance with
all Law as applicable and as interpreted at the time of construction,
including all building codes and the ADA.
2.5. LANDLORD'S MAXIMUM CONTRIBUTION: AMOUNT; REIMBURSABLE COSTS &
PAYMENT. Landlord's Maximum Contribution means an amount up to a maximum of
Seventy-two Thousand Two Hundred and Forty Dollars ($72,240.00) to reimburse
Tenant for the actual costs of design, engineering, plan review, obtaining all
approvals and permits, and construction of Tenant Work in the Premises, and
shall be payable as provided below. Landlord's Maximum Contribution may not be
used to reimburse or pay soft costs ("Soft Costs") associated with the Tenant
Work, including costs for design, plans, and obtaining approvals or permits for
the real property improvements which constitute the Tenant Work except up to a
maximum of Twenty Thousand Six Hundred and Forty Dollars ($20,640.00) ("Soft
Costs Maximum") and except for any additional amount in payment of the
Construction Monitoring Fee. In no event shall the Landlord's Maximum
Contribution be used to reimburse any costs of designing, procuring or
installing in the Premises any trade fixtures, signage, movable equipment,
furniture, furnishings, telephone equipment, cabling for any of the foregoing,
or other personal property (collectively "Personal Property" for purposes of
this Rider), and the cost of such Personal Property shall be paid by Tenant.
Landlord's Maximum Contribution shall be paid to Tenant within 30 days after the
later of final completion of the Tenant Work and Landlord's receipt of (i) a
certificate of occupancy (if applicable), (ii) final as-built plans and
specifications, (iii) full, final, unconditional lien releases, and (iv)
reasonable substantiation of costs incurred by Tenant with respect to the Tenant
Work.
Rider 2 - Page 3
<PAGE>
2.6. CERTAIN CONTRACTOR MATTERS. Subject to the approval and other
requirements of Article Nine of the Lease, Tenant may select the general
contractor to construct the Tenant Work and Tenant shall competitively bid the
Tenant Work to a sufficient number of contractors, all of which contractors
shall be from an approved list of contractors provided by Landlord. Tenant may
in writing submit additional contractors and subcontractors (except that the
subcontractors for work relating to Building systems, including the mechanical,
heating, plumbing, security, ventilating, air-conditioning, electrical,
communication and fire and life safety systems of the Building may be specified
by Landlord, in its sole discretion) to Landlord for Landlord's prior written
approval for use by Tenant for the Tenant Work, which approval shall not
unreasonably be withheld, and Tenant shall include with such request information
concerning such contractors and subcontractors qualifications, necessary
licenses and references for evaluation by Landlord, and Tenant shall provide
such further information as Landlord may reasonably request.
IN WITNESS WHEREOF, the parties hereto have executed this Rider 2 as of
the date first set forth in the Lease.
TENANT: LANDLORD:
Embarcadero Technologies, Inc., Metropolitan Life Insurance Company,
a California corporation a New York corporation
By /s/ Stephen Wong By /s/ Edward J. Hayes
--------------------------------- ---------------------------------
Stephen Wong Edward J. Hayes
--------------------------------- ---------------------------------
Print name Print name
Its Chairman Its Assistant Vice President
--------------------------------- ---------------------------------
(Chairman of Board, President or
Vice President)
By /s/ Ann M. Roesch
---------------------------------
Ann M. Roesch
---------------------------------
Print name
Its Assistant Secretary
---------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
Rider 2 - Page 4
<PAGE>
FIRST AMENDMENT TO OFFICE LEASE
This First Amendment to Office Lease ("First Amendment") is dated as
of December 22, 1999 by and between METROPOLITAN LIFE INSURANCE COMPANY, a
New York corporation (herein referred to as "Metropolitan" or "Landlord"), as
Landlord, and EMBARCADERO TECHNOLOGIES, INC., a California corporation
(herein referred to as "Tenant"), as tenant, with reference to the following
facts:
RECITALS
A. Landlord and Tenant entered into that certain lease dated as of
April 23, 1999 (the "Original Lease") for the Premises referred to therein.
B. Landlord and Tenant desire to provide for the lease to Tenant of the
Expansion Space (defined below) for the extended term specified herein, all
subject to al of the conditions, terms, covenants and agreements provided in
this First Amendment.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth herein and of other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1. DEFINED TERMS. All capitalized terms not otherwise defined
herein have the meanings set forth in the Original Lease unless the context
clearly requires otherwise. The Original Lease, as amended by this First
Amendment, is hereinafter referred to as the "Lease."
Section 2. CONFIRMATION OF TERM. Landlord and Tenant acknowledge and
agree that notwithstanding any provision of the Lease to the contrary, the
Expiration Date of the Lease including with respect to the Expansion space, is
June 14, 2004.
Section 3. LEASE OF THE EXPANSION SPACE.
(a) Effective as of January 1, 2000 (the "Effective Date") Landlord
hereby leases to Tenant and Tenant hereby hires from Landlord the Expansion
Space (defined below) upon and subject to all of the terms, covenants and
conditions of the Lease except as expressly provided herein. The "Expansion
Space" is located on the northeast corner of the fifth (5th) floor of the
Building as shown on EXHIBIT A to this First Amendment. Landlord and Tenant
hereby agree that (i) the Expansion Space is conclusively presumed to be 4,197
rentable square feet; and (ii) this First Amendment contains all rights and
obligations of the parties with respect to expansion of the Premises, whether or
not in accordance with any other expansion rights previously granted to Tenant;
and upon
<PAGE>
execution hereof, any and all other rights to expand are null, void and of no
force or effect.
(b) CONSTRUCTION, COMMENCEMENT DATE; TERM; RENT; OTHER PROVISIONS.
Notwithstanding any provision of the Lease to the contrary, the following
provisions shall govern the Expansion Space:
(1) CONDITION; CONSTRUCTION; TERM. Landlord shall deliver the
Expansion Space to Tenant in its AS IS condition, without any express or implied
representations or warranties of any kind by Landlord, its brokers, managers or
agents, or the employees of any of them regarding the Expansion Space, and
Landlord shall not have any obligation to construct or install any tenant
improvements or alterations or to pay for any such construction or installation.
Tenant shall perform any improvements to the Expansion Space (the "Expansion
Space Improvements") as Tenant Alterations in accordance with the terms of the
Original Lease, including Article 9 thereof. Within thirty (30) days following
Tenant's satisfaction of all conditions of Article 9 with respect to the
Expansion Space Improvements, Landlord shall reimburse the cost of the Expansion
Space Improvements up to the amount of Fifty-Eight Thousand Seven Hundred
Fifty-Eight Dollars ($58,758.00). Landlord shall not be obligated to pay any
amount in excess of Fifty-Eight Thousand Seven Hundred Fifty-Eight Dollars
($58,758.00) on account of the Expansion Space Improvements. Landlord shall
deliver possession of the Expansion Space to Tenant for occupancy upon the
Effective Date, and, upon such delivery, the Expansion Space shall become part
of the Premises, and Tenant's obligation to pay rent with respect to the
Expansion Space shall commence as of the Effective Date. The term of the Lease
of the Expansion Space shall continue until the Effective Date of the Term of
the Lease of the Original Premises.
(2) DELAYED OR EARLY DELIVERY OF POSSESSION. If Landlord shall be
unable to give possession of the Expansion Space on the Effective Date by reason
of the following: (i) the holding over or retention of possession of any tenant,
tenants or occupants, or (ii) for any other reason, then Landlord shall not be
subject to any liability for the failure to give possession on said date. Under
such circumstances the Lease and rent with respect to the Expansion Space shall
not commence until the Expansion Space is made available to Tenant by Landlord,
and no such failure to give possession on the Effective Date shall affect the
validity of this First Amendment, the Lease or the obligations of the Tenant
under either The Expansion Space shall be deemed to be ready for Tenant's
occupancy in the event any delay in the availability of the Premises for
occupancy shall be due to any default on the part of Tenant and/or its subtenant
or subtenants. If Landlord delivers possession of the Expansion Space later or
earlier than the Effective Date, within thirty (30) days following such earlier
or later delivery of possession, Landlord and Tenant shall enter into an
agreement (which is attached hereto
-2-
<PAGE>
as EXHIBIT B) confirming such date. If Tenant fails to enter into such
agreement, then the actual date of commencement of the Lease with respect to
the Expansion Space shall be the date designated by Landlord in such
agreement.
(c) MONTHLY RENT FOR REMAINING TERM COMMENCING UPON THE EFFECTIVE
DATE. Notwithstanding any provision of the Lease to the contrary, in addition
to rent payable for the Original Premises, the amount of Monthly Installments
of Base Annual Rent due and payable by Tenant for the Expansion Space,
accruing on and after the Effective Date and monthly thereafter for the Term
shall be as follows:
<TABLE>
<S> <C> <C>
Months 1-2 $0.00 per rentable square foot per year $ 0
Months 3-29 $39.00 per rentable square foot per year $ 13,640.25
per month
Months $41.00 per rentable square foot per year $ 14,339.75
30-Expiration Date per month
</TABLE>
(d) BASE YEAR; TENANT'S SHARE OF OPERATING EXPENSES & OF TAX EXPENSES.
Notwithstanding any provision of the Lease to the contrary, with respect to the
Expansion Space, Tenant shall pay Tenant's Share of increase over Operating
Costs for the Base Year and of increases over Taxes for the Base Year accruing
on and after the Effective Date, and for such purposes Tenant's Share is
conclusively agreed to be a total of 1.3977% with respect to the Expansion Space
for an aggregate of 4.8345% with respect to all of the Premises leased by Tenant
under the Lease, as amended hereby.
(e) SECURITY DEPOSIT. Notwithstanding anything in the Original Lease to
the contrary, Tenant shall deliver an additional security deposit in the amount
of Fourteen Thousand Three Hundred Thirty-Nine Dollars and Seventy-Five Cents
($14,339.75), which, together with the original security deposit in the amount
of Thirty Thousand Nine Hundred Sixty Dollars ($30,960), shall constitute a
Security Deposit in the aggregate amount of Forty-Five Thousand Two Hundred
Ninety-Nine Dollars and Seventy-Five Cents ($45,299.75).
Section 4. TIME OF ESSENCE. Without limiting the generality of any
other provision of the Lease, time is of the essence to each and every term and
condition of this First Amendment.
Section 5. BROKERS. Notwithstanding any other provision of the Lease to
the contrary, Tenant represents and warrants to the Landlord that Shorenstein
Realty Services, L.P. is the sole broker who negotiated and brought about the
consummation of this First Amendment and that no discussions or negotiations
were had with any other
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<PAGE>
broker concerning this First Amendment other than Shorenstein Realty
Services, L.P. Based on the foregoing representation and warranty, Landlord
has agreed to pay any commission or fee owed Shorenstein Realty Services,
L.P. pursuant to Landlord's agreement between Landlord and such broker.
Tenant hereby indemnifies and agrees to protect, defend and hold Landlord
harmless from and against any claims of brokerage commissions arising out of
any discussions or negotiations allegedly had by Tenant with any other broker
in connection with the Building and the Premises. The foregoing obligations
of Tenant shall survive the expiration or sooner of the Lease.
Section 6. GENERAL. The titles or headings of the various parts or
sections hereof are intended solely for convenience and are not intended and
shall not be deemed to or in any way be used to modify, explain or place any
construction upon any of the provisions of this First Amendment. Except as
modified by this First Amendment, the terms and provisions of the Lease are
hereby ratified and confirmed and shall remain in full force and effect. Should
any inconsistency arise between this First Amendment and the Lease as to the
specific matters which are the subject of this First Amendment, the terms and
conditions of this First Amendment shall control. This First Amendment shall be
construed to be a part of the Lease and shall be deemed incorporated in the
Lease by this reference. The Lease as amended by this First Amendment
constitutes the full and complete agreement and understanding between the
parties hereto and shall supersede all prior communications, representations,
understandings or agreements, if any, whether oral or written, concerning the
subject matter contained in the Lease as so amended, in whole or in part, except
by a written instrument executed by all of the parties hereto. Each party
represents and warrants to the other that it ahs full authority and power to
enter into and perform its obligations under this First Amendment, that the
person executing this First Amendment is fully empowered to do so, and that no
consent or authorization is necessary from any third party. Landlord may request
that Tenant provide Landlord evidence of Tenant's authority. This First
Amendment may be executed in duplicates or counterparts, or both, and such
duplicates or counterparts together shall constitute but one original of the
First Amendment. Each duplicate and counterpart shall be equally admissible in
evidence, and each original shall fully bind each party who has executed it.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first set forth above.
Metropolitan Life Insurance Company,
a New York corporation
By: /s/ Edward J. Hayes
-----------------------------------
Its: Assistant Vice President
-----------------------------------
Embarcadero Technologies, Inc.,
a California corporation
By: /s/ Stephen Wong
-----------------------------------
Its: Chairman
-----------------------------------
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<PAGE>
EXHIBIT B
COMMENCEMENT DATE AGREEMENT
METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation
("Landlord"), and EMBARCADERO TECHNOLOGIES, INC., a California corporation
("Tenant"), have entered into a certain First Amendment to Office Lease, which
First Amendment is dated as of December ___, 1999 (the "First Amendment"). The
original Office Lease, as amended by the First Amendment, may be referred to as
the "Lease."
WHEREAS, Landlord and Tenant wish to confirm and memorialize the actual
date as of which the Lease and all of Tenant's obligations thereunder has become
effective with respect to the Expansion Space as provided for in the First
Amendment;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein and in the First Amendment, Landlord and Tenant agree
as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the
same meaning ascribed to them in the First Amendment and the Lease.
2. The actual date as of which the Lease and all of Tenant's obligations
thereunder has become effective with respect to the Expansion Space is
___________.
3. The Effective Date of the Lease, as extended by the First Amendment,
is ___________.
4. Tenant hereby confirms the following:
(a) that it has accepted possession of the Expansion Space pursuant to
the terms of the First Amendment; and
(b) that the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
-1-
<PAGE>
6. The Lease and this Expansion Space Commencement Date Agreement
contain all of the terms, covenants, conditions and agreements between the
Landlord and the Tenant relating to the subject matter herein. No prior other
agreements or understandings pertaining to such matters are valid or of any
force and effect.
Metropolitan Life Insurance Company,
a New York corporation
By:
-----------------------------------
Its:
-----------------------------------
Embarcadero Technologies, Inc.,
a California corporation
By:
-----------------------------------
Its:
-----------------------------------
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<PAGE>
EXHIBIT A
EXPANSION SPACE
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<PAGE>
Exhibit 10.5
COMMERCIAL REAL ESTATE LEASE
734 Lighthouse Av., Pacific Grove, CA 93950
This Lease Agreement (this "Lease") is dated effective August 1, 1999,
by and between NewCon Software Inc., a California corporation, ("Landlord"), and
Embarcadero Technology Inc., a California corporation ("Tenant").
THE PARTIES AGREE AS FOLLOWS:
1. PREMISES. Landlord, in consideration of the lease payments provided in
this Lease, leases to Tenant a Victorian house used as a commercial office
building (the "Premises"), except for the North East Office on the third
floor and the detached storage area, located at 734 Lighthouse Ave., Pacific
Grove, CA 93950.
2. TERM. The lease term shall be for a term of three (3) years and will
begin on August 1, 1999 and shall terminate on July 31, 2002. Thereafter,
Tenant shall have two (2) consecutive, one year options to renew and extend
the Lease on all of the same terms and conditions including rent, provided
Tenant shall give Landlord written notice of exercise of such option not less
than ninety (90) days prior to the end of the preceding term, and provided
further, there shall be no further right to renew or extend the Lease.
3. LEASE PAYMENTS. Tenant shall pay to Landlord monthly installments of rent
in the amount of $10,000.00, payable in advance on the first day of each
month, commencing on August 1, 1999, for a total lease payment of $360,000
during the original term. Lease payments not made by the tenth of the month
shall be deemed late and subject to a late charge of ten percent (10%) of the
amount then due. Rental payments shall be made to the Landlord at 734
Lighthouse Ave., Pacific Grove, CA 93950, which address may be changed from
time to time by the Landlord.
4. POSSESSION. Tenant shall be entitled to possession on the first day of
the term of this Lease, and shall yield possession to Landlord on the last
day of the term of this Lease, unless otherwise agreed by both parties in
writing. At the expiration of the term, Tenant shall remove its goods and
effects and peaceably yield up the Premises to Landlord in as good a
condition as when delivered to Tenant, ordinary wear and tear excepted.
Tenant has no option or other right to renew or further extend this Lease
beyond the termination date.
5. USE OF PREMISES. Tenant may use the Premises only for development of
software. The Premises may be used for any other purpose only with the prior
written consent of Landlord, which shall not be unreasonably withheld. Tenant
shall notify Landlord of any anticipated extended absence from the Premises
not later than the first day of the extended absence.
6. PARKING. Tenant may use the public on-street parking in front of the
premises on a non-exclusive basis with other members of the public or to such
greater degree as may be allowed by the City of Pacific Grove ("City") or to
which Landlord may be entitled.
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<PAGE>
7. PROPERTY INSURANCE. Landlord and Tenant shall each maintain appropriate
insurance for their respective interests in the Premises and property located
on the Premises. Landlord shall be named as an additional insured in such
policies. Tenant shall deliver appropriate evidence to Landlord as proof that
adequate insurance is in force issued by companies reasonably satisfactory to
Landlord. Landlord shall receive advance written notice from the insurer
prior to any termination of such insurance policies. Tenant shall also
maintain any other insurance which Landlord may reasonably require for the
protection of Landlord's interest in the Premises. Tenant is responsible for
maintaining casualty insurance on its own property.
8. LIABILITY INSURANCE. Tenant shall maintain liability insurance on the
Premises with personal injury limits of at least $1,000,000.00 for injury to
one person, and $3,000,000.00 for any one accident, and a limit of at least
$450,000.00 for damage to property. Tenant shall deliver appropriate evidence
to Landlord as proof that adequate insurance is in force issued by companies
reasonably satisfactory to Landlord. Landlord shall receive advance written
notice from the insurer prior to any termination of such insurance policies.
9. MAINTENANCE. Landlord shall have the responsibility to maintain the roof,
bearing walls and foundation of the Premises in good repair at all times.
Tenant shall be responsibile for all interior maintenance of the Premises
including but not limited to plumbing, heating, and electrical systems.
10. UTILITIES AND SERVICES.
10.1 Landlord shall be responsible for payment of the following
utilities and services in connection with the Premises:
10.1.1 water and sewer
10.1.2 garbage and trash disposal
10.1.3 janitorial services
10.1.4 pest control, water purification
10.2 Tenant shall be responsible for payment of the following utilities
and services in connection with the Premises:
10.2.1 electricity
10.2.2 gas
10.2.3 heating
10.2.4 telephone service
10.2.5 security and alarm system.
10.3 Tenant shall cooperate with Landlord with regard to any future
water rationing requirements that may be imposed and shall be responsible for
it pro-rata share of any fines or assessments for excessive water use. Tenant
acknowledges that Landlord has fully explained to Tenant the utility rates,
charges and services for which Tenant will be required to pay to Landlord (if
any), other than those to be paid directly to the third-party provider.
2
<PAGE>
11. TAXES. Taxes attributable to the Premises or the use of the Premises shall
be allocated as follows:
11.1 REAL ESTATE TAXES. Landlord shall pay all real estate taxes and
assessments for the Premises.
11.2 PERSONAL TAXES. Tenant shall pay all personal taxes and any other
charges which may be levied against the Premises and which are
attributable to Tenant's use of the Premises, along with all sales and/or
use taxes (if any) that may be due in connection with lease payments.
12. TERMINATION UPON SALE OF PREMISES. Notwithstanding any other provision
of this Lease, Landlord may terminate this lease upon 90 days' written notice
to Tenant that the Premises have been sold.
13. DESTRUCTION OR CONDEMNATION OF PREMISES. If the Premises are partially
destroyed by fire or other casualty to an extent that prevents the conducting
of Tenant's use of the Premises in a normal manner, and if the damage is
reasonably repairable within sixty days after the occurrence of the
destruction, and if the cost of repair is less than $50,000.00, Landlord
shall repair the Premises and a just proportion of the lease payments shall
abate during the period of the repair according to the extent to which the
Premises have been rendered untenantable. However, if the damage is not
repairable within sixty days, or if the cost of repair is $50,000.00 or more,
or if Landlord is prevented from repairing the damage by forces beyond
Landlord's control, or if the property is condemned, this Lease shall
terminate upon twenty days' written notice of such event or condition by
either party and any unearned rent paid in advance by Tenant shall be
apportioned and refunded to it. Tenant shall give Landlord immediate notice
of any damage to the Premises.
14. DEFAULTS.
14.1 Tenant shall be in default of this Lease if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any
governing provisions of law to the contrary, if Tenant fails to cure any
financial obligation within ten (10) days (or any other obligation within
thirty (30) days, provided Tenant commences such cure within 10 days) after
three (3) days written notice of such default is provided by Landlord to
Tenant, Landlord may take possession of the Premises without further notice
(to the extent permitted by law), and without prejudicing Landlord's rights
to damages. In the alternative, Landlord may elect to cure any default and
the cost of such action shall be added to Tenant's financial obligations
under this Lease. Tenant shall pay all costs, damages, and expenses
(including reasonable attorney fees and expenses) suffered by Landlord by
reason of Tenant's defaults. All sums of money or charges required to be paid
by Tenant under this Lease shall be additional rent, whether or not such sums
or charges are designated as "additional rent". The rights provided by this
paragraph are cumulative in nature and are in addition to any other rights
afforded by law.
3
<PAGE>
14.2 In the event of any breach of this Lease by Tenant, beside other
rights or remedies they may have, Landlord shall have the immediate right to
re-entry and may remove all persons and property from the premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of, and for the account of Tenant. Should Landlord elect to re-enter as
herein provided or should they take possession pursuant to legal proceedings
or pursuant to any notice provided for by law, they may either terminate this
Lease or they may from time to time without terminating this Lease, relet the
premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and
upon such other terms and conditions as Landlord in their sole discretion may
deem reasonable and advisable with the right of making reasonable repairs of
the premises. Upon each such re-letting (a) Tenant shall be immediately
liable to pay to Landlord, in addition to any indebtedness other than rent
due hereunder, the cost and expenses of such re-letting and of such
reasonable repairs incurred by Landlord and the amount, if any, by which the
rent reserved in this Lease for the period of such re-letting (up to but not
beyond the term of this Lease) exceeds the amount agreed to be paid as rent
for the premises for such period of such re-letting; or, (b) at the option of
Landlord, rents received by Landlord from such reletting shall be applied
first to the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any costs and expenses of such
re-letting and of such reasonable repairs; third, to the payment of rent due
and unpaid hereunder and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same may become due and payable
hereunder. If Tenant has been credited with any rent to be received by such
re-letting under option (a), and such rent shall not be promptly paid to
Landlord by the new tenant, or if such rentals received from such re-letting
under option (b) during any month be less than that to be paid during that
month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. No such re-entry or
taking possession of the premises by Landlord shall be construed as an
election on their part to terminate this Lease unless a written notice of
such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction.
14.3 Landlord may terminate Tenant's right to possession of the premises
at any time by giving written notice to Tenant of such termination, and no
other act by Landlord relating to the premises shall terminate this Lease. On
termination Landlord has the right to recover from Tenant:
a. The worth, at the time of the award, of the unpaid rent that
had been earned at the time of termination of this Lease;
b. The worth, at the time of the award, of the amount by which the
unpaid rent that would have been earned after the date of termination of this
Lease until the time of award exceeds the amount of the loss of rent that
Tenant proves could have been reasonably avoided;
c. The worth, at the time of the award, of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
d. Any other amount necessary to compensate Landlord for all
detriment caused by Tenant's default.
4
<PAGE>
The term "the worth, at the time of the award", as used in SUBPARAGRAPHS A AND B
of this Paragraph is to be computed by allowing interest at the rate of ten
percent (10%) per annum, and the term, as referred to in SUBPARAGRAPH C of this
Paragraph, is to be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%).
14.4 Landlord and Tenant, at any time after the other party commits a
default, may cure the default at the defaulting party's cost, except as
otherwise limited by this Lease. If Landlord or Tenant at any time pays any
sum or incurs any cost or expense in curing the default, the sums paid or
cost or expense incurred by the non-defaulting party shall be due immediately
from the defaulting party at the time the sum is paid or the costs or
expenses incurred, and shall bear interest at the rate of ten percent (10%)
per annum from the date the sum is paid by the non-defaulting party until the
non-defaulting party is reimbursed.
14.5 Rent not paid when due shall bear interest from the date due until
paid at ten percent (10%) per annum. Payments received from Tenant shall be
used applied as follows: first to any non-rent obligations including late
charges, second to any costs of curing any default including attorney fees
and interest accrued, then to any additional rent obligation, and finally to
the base rent.
15. HOLDOVER. If Tenant maintains possession of the Premises for any period
after the termination of this Lease ("Holdover Period"), Tenant shall pay to
Landlord lease payment(s) during the Holdover Period at a rate equal to 125% of
the normal payment rate set forth in PARAGRAPH 3 above titled "Lease Payments."
16. CUMULATIVE RIGHTS. The rights of the parties under this Lease are
cumulative, and shall not be construed as exclusive unless otherwise required by
law.
17. REMODELING OR STRUCTURAL IMPROVEMENTS; SIGNS.
17.1 Tenant shall have the obligation to conduct any construction or
remodeling, at Tenant's sole expense, including but not limited to any
required compliance with the American's With Disabilities Act ("ADA") that
may be required to use the Premises as specified above. Tenant may also
construct such fixtures on the Premises, at Tenant's sole expense, that
appropriately facilitate its use for such purposes. Such construction shall
be undertaken and such fixtures may be erected only (i) in compliance with
all local, state, and federal governmental laws, regulations, and building
permits, (ii) shall be non-structural in nature, (iii) shall not exceed the
cumulative, aggregate amount of $10,000, and (iv) shall only be undertaken
with the prior written consent of the Landlord.. At the end of the lease
term, Tenant shall be entitled to remove, or at the request of Landlord shall
remove at Tenant's expense, such fixtures, and shall restore the Premises to
substantially the same condition of the Premises at the commencement of this
Lease.
17.2 Tenant shall not install signs, awnings or advertisements on any
part of the Premises without (i) compliance with any local ordinances of the
City of Pacific Grove, and (ii) Landlord's prior written consent.
5
<PAGE>
18. ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent, which shall not
be unreasonably withheld, Landlord, and its agents, shall have the right to
enter the Premises to make inspections and repairs, perform maintenance, provide
necessary services, or show the unit to prospective buyers, mortgagees, tenants
or workers. However, Landlord does not assume any liability for the care or
supervision of the Premises. As provided by law, in the case of an emergency,
Landlord may enter the Premises without Tenant's consent. During the last three
months of this Lease, or any extension of this Lease, Landlord shall be allowed
to display the usual "To Let" signs and show the Premises to prospective
tenants.
19. INDEMNITY REGARDING USE OF PREMISES. Tenant hereby agrees to and shall
protect, indemnify, defend, and hold Landlord harmless from and against any and
all losses, claims, liabilities, and expenses, including actual attorney fees
and costs, if any, which Landlord may suffer or incur in connection with
Tenant's possession, use or misuse of the Premises, except for Landlord's
intentional acts or gross negligence.
20. MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant
shall have the right to file mechanics liens or any other kind of lien on the
Premises and the filing of this Lease constitutes notice that such liens are
invalid. Further, Tenant agrees to (1) give actual advance notice to any
contractors, subcontractors or suppliers of goods, labor, or services that such
liens will not be valid, and (2) take whatever additional steps that are
necessary in order to keep the premises free of all liens resulting from
construction done by or for the Tenant. Tenant shall notify Landlord at least
twenty (20) days prior to the start of any construction so that Landlord may
post and record appropriate "Notices of Non-responsibility."
21. NOTICE. Any and all notices or demands by or from Landlord to Tenant, or
Tenant to Landlord, shall be in writing. Notices may be served personally, or by
certified mail, by Express Mail, by overnight delivery or by facsimile as
permitted by Code of Civil Procedure Section 1013. If served personally, service
shall be conclusively deemed made at the time of service. If served by certified
mail, service shall be conclusively deemed made upon the deposit thereto in the
United States mail, postage prepaid, addressed to the party to whom such notice
or demand is to be given, as hereinafter provided, and the issuance of the
receipt for certified mail therefor. Any notice or demand to Landlord or Tenant
shall be given at the address set forth below or at such other addresses as may
be designated by written notice by the party desiring such change.
TO LANDLORD: NewCon Software Inc.
734 Lighthouse Ave.
Pacific Grove, CA 93950
TO TENANT: Embarcadero Technology Inc.
425 Market St. Suite 425
San Francisco, CA 94105
22. GOVERNING LAW. This Lease shall be construed in accordance with the laws of
the State of California with venue at Pacific Grove, California.
6
<PAGE>
23. ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire
agreement of the parties and there are no other promises, conditions,
understandings or other agreements, whether oral or written, relating to the
subject matter of this Lease. This Lease may be modified or amended in writing,
if the writing is signed by the party obligated under the amendment.
24. SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
25. WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of this
Lease.
26. BINDING EFFECT. The provisions of this Lease shall be binding upon and inure
to the benefit of both parties and their respective legal representatives,
successors and assigns.
27. TIME. Time is of the essence of this Lease.
28. SECURITY DEPOSIT. None.
29. HAZARDOUS MATERIALS.
29.1 Tenant shall not at any time during the term of this Lease use,
generate, store, release or dispose of, on, under or about the premises any
hazardous substance, hazardous material, hazardous waste, toxic substance,
pollutant, contaminant, or related materials ("Hazardous Materials") except
in compliance with applicable laws. For the purposes of this covenant,
Hazardous Materials shall include, but shall not be limited to, substances
defined as "hazardous substance" or "pollutant or contaminant" in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601 et seq., those substances defined as
"hazardous waste" by the Resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 6901 et seq., and by Section 25117 of the California Health
and Safety Code, and those substances defined as "hazardous substance" in
Section 25316 of the California Health and Safety Code, and the regulations
adopted and publications promulgated pursuant to the laws. Tenant shall
protect, indemnify, defend, and hold Landlord harmless from and against all
liability, including all foreseeable consequential damages, directly arising
out of the use, generation, storage, release or disposal of Hazardous
Material by Tenant, including, without limitation, the cost of any required
or necessary remediation, repair, clean-up or detoxification and the
preparation of any closure or other required plans, to the full extent that
such action is attributable, directly or indirectly, to the use, generation,
storage, release or disposal of Hazardous Materials on the premises at any
time by Tenant in violation of applicable laws. Tenant'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 Tenant, and the
cost of investigation (including consultant's and attorney's fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease.
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<PAGE>
29.2 Landlord represents and warrants that, to the best of their
knowledge and belief, no Hazardous Materials are located in the premises.
Landlord shall not at any time during the term of the Lease use, generate,
store, release or dispose of, on, under or about the premises any Hazardous
Materials except in compliance with applicable laws. Landlord shall protect,
indemnify, defend and hold Tenant harmless from and against all liability,
directly or indirectly, arising out of the use, generation, storage, release
or disposal of Hazardous Materials on, under or about the Building at any
time by Landlord in violation of applicable laws.
29.3 No termination, cancellation or release agreement entered into by
Landlord and Tenant shall release Tenant or Landlord from its respective
obligations under this Lease with respect to Hazardous Materials unless
specifically so agreed by the other party in writing at the time of such
agreement.
29.4 If Tenant knows, or has reasonable cause to believe, that a
Hazardous Material, or a condition involving or resulting from same, has come
to be located in, on, under or about the premises either before or after the
commencement date of this Lease, other than as previously consented to by
Landlord, Tenant shall immediately give written notice of such fact to
Landlord. Tenant shall also immediately give Landlord a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Material or contamination in, on, or about the premises.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE; ESTOPPEL.
30.1 SUBORDINATION. This Lease shall be subject and subordinate to any
mortgage, deed of trust, or other hypothecation or security device
(collectively, "Security Device"), now or hereafter placed by Landlord upon
the real property of which the premises are a part, to any and all advances
made on the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof. Tenant agrees that the
Lenders holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Landlord under this Lease,
but that in the event of Landlord's default with respect to any such
obligation, Tenant will give any Lender whose name and address have been
furnished Tenant in writing for such purpose notice of Landlord's default and
allow such Lender thirty (30) days following receipt of such notice for the
cure of the default before invoking any remedies Tenant may have by reason
thereof. If any Lender shall elect to have this Lease superior to the lien of
its Security Device and shall given written notice thereof to Tenant, this
Lease 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 below, Tenant 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 landlord with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Tenant might have against any prior landlord except
to the extent resulting from a default of which Landlord has been put on
notice by Tenant prior to attornment and that remains uncured at the time of
acquisition of ownership, or (iii) be bound by prepayment of more than one
month's rent.
8
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30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Landlord after the execution of this Lease, Tenant's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Tenant's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Tenant is
not in breach hereof and attorns to the record owner of the premises.
30.4 ESTOPPEL. Tenant, within ten (10) days after written notice from
Landlord, shall execute and deliver to Landlord, in recordable form, a
certificate stating that this Lease is unmodified and in full force and
effect, or in full force and effect as modified, and stating the
modifications, and shall also state the amount of monthly rent, the dates to
which the rent has been paid in advance, and the amount of any Security
Deposit or prepaid rent.
30.5 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 Landlord or a Lender in connection
with a sale, financing or refinancing of the premises, Tenant and Landlord
shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein. Tenant's failure
to deliver any of the foregoing documents to Landlord within ten (10) days
after written notice or request therefore is a material breach and default
under this Lease.
31. CONSTRUCTION OF LEASE. Landlord and Tenant have negotiated this Lease,
have had an opportunity to be advised respecting the provisions contained
herein and have had the right to approve each and every provisions hereof;
therefore, this Lease shall not be construed against either Landlord or
Tenant as a result of the preparation of this Lease by or on behalf of either
party.
32. COUNTERPARTS; FAX; NON-BINDING. This Lease may be executed in
counterparts which when taken together shall constitute one and the same
original. This Lease may be executed and transmitted by facsimile
transmission so long as Tenant's signed original of the Lease is returned to
Landlord within seventy two (72) hours of the date the facsimile copy was
transmitted. Tenant's signature on this Lease shall be considered an offer to
lease and nothing herein shall bind Landlord until the Lease is signed by
Landlord and an executed copy is delivered to Tenant.
LANDLORD: TENANT:
NEWCON SOFTWARE INC. EMBARCADERO TECHNOLOGY INC.
By: By:
----------------------------- ---------------------------
Jeffrey Newman, President Stephen Wong, CEO
<PAGE>
Exhibit 10.6
LEASE
This Lease is made as of the date December 6, 1999 between Wallace J.
Getz designated as LESSOR and Embarcadero Technologies, Inc. designated as
LESSEE.
LESSOR lets to LESSEE and LESSEE hires from LESSOR the following
premises, and each promises:
1. PRINCIPAL PREMISES: The premises that are the subject of this Lease are
located in the City of Pacific Grove, County of Monterey, State of
California, described as: 207 16th Street Suites 200 and 202.
2. SERVICES: LESSEE shall be responsible for the payment of all utility
services used by them at the leased premises. LESSEE shall, at its sole
expense, contract for and maintain regular garbage, trash and refuse
collection.
3. PREMISES: Any interior or exterior remodeling shall be paid for by LESSEE.
All fixtures necessary for LESSEE'S business shall be furnished by LESSEE at
LESSEE'S expense.
LESSEE shall present complete plans and specifications to LESSOR prior
to commencement of any alteration, construction or demolition. LESSOR'S consent
in writing shall be required before any LESSEE may make any alterations,
modification or repairs, in addition to any required consent of the City of
Pacific Grove, or any other governmental agency.
LESSEE shall advise LESSOR in writing ten (10) days prior to
commencement of any work on the demised premises so that LESSOR may post and
record a timely notice of nonresponsibility.
<PAGE>
4. TERM:
A. BASIC TERM: The terms shall be for four (4) years, beginning and
ending as follows:
B. TERMINATION AND SURRENDER: At the termination of this Lease, LESSEE
shall surrender to LESSOR the premises and fixtures and equipment which LESSEE
is required or entitled to remodel by reason of express provisions to the Lease,
in good and broom-clean condition, except for reasonable wear and tear and
damage that LESSEE is not obligated to repair, if any, by reason of express
provisions in the Lease. All property that LESSEE is required to surrender, and
all property that LESSEE does surrender or abandon, at the termination of this
Lease, shall, at LESSOR'S election, then become the property of LESSOR.
Voluntary or other surrender of this Lease by LESSEE, or a mutual
cancellation, shall not work a merger and shall, at LESSOR'S option, either
terminate all or any existing subtenancies, and the subleases representing them.
Trade fixtures and trade equipment installed on the premises before or
during the Lease term at LESSEE'S expense shall not be deemed part of the
premises unless otherwise expressed in this Lease, and LESSEE, if not in
default, may remove them at their own expense at or before the termination of
this Lease. If LESSOR shall so request LESSEE shall, at the termination of the
Lease, remove any such trade fixtures and trade equipment specified by LESSOR,
at LESSEE'S expense, whether LESSEE is in default or not. LESSEE shall repair
all damage to the premises resulting from or caused by the removal of trade
fixtures and trade equipment or other property of
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LESSEE. LESSOR may elect to repair the injury or damage, and LESSEE shall, on
demand, pay to LESSOR the cost of those repairs.
LESSEE may elect to retain any trade fixtures and trade equipment that
LESSEE does not remove or may remove then and either store or dispose of them in
any manner. Title to any property that LESSOR elects to retain shall vest in
LESSOR at the time of the election to retain it. LESSEE shall on demand, pay to
LESSOR the expense of removing, storing and disposing of the property LESSOR
elects to treat in such manner. LESSOR may exercise a separate option to retain,
store, or dispose of each such item or all items, or groups of items, and the
election made for any one item or group of items may differ from that made for
other items or groups of items.
If LESSEE fails to surrender the premises on the termination of the
Lease, LESSEE shall defend and indemnify LESSOR from all liability and expense
resulting from failure of LESSEE to surrender, including, without limiting the
generality of the above, claims made by any succeeding LESSEE founded on or
resulting from LESSEE'S failure to surrender.
C. HOLDING OVER: If LESSEE holds the premises after expiration of the
term with LESSOR'S consent, express or implied, the holding shall, in the
absence of contrary written agreement, be deemed to be at tenancy from
month-to-month at a monthly rental, payable in advance, equal to one-twelfth
(1/12th) of the aggregate rental, and all adjustments required by the Lease,
payable during the last year of the term (unless during the last year there was
a reduction of rent because of damage to or destruction of the premises, in
which event the fraction shall be applied to the twelve (12) months next
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preceding the damage or destruction). All provisions of this Lease, except those
pertaining to rent, terms and option, if any, shall apply to the month-to-month
tenancy.
5. RENT:
A. LESSEE shall pay to LESSOR as minimum monthly rent without
deduction, setoff, prior notice, or demand, the sum of $1,025 per month, which
sum is subject to possible adjustment as provided hereafter in this Paragraph.
Beginning December 6, 1999, there is a charge of 6% of rent for a late charge
paid after the 11th day.
B. That in addition to the rental above-mentioned, LESSEE shall pay
increase in taxes incurred for any reason, during the period of this Lease,
i.e., increase over and above the property taxes for the fiscal year July 1,
1998 to June 30, 1999 ($ ), on a pro rata basis for the entire tax parcel
predicated upon the ratio of square footage of lease space in the demised
premises to all lease space in the entire tax parcel. LESSEE shall pay during
the period of this Lease any additional amount over and above such basis upon
statement, in writing, before ten (10) days before the December and April
installments of such excess, if any, presented by LESSOR to LESSEE.
6. USE OF PREMISES:
A. WARRANTY AS TO USE: LESSOR makes no warranty or representation
concerning zoning or uses permissible on the property.
B. PERMITTED USES: LESSEE shall use the premises only for offices and
for no other purposes without prior written consent of the LESSOR.
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<PAGE>
C. LIMITATIONS ON USE: LESSEE'S use of the premises shall be subject to
the following specific limitations, without limiting the generality of the
above:
(1) INSURANCE RATE: LESSEE shall refrain from doing and shall not
permit to be done, anything in or about the premises, and shall not bring or
keep anything on the premises that will increase the rate of any insurance
covering injuries to person or damage to property.
(2) COMPLIANCE WITH LAW: LESSEE shall at all times conduct his
business on the premises in a lawful manner, and at his own expense, comply with
all governmental laws, rules, regulations, and orders applicable to the conduct
of LESSEE'S business on the premises. Any structural changes, alterations or
additions made necessary or required by reason of any law, rules, regulations,
or order promulgated by competent government authority required solely by reason
of change in LESSEE'S use of premises shall be made and paid for by LESSEE.
(3) WASTE AND NUISANCE: LESSEE shall not use or permit to be used
any part of the premises in a manner that will constitute waste, a nuisance, or
an unreasonable annoyance to the public or to owners or occupants of neighboring
properties.
(4) UTILITIES: LESSEE shall be responsible for all electricity
and gas during said term plus any increases during the term of the lease.
(5) SIGNS: LESSEE shall not place or maintain or permit the
placing or maintenance of any sign or other object on the exterior walls or the
roof or on the exterior or interior of windows, except as otherwise expressly
permitted by the City
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of Pacific Grove and LESSOR. Any signs permitted shall be kept in first-class
condition at all times. The design and color of any sign shall be approved by
the LESSOR before it is installed; and the LESSOR agrees that such approval
will not be unreasonably withheld.
(6) EXTERIOR: LESSEE shall not change or permit the changing of
the exterior of the building forming part of its premises, whether in structure,
color or otherwise, without limitation, except as permitted in this lease.
(7) LIGHTING: LESSEE shall keep all signs and lighting fixtures
fully lighted and in operation during normal business hours and promptly replace
or repair all defective tubes, bulbs, and other light sources, whether interior
or exterior.
(8) THROWING DEBRIS: LESSEE shall not throw or place anything out
of the windows or doors or in any of the common areas.
D. MAINTENANCE, REPAIRS, ALTERATIONS:
(1) LESSOR agrees to keep in good order, condition and repair the
foundations, exterior walls, downspout gutters and roof of the building, but
excluding the exterior and interior of all windows, doors, plate glass and
showcases; provided, however, that the LESSOR shall not be obligated to repair
any damage thereto caused by any act or negligence of LESSEE or its employees,
agents, invitees, licensees, or contractors. LESSOR shall not be obligated to
make any such repairs until after the expiration of ten (10) days written notice
from LESSEE to LESSOR, stating the need for such repairs or maintenance.
(2) LESSEE'S DUTY:
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LESSEE shall keep in good condition:
(a) The external appearance of exterior walls and
roof, including glass and glazed areas.
(b) The efficient working condition of all
portions of the electrical, plumbing and sewage systems that are located on the
leased premises and those lying outside the meter, main connection, and the
outfall main, respectively.
(c) LESSEE shall keep in good and commercially
attractive condition all portions of the premises and shall repair all damage
resulting from the following:
(i) Use, including willful action (whether
proper or improper) or negligence, by any person suffered to be on the premises
by LESSEE, except LESSOR; or
(ii) LESSEE'S failure to observe or perform
any conditions or covenants imposed on LESSEE by this Lease;
(iii) Alterations by LESSEE or any person
suffered on premises by LESSEE, except LESSOR;
(iv) LESSEE shall keep all walks, sidewalks,
and landscaped areas adjoining leased area in a clean and proper manner at all
times;
(v) Glass areas shall be cleaned as reasonably
required to keep the premises in first class condition. LESSEE shall, at his
expense, replace all broken or cracked glass and glazing promptly upon the
occurrence of such conditions during the lease;
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(vi) If LESSEE fails to perform any of its
obligations under this subparagraph, LESSOR after notice and demand, may, at
LESSOR'S option and without waiving LESSEE'S default, enter the premises and put
them in proper condition, and the expense shall become additional rent payable
on demand; but this option of LESSOR shall not be deemed a duty on the LESSOR or
a limitation of LESSEE'S obligations;
(3) LESSEE WAIVER: Except as provided above, LESSEE waives the
benefits of Sections 1941 and 1942 of the California Civil Code. It is agreed
that the structure in which the leased premises is situated and no part thereof,
is intended for the occupation of human beings.
(4) EXCULPATION OF LESSOR: LESSOR shall not be responsible for
any latent defects, deterioration, or change in the condition of the premises,
or for any damage to LESSEE'S property, or to that portion of the premises that
LESSEE is obligated to keep in good conditions, except for damage proximately
resulting from the breach of any obligation expressly imposed on LESSOR by this
Lease.
7. DAMAGE, DESTRUCTION AND INSURANCE:
A. FIXTURES AND PERSONAL PROPERTY: LESSEE shall, at his own expense,
procure and maintain during the term of this Lease, insurance covering LESSEE'S
signs, trade fixtures, furnishings, equipment, and other similar installations
and leasehold improvements originally and subsequently installed in, or placed
on the premises by LESSEE.
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The insurance required by this Paragraph shall provide protection to
the extent of not less than ninety (90%) percent of the replacement cost against
all casualties included in the classification "fire and extended coverage" under
standard industry practices in California.
B. PLATE GLASS:
LESSEE shall at his own expense, procure and maintain, during the life
of this Lease, insurance covering all plate glass and other glazing forming part
of the premises leased, naming the LESSOR as an additional insured.
C. DESTRUCTION OF PREMISES: Should said premises of the building of
which they are a part be damaged or destroyed by any cause not the fault of
LESSEE, LESSOR, at LESSOR'S sole cost and expense shall promptly repair the same
and the rent payable under this Lease shall be abated for the time and to the
extent LESSEE is prevented from occupying said premises in their entirety;
provided however, that should the cost of repairing the damage or destruction
exceed fifty (50%) percent of the full replacement cost of said premises or the
building of which said premises are a part, LESSOR may, in lieu of making
repairs required by this Paragraph, terminate this LEASE by giving LESSEE thirty
(30) days written notice of such termination
D. DAMAGE TO FIXTURES: In the event of damage to or destruction of
exterior or interior signs, trade fixtures, equipment, and other installations
and leasehold improvements originally or subsequently installed by LESSEE,
LESSEE shall proceed with reasonable diligence to restore them substantially to
the condition they were in immediately before the damage or destruction;
provided that this restoration need not be
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made if the Lease is to be terminated under the above provisions relating to
damage to or destruction of the premises.
E. REPAIRS; USE OF INSURANCE PROCEEDS:
(1) Unless the parties to this Lease can and do agree forthwith
upon the extent and amount of such damage or destruction, LESSOR promptly shall
designate a certified architect, registered engineer, or licensed building
contractor who shall determine such matters, and the determination of such
architect, engineer, or contractor shall be final and binding upon the parties
to this Lease.
(2) In the event neither party elects to terminate this Lease,
LESSOR shall, to the extent of available insurance proceeds, repair or rebuild
such building and improvements to substantially the same condition that they
were in immediately preceding such damage or destruction.
(3) LESSEE agrees to continue the operation of his business in
the premises to the extent reasonably practicable from the standpoint of good
business during any period of reconstruction or repair.
8. PUBLIC LIABILITY, INDEMNITY AND INSURANCE:
A. INDEMNIFICATION: LESSEE shall defend and indemnify LESSOR against
all loss, expense, and liability and against all claims and demands arising
or asserted to have arisen during the life of this Lease by reason of any
injury to person or damage to property. Without limiting the generality of
the above, this covenant shall apply to injury to person or property of
LESSEE and LESSEE'S officers, directors, employees, agents, subtenants,
concessionaires, licensees, and invitees while they are in,
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on, or in any way connected with the premises or with LESSEE'S business
conducted on or from the premises. LESSEE waives all rights of subrogation it
may have against LESSOR as a result of any happening covered by this
Paragraph. This covenant shall not, however, apply to damage or injury
occasioned by LESSOR'S wrongful acts while in or on the premises.
B. PUBLIC LIABILITY INSURANCE: LESSEE shall, at LESSEE'S own expense,
procure and maintain, during the life of this Lease, comprehensive public
liability insurance with limits of not less than $500,000.00 for any one person
injured or killed and $1,000,000.00 for personal injuries to more than one
person in one accident, and $50,000.00 for property damage.
Before the commencement of the term, a correct copy of all policies, or
a certificate of insurance in the case of a blanket coverage, shall be delivered
to LESSOR with evidence satisfactory to LESSOR that the premiums have been paid.
Not less than ten (10) days before the expiration of any policy, similar
evidence of renewal and payment shall be delivered to LESSOR.
C. POLICY FORM: All policies of insurance provided in Paragraph 8
shall:
(1) Be written by companies authorized to do business in the
State of California and rated "B" or better, in the General Policy Holders
Rating of Best's Insurance Reports;
(2) Be written as primary policies and not contributing with or
in excess of any coverage that LESSOR may carry;
(3) Cover and insure LESSOR as an additional insured;
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(4) Contain an endorsement requiring ten (10) days written notice
to LESSOR before cancellation or change in the coverage, scope or amount of such
policy or policies;
(5) Waive all rights of subrogation that the insurer or insurers
might otherwise have, if any, against LESSOR.
9. PERSONAL PROPERTY TAXES: LESSEE shall defend and indemnify LESSOR against
liability for and shall protect the premises from liens by reason of taxes and
assessments on leasehold improvements, personal property of LESSEE, and trade
fixtures on or about the premises, whether they be assessed as real or personal
property. In case no separate assessment is available for such items, the
liability of the respective parties shall be determined by arbitration.
10. LESSOR'S RIGHT OF ENTRY: LESSOR and his authorized representatives shall
have the right to enter the premises at all reasonable times:
A. To discover the safety and good repair of the premises and LESSEE'S
compliance with his obligations;
B. To make repairs that LESSOR has the right or obligation to perform;
C. To do any act or thing necessary for the safety or preservation of
the premises; and
D. To protect or preserve the life or property of any person.
11. ASSIGNMENT AND SUBLETTING:
A. LESSEE: LESSEE shall not assign, sublet, encumber, hypothecate or
alienate this Lease or any interest thereof without the prior written permission
of the
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LESSOR. This prohibition includes both voluntary assignments or transfers and
involuntary assignments or transfers or those which may occur by operation of
law. Consent by LESSOR to one assignment or subletting shall not be deemed to
be a consent to any subsequent assignment, subletting or occupation.
12. NOTICES: Any notice (which word as used in this Lease, includes notice,
request, demand, approval, statement, report, acceptance, consent, and waiver),
or other instrument shall be deemed sufficiently given or served only if in
writing and if and when delivered or tendered either in person or by depositing
it in the United States mail in a sealed envelope, registered or certified, with
postage and postal charges prepaid, addressed to the party or person to be
served. Notice shall be addressed as follows:
TO LESSOR: WALLACE F. GETZ
207 Sixteenth Street
Pacific Grove, California 93950
TO LESSEE: Jeffrey Newman
734 Lighthouse Ave.
Pacific Grove, CA 94950
13. DEFAULTS AND REMEDIES:
A. LESSOR'S REMEDIES: In addition to all other rights and remedies
provided by law or equity, LESSOR has the following remedies:
(1) Continue this Lease in effect by not terminating LESSEE'S
right to possession of said premises and thereby be entitled to enforce all
LESSOR'S rights and remedies under this Lease including the right to recover the
rent specified in this Lease as it becomes due under this Lease; or
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(2) Terminate LESSEE'S right to possession of said premises,
thereby terminating this Lease, and recover from LESSEE:
(a) The worth at the time of award or the unpaid rent which
had been earned at the time of termination of the Lease;
(b) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination of the Lease
until the time of award exceeds the amount of rental loss that LESSEE proves
could have been reasonably avoided;
(c) 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 rental loss that LESSEE proves could be reasonably avoided; and
(d) Any other amount necessary to compensate LESSOR for all
detriment proximately caused by LESSEE'S failure to perform LESSEE'S obligations
under this Lease; or
(3) In lieu of, or in addition to, bringing an action for any or
all of the recoveries described in subparagraph (2) of this Paragraph, bring an
action to recover and regain possession of said premises in the manner provided
by the laws of unlawful detainer of the State of California then in effect.
B. INTEREST ON PAST DUE OBLIGATIONS: All sums in default, as that
term is defined in this Lease, shall bear interest at a rate of ten (10%)
percent from the due date until paid. All payments shall be applied first to
interest and then to principal; provided
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that this provision shall be without prejudice to provisions elsewhere in
this Lease referring to costs and expenses.
C. ATTORNEYS' FEES: If LESSOR or LESSEE brings suit, or institutes
arbitration proceedings, arising out of or based on a provision in this Lease,
the losing party shall pay to the prevailing party all costs and reasonable
attorneys' fees which shall be fixed by the court or tribunal.
D. WAIVER, VOLUNTARY ACTS: A waiver of any breach or default shall not
be a waiver of any other breach or default. No waiver, benefit privilege, or
service voluntarily granted or performed by either party shall give the other
any contractual right by custom, estoppel or otherwise.
E. APPLICATION OF PAYMENTS: Notwithstanding any contrary endorsement of
statement on or accompanying any payment after default, any payment shall be
deemed applied first to late payment charges then to the expenses of the LESSOR
resulting from the default or incurred to pursue this remedy; then to interest
and then to the earliest unpaid amount of any rent or obligation under this
Lease and acceptance of any payment shall not be deemed an accord and
satisfaction. The party entitled to payment may accept any payment without
prejudice to his right to recover the balance due or to pursue other remedies,
and without being bound by the endorsement or statement on or accompanying the
payment.
14. MISCELLANEOUS PROVISIONS:
A. ENTIRE AGREEMENT: This Lease contains the entire agreement between
the parties. No promises, representation, or warranty not included in this Lease
has been
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relied on by the party to whom made. Each party has relied on his own
examination of this Lease and on the advice of his own counsel and other
agents; to the extent that either party had not inspected or had counsel or
advice, he has waived it and the consequences of that lack.
B. AMENDMENT, NOTIFICATION: This Lease may be modified only in a
writing executed by both parties.
C. INTERPRETATION OF LEASE:
(1) CAPTIONS: Captions and organizations are for convenience and
shall not be used in construing meaning.
(2) PARTICULAR WORDS: The word "person" includes individuals,
corporations, trusts, partnerships, joint ventures, and unincorporated
associations. The words "mortgage" and "Encumbrances" include mortgages,
Deeds of Trust, security agreements, and all liens recognized by law,
provided that they are of record at the time they become material to this
Lease.
(3) CONDITIONAL LIMITATIONS: Each obligation imposed on LESSEE is
both a covenant and a condition.
(4) SEPARABILITY: The invalidity or illegality of any provision
shall not affect the remainder of the Lease.
(5) EXHIBITS: All exhibits to which reference is made are deemed
incorporated in the Lease, whether or not actually attached.
D. NEGATION OF PARTNERSHIP: The parties shall not, by reason of any
provision of this Lease, be deemed to be partners or co-venturers.
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E. SUCCESSORS: Subject to the Paragraph on assignment, the provisions
of this Lease shall be binding on and inure to the benefit of the heirs,
successors, executors, administrators, assigns, and personal representatives of
the respective parties.
F. GOVERNMENT ORDERS: LESSOR may comply voluntarily or under
compulsion, with any order or recommendation of any governmental or civilian
agency or organization relating to security, public welfare, or defense from
enemy attack or civilian commotion, and LESSEE will, on LESSOR'S notice and at
LESSEE'S expense, comply with the provisions of the order or recommendation that
affect the leasehold. Provisions of the Paragraph on Damage or Destruction which
relate to abatement or rent shall apply to this subparagraph.
15. ARBITRATION: LESSOR and LESSEE agree that in the event of
arbitration, of any Matter agreed to be arbitrated under this Lease, such
arbitration shall be submitted to the arbitration of two (2) disinterested and
competent persons, (neither of whom may be legal counsel for LESSOR or LESSEE or
a member of the local firm of which such persons is a member) one selected by
LESSOR and one selected by LESSEE, and the two (2) persons so selected shall
select a third (3rd) person whose award shall be conclusive and binding on both
parties. The dispute or controversy shall be judged pursuant to the rules and
procedures used by the American Arbitration Association. The arbitrators shall
have no authority, power, or right to alter, change, amend, modify, add to or
subtract from any of the provisions of this Lease. Any award shall be rendered
in conformity with the rules of the law of the State of California.
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16. OPTION FOR EXTENDED TERM: Should LESSEE fully and faithfully perform all the
terms and conditions of this Lease for the basic term specified in Paragraph 4,
LESSEE may extend this Lease for the period of 3 years commencing upon
expiration of the basic term by giving LESSOR written notice to do so at least
three (3) months prior to the expiration of the basic term. The extended term of
this Lease shall be subject to negotiation between the parties. LESSEE has first
right of refusal.
EXECUTED AT Pacific Grove, California.
DATED: 11/22/99
/s/ Wallace J. Getz
---------------------------------
LESSOR
DATED: 11/22/99
/s/ Jeffrey Newman
---------------------------------
LESSEE
LESSEE agrees to deposit with LESSOR on the execution hereof
the sum of $0.00, to be held by the LESSOR as security for the payment by the
LESSEE of the rents herein reserved, and for the performance by the LESSEE of
all the terms, covenants, and provisions of this Lease on the part of the LESSEE
to be kept and performed, which said sum shall remain as security until the
expiration of the terms of this Lease.
DATED: 11/22/99
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/s/ Wallace J. Getz
---------------------------------
LESSOR
/s/ Jeffrey Newman
- -----------------------------------------
LESSEE
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Exhibit 10.7
[Printed on Embarcadero Technologies, Inc. Letterhead]
September 27, 1999
Ms. Ellen Taylor
875 Dale Street
Andover, MA 01845
Dear Ellen:
I am pleased to make this offer to you to join Embarcadero
Technologies (the "Company") as its President and Chief Executive Officer. If
you accept this offer, we are assuming that you will commence employment not
later than October 18, 1999.
The terms of your employment are as follows:
1. SALARY. Your base salary will be $18,333.33 per month (equivalent to
$220,000 per year).
2. BONUS. You will be eligible to receive a semi-annual bonus of up to
$65,000 based upon objective performance standards that are measurable on a
semi-annual basis, which are to be set for you and Embarcadero Technologies
and to be mutually agreed between you and the Board of Directors.
3. STOCK OPTIONS. You will be granted seven-year standard-form options
to purchase (a) 220,000 shares of Common Stock at an exercise price of $0.50
per share, (b) 110,000 shares of Common Stock at an exercise price of $5.00
per share and (c) 110,000 shares of Common Stock at an exercise price of
$10.00 per share. Your options shall vest at a rate of 25% per year on the
anniversary of your start date. Your options shall cease vesting upon
termination of your employment, except as set forth in paragraph 7 below. In
the event of a "change in control," your options shall become fully vested,
except that if either (i) the change of control occurs within six months of
the commencement of your employment or (ii) within such six-month period the
Company enters into an agreement that would result in a change of control and
such change of control occurs within nine months of the commencement of your
employment, 50% of your options shall become vested.
For purposes of the preceding paragraph, a change in control means
the occurrence of either of the following:
<PAGE>
Ms. Ellen Taylor
September 27, 1999
Page 2
(a) any "person" (as used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules
promulgated thereunder) becomes the "beneficial
owner" (as defined in Rule 13d-3) of securities
representing a majority of the voting power of the
then outstanding securities of Embarcadero
Technologies; or
(b) a sale of assets involving all or substantially all
of the assets of Embarcadero Technologies, or a
merger or consolidation of Embarcadero Technologies
in which the holders of securities of Embarcadero
Technologies immediately prior to such event hold in
the aggregate less than a majority of the securities
of Embarcadero Technologies immediately after such
event.
4. RELOCATION ASSISTANCE. Embarcadero Technologies will reimburse you
for the reasonable and customary out-of-pocket expenses associated with (i)
the sale of your existing residence and purchase of a new residence in the
Bay Area (within twelve months of your relocation) including real estate
commissions on the sale of your existing residence and reasonable and
customary closing expenses paid by you; (ii) the relocation of your family
and household goods to the Bay Area, including travel and temporary housing
expenses in the Bay Area for a period not to exceed three months; and (iii)
two additional round trips between Massachusetts and the Bay Area for you and
your family to prepare for your move. The reimbursement of expenses listed in
(i), (ii) and (iii) above shall not exceed $73,000.
5. OTHER BENEFITS. In addition to the benefits specifically described in
this letter, you will be entitled to reimbursement for parking and
Embarcadero Technologies' standard executive benefits.
6. PROPRIETARY INFORMATION. You will be required to sign Embarcadero
Technologies' standard employee confidential information and inventions
agreement (a copy of which has been provided to you).
7. SEVERANCE. Your employment will be at will, which means that either
you or Embarcadero Technologies may terminate your employment at any time
with or without "cause" (as defined below). However, in the event you are
terminated without cause by the Company, you will be entitled to severance
pay in an amount equal to 12 months' base salary (which will be payable in
monthly installments) and the Company will also continue to pay your medical
and dental benefits in accordance with the benefits you were receiving at the
time of your termination for six months. These payments will terminate at
such time as you obtain other employment. In addition, if your are terminated
without cause by the Company during the first year of your employment, 25%
<PAGE>
Ms. Ellen Taylor
September 27, 1999
Page 3
of your options shall become vested; or, if you are terminated without cause
after the first year of your employment, you shall receive six-months of
vesting.
In the event that you voluntarily leave the Company or you are
terminated by the Company with cause, no severance pay will be due to you.
"Cause" shall mean (a) fraud or illegal acts; (b) material violation with
consequential damages to the Company of Company agreements, including the
Company's confidential information and inventions agreement; (c) material
failure to perform your job function to a reasonable standard after notice of
such failure has been given to you by the Board and you have had a 15
business-day period to cure such failure or (d) any other reason deemed cause
under applicable California law.
8. ARBITRATION. In the event of any dispute arising out of or relating
to your employment relationship or its termination (including without
limitation claims for breach of contract, wrongful termination, or age, race,
sex, disability or other discrimination) that it is not resolved by good
faith negotiations between the parties, you and Embarcadero Technologies
agree fully, finally and exclusively to arbitrate the dispute in binding
arbitration under the Employment Dispute Resolution Rules of the American
Arbitration Association in San Francisco County, California, rather than
litigate the dispute in court; provided that this arbitration provision shall
not apply to any dispute relating to or arising out of the alleged misuse or
misappropriation of Embarcadero Technologies' trade secrets or proprietary
information. In the event of arbitration, the arbitrator shall be allowed to
assess costs.
9. TERM OF OFFER. This offer will remain in effect until 5:00 p.m.
(Pacific Standard Time) on Tuesday, September 28, 1999.
I am enthusiastic about your joining Embarcadero Technologies and
look forward to working with you.
Very truly yours,
/s/ Stephen Wong
Stephen Wong
Chairman and Chief Executive Officer
ACCEPTED AND APPROVED:
Date: September 27, 1999
<PAGE>
Ms. Ellen Taylor
September 27, 1999
Page 4
/s/ Ellen Taylor
- -------------------------------------
Ellen Taylor
<PAGE>
Exhibit 10.8
[Printed on Embarcadero Technologies, Inc. Letterhead]
24 January, 1999
Mr. Raj Sabhlok
8202 Forest Gate Drive
Sugar Land, Texas 77479
Dear Raj:
I am please to make this offer to you to join Embarcadero
Technologies (the "Company") as its Senior Vice President and Chief Financial
Officer. If you accept this offer, we are assuming that you will commence
employment not later than January 31, 2000.
The terms of your employment are as follows:
1. SALARY. Your base salary will be $16,666.67 per month (equivalent to
$200,000 per year). You will be eligible to receive customary increases from
year to year based upon your performance and the Company's performance.
2. BONUS. You will be eligible to receive a quarterly bonus of up to
$18,750, or $75,000 on an annual basis, based upon objective performance
standards that are measurable on a quarterly basis, which are to be set for
you and Embarcadero Technologies and to be mutually agreed between you and
the Board of Directors. You will be eligible to receive customary increases
from year to year based upon your performance and the Company's performance.
3. STOCK OPTIONS. You will be granted seven-year standard-form options
to purchase (a) 250,000 shares of Common Stock at an exercise price of $3.00
per share and (b) 50,000 shares of Common Stock at an exercise price of
$10.00 per share. Your options shall vest over four years on a semi-annual
basis at a rate of 12.5% on each six-month anniversary of your start date.
Your options shall cease vesting upon termination of your employment, except
as set forth in paragraph 7 below. In the event of a "change in control,"
your options shall become fully vested, except that if (i) the change of
control occurs within six months of the commencement of your employment or
(ii) within such six-month period the Company enters into an agreement that
would result in a change of control and such change of control occurs within
nine months of the commencement of your employment, you shall vest in
ascending order of the applicable exercise price, the greater of (a) the
number of shares such that you realize $5 million in value between the
purchase price of such underlying shares and the applicable exercise price on
such shares or (b) 150,000 shares.
<PAGE>
Mr. Raj Sabhlok
January 24, 1999
Page 2
For purposes of the preceding paragraph, a change in control means
the occurrence of either of the following:
(a) Any "person" (as used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules
promulgated thereunder) becomes the "beneficial
owner" (as defined in Rule 13d-3) of securities
representing a majority of the voting power of the
then outstanding securities of Embarcadero
Technologies; or
(b) A sale of assets involving all or substantially all
of the assets of Embarcadero Technologies, or a
merger or consolidation of Embarcadero Technologies
in which the holders of securities of Embarcadero
Technologies immediately prior to such event hold in
the aggregate less than a majority of the securities
of Embarcadero Technologies immediately after such
event.
4. RELOCATION ASSISTANCE. Embarcadero Technologies shall reimburse you
for the reasonable and customary out-of-pocket expenses associated with (i)
the sale of you existing residence and purchase of a new residence in the Bay
Area (within twelve months of your relocation) including real estate
commissions on the sale of your existing residence and reasonable and
customary closing expenses paid by you on your new home; (ii) the relocation
of your family and household goods to the Bay Area, including travel and
temporary housing expenses in the Bay Area for a period not to exceed three
months; (iii) two additional round trips between Houston and the Bay Area for
you and your family to prepare for your move; and (iv) up to $50,000 to cover
any capital loss that you suffer in the sale of your home in Houston. The
reimbursement of expenses listed in (i), (ii) and (iii) above shall not
exceed $120,000.
5. PROPRIETARY INFORMATION. You will be required to sign Embarcadero
Technologies' standard employee confidential information and inventions
agreement.
6. SEVERANCE. Your employment will be at will, which means that either
you or Embarcadero Technologies may terminate your employment at any time
with or without "cause" (as defined below). However, in the event you are
terminated without cause by the Company, you will be entitled to severance
pay in an amount equal to 6 months' base salary (which will be payable in
monthly installments) and the Company will also continue to pay your medical
and dental benefits in accordance with the benefits you were receiving at the
time of your termination for six months. In addition, if you are terminated
without cause by the Company during the first year of your employment, 25% of
your options shall become vested; or, if you are terminated without cause
after the first year of your employment, your option shall continue to vest
during the six months that you are receiving severance payments.
<PAGE>
Mr. Raj Sabhlok
January 24, 1999
Page 3
In the event that you voluntarily leave the Company or you are
terminated by the Company with cause, no severance pay will be due to you.
"Cause" shall mean (a) fraud or illegal acts; (b) material violation with
consequential damages to the Company of Company agreements, including the
Company's confidential information and inventions agreements; (c) material
failure to perform your job function to a reasonable standard after notice of
such failure has been given to you by the Board and you have had a 15
business-day period to cure such failure or (d) any other reason deemed cause
under applicable California law.
7. ARBITRATION. In the event of any dispute arising out of or relating
to your employment relationship or its termination (including without
limitation claims for breach of contract, wrongful termination, or age, race,
sex, disability or other discrimination) that it is not resolved by good
faith negotiations between the parties, you and Embarcadero Technologies
agree fully, finally and exclusively to arbitrate the dispute in binding
arbitration under the Employment Dispute Resolution Rules of the American
Arbitration Association in San Francisco County, California, rather than
litigate the dispute in court; provided that this arbitration provision shall
not apply to any dispute relating to or arising out of the alleged misuse of
misappropriation of Embarcadero Technologies' trade secrets or proprietary
information. In the event of arbitration, the arbitrator shall be allowed to
assess costs.
8. TERM OF OFFER. This offer will remain in effect until 5:00 p.m.
(Pacific Standard Time) on January 27, 2000.
9. OTHER. You have informed the Company that your current employer may
assert that you have breached the terms of your option agreement by accepting
employment with the Company. Although both you and the Company believe that
any such assertion by your current employer has no merits as the Company is
not in a business competitive with the business of your current employer, the
Company has agreed to reimburse you 70% of any actual lost profits you
suffer, which arises from your current employer successfully asserting that
you have breached the terms of your option agreement by being employed by the
Company. Such reimbursement shall be made to you in cash or common stock of
the Company, as determined by the Company in its sole discretion, and paid
within five days of any final judgment against you. The Company also agrees
to pay the reasonable costs of defending you against any such claim made by
your currently employer, in an amount not to exceed $50,000 in the aggregate.
I am enthusiastic about your joining Embarcadero Technologies and
look forward to working with you.
<PAGE>
Mr. Raj Sabhlok
January 24, 2000
Page 4
Very truly yours,
/s/ Stephen Wong
Stephen Wong
Chairman
ACCEPTED AND APPROVED:
Date: January 24, 2000
/s/ Raj Sabhlok
- --------------------------
Raj Sabhlok
<PAGE>
Exhibit 10.9
Mr. Walter F. Scott III
2407 Hidden Shore Drive
Katy, TX 77450
Dear Walter:
I am pleased to make this offer to you to join Embarcadero
Technologies (the "Company") as its Vice President of Sales. If you accept
this offer, we are assuming that you will commence employment not later than
January 4, 2000.
The terms of your employment are as follows:
1. SALARY. Your base salary will be $16,666,67 per month
(equivalent to $200,000 per year).
2. BONUS. You shall be eligible to earn an annual bonus of up to
$300,000 per year based on the achievement of sales and personal goals. This
bonus shall be structured so that you will earn $100,000 at 100% of our
internal plan and $10,000 for each 1 % above of our internal plan up to a
maximum of $300,000.
3. STOCK OPTIONS. You will be granted seven-year standard-form
options to purchase (a) 250,000 shares of Common Stock at an exercise price
of $3.00 per share and (b) 50,000 shares of Common Stock at an exercise price
of $10.00 per share. Your options shall vest over four years on a semi-annual
basis at a rate of 12.5% on each six-month anniversary of your start date.
Your options shall cease vesting upon termination of your employment, except
as set forth in paragraph 7 below. In the event of a "change in control,"
your options shall become fully vested, except that if either (i) the change
of control occurs within six months of the commencement of your employment or
(ii) within such six-month period the Company enters into an agreement that
would result in a change of control and such change of control occurs within
nine months of the commencement of your employment, you shall vest in
ascending order of exercise price, the greater of (a) the number of shares
such that you realize. $6 million in value between the purchase price of such
underlying shares and the applicable. exercise price on such shares or (b)
150,000 shares, You have informed the Company that your current employer may
assert that you have breached the terms of your option agreement by accepting
employment with the Company. Although both you and the Company believe that
any such assertion by your current employer has no merits as the Company is
not in a business competitive With the business of your current employer, the
Company has agreed to reimburse you 70% of any actual lost profits you suffer
(estimated to equal $224,000), which arises from your current employer
successfully asserting that you have breached the terms of your option
agreement by being employed by the Company Such reimbursement shall be made
to you in cash or common stock of the Company, as determined by the Company
in its sole discretion, and paid within five days of any final judgment
against you. The Company also agrees to pay the reasonable costs of defending
you against any such claim made by your currently employer, in an amount not
to exceed $50,000 in the aggregate.
<PAGE>
For purposes of the preceding paragraph, a change in control means
the occurrence of either of the following:
(a) any "person" (as used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules
promulgated thereunder) becomes the "beneficial
owner" (as defined in Rule 13d-3) of securities
representing a majority of the voting power of the
then outstanding securities of Embarcadero
Technologies; or
(b) a sale of assets involving all or substantially all
of the assets of Embarcadero Technologies, or a
merger or consolidation of Embarcadero Technologies
in which the holders of securities of Embarcadero
Technologies immediately prior to such event hold in
the aggregate less than a majority of the securities
of Embarcadero Technologies immediately after such
event.
4. RELOCATION ASSISTANCE. Embarcadero Technologies will reimburse
you for the reasonable and customary out-of-pocket expenses associated with
(i) the sale of your existing residence and purchase of a new residence in
the Bay Area (within twelve months of your relocation) including real estate
commissions on the sale of your existing residence and reasonable and
customary closing expenses paid by you on your new home; (ii) the relocation
of your family and household goods to the Bay Area, including travel and
temporary housing expenses in the Say Area for a period not to exceed twelve
months; (iii) two additional round trips between Houston and the Bay Area for
you and your family to prepare for your move; and (iv) up to $50,000 to cover
any capital loss that you suffer in the sale of your home in Houston. The
reimbursement of expenses listed In (i), (ii) and (iii) above shall not
exceed $120,000,
5. PROPRIETARY INFORMATION. You will be required to sign
Embarcadero Technologies' standard employee confidential information and
inventions agreement.
6. SEVERANCE. Your employment will be at will, which means that either
you or Embarcadero Technologies may terminate your employment at any time with
or without "cause" (as defined below). However, in the event you are terminated
without cause by the Company, you will be entitled to severance pay in an amount
equal to 6 months' base salary (which will be payable in monthly installments)
and the Company will also continue to pay your medical and dental benefits in
accordance with the benefits you were receiving at the time of your termination
for six months. In addition, if your are terminated without cause by the Company
during the first year of your employment, 25% of your options shall become
vested; or, if you are terminated without cause after the first year of your
employment, your option shall continue to vest during the six months that you
are receiving severance payments.
In the event that you voluntarily leave the Company or you are
terminated by the Company with cause, no severance pay will be due to you.
"Cause" shall mean (a) fraud or illegal acts; (b) material violation with
consequential damages to the Company of Company
<PAGE>
agreements, including the Company's confidential information and inventions
agreement: (c) material failure to perform your job function to a reasonable
standard after notice of such failure has been given to you by the Board and
you have had a 16 business-day period to cure such failure or (d) any other
reason deemed cause under applicable California law.
7. ARBITRATION. In the event of any dispute arising out of or relating
to your employment relationship or its termination (including without limitation
claims for breach of contract, wrongful termination, or age, race, sex,
disability or other discrimination) that it is not resolved by good faith
negotiations between the parties, you and Embarcadero Technologies agree fully,
finally and exclusively to arbitrate the dispute in binding arbitration under
the Employment Dispute Resolution Rules of the American Arbitration Association
in San Francisco County, California, rather than litigate the dispute in court;
provided that this arbitration provision shall not apply to any dispute relating
to or arising out of the alleged misuse or misappropriation of Embarcadero
Technologies' trade secrets or proprietary information. In the event of
arbitration, the arbitrator shall be allowed to assess costs.
8. TERM OF OFFER. This offer will remain in effect until 5:00 p.m.
(Pacific Standard Time) on December 31, 1999.
I am enthusiastic about your joining Embarcadero Technologies and look
forward to working with you.
Very truly yours,
/s/ Dennis Wong
Dennis J. Wong
Director
ACCEPTED AND APPROVED:
Date: December 31, 1999
/s/ Walter F. Scott III
- --------------------------
Walter F. Scott III
<PAGE>
Exhibit 10.10
SEPARATION AGREEMENT AND GENERAL RELEASE
("Agreement")
This Separation Agreement and General Release (the "Agreement")
effective as of February 1, 2000 (the "Effective Date") is made by and between
Embarcadero Technologies, Inc., a California corporation (the "Company"), and
Stuart Browning, an individual ("Browning").
WITNESSETH:
WHEREAS, the parties to this Agreement are Stuart Browning, his heirs,
representatives, successors and assigns (hereinafter referred to collectively as
"Browning") and Embarcadero Technologies, Inc. and/or any of its predecessors,
successors, subsidiaries, affiliates or related companies (hereinafter referred
to collectively as "the Company").
WHEREAS, Browning has served the Company as an employee from the
Company's formation to the present; and
WHEREAS, Browning has agreed to resign his employment from the Company
effective February 1, 2000 pursuant to the terms below; and
WHEREAS, the Company intends to make certain payments and to provide
certain other benefits to Browning on the terms and conditions herein set forth.
NOW, THEREFORE, IN CONSIDERATION of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. The Company shall pay Browning severance compensation in the amount
of one hundred twenty thousand dollars ($120,000). This amount shall be paid in
monthly installments of ten thousand dollars ($10,000) per month for a period of
one year beginning February 1, 2000 and ending January 31, 2001 (the "Severance
Period"). All amounts paid pursuant to this Paragraph shall be subject to the
appropriate withholdings, in the same manner as withholdings were deducted
throughout Browning's tenure of employment.
2. The Company further agrees to provide Browning with full
participation in the Company's health, disability and life insurance benefit
programs, at the Company's expense, during the Severance Period. At the
conclusion of the Severance Period, Browning will be eligible for continued
coverage in the aforementioned benefit plans to the fullest extent provided by
applicable law. Browning hereby agrees that if at any time during the Severance
Period he becomes
<PAGE>
employed by another entity and becomes eligible for benefit coverage, he will
notify the Company and terminate his insurance coverage with and through the
Company at the earliest possible date.
3. The Company further agrees that Browning shall have full right,
title and interest to the 2,400,000 shares of Common Stock in the Company held
by Browning as of the Effective Date of this Agreement.
4. As consideration and inducement for this Agreement, Browning hereby
waives, releases and forever discharges the Company, its affiliates, and its
directors, officers, shareholders, employees and agents from any and all
complaints, claims, suits, causes of action, known or unknown, whether in law or
in equity, which he has asserted or could now assert at common law or under any
statute, regulation, or law, whether federal, state or local, on any ground
whatsoever, including, but not limited to, the California Labor Code, as
amended, Title VII of the Civil Rights Act of 1964, as amended, the California
Fair Employment and Housing Act, as amended, the Equal Pay Act, as amended, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, Section 1981 of Title 42 of the United States Code, the
Age Discrimination in Employment Act of 1967, the Older Workers' Benefit
Protection Act, the Americans with Disabilities Act, and any other claims
relating to or with respect to any event, matter, or occurrence arising out of
or in any way associated with his employment by the Company, the termination of
that employment or any acts or omissions of the Company relating thereto prior
to the Effective Date of this Agreement; provided, however, that this release
shall not constitute a release with respect to any obligations of the Company
set forth in this Agreement.
5. The Company hereby waives, releases and forever discharges Browning,
his heirs, executors, administrators, insurers, successors and assigns from any
and all complaints, claims, suits, causes of action, known or unknown, whether
in law or in equity, which the Company has asserted or could now assert at
common law or under any statute, regulation, or law, whether federal, state or
local, on any ground whatsoever, and any other claims relating to or with
respect to any event, matter, or occurrence arising out of or in any way
associated with Browning's employment by the Company, the termination of that
employment or any acts or omissions of Browning relating thereto prior to the
Effective Date of this Agreement (including, without limitation, his ownership
of the Common Stock referred to in paragraph 3, above); provided, however, that
this release shall not constitute a release with respect to any obligations of
Browning set forth in this Agreement.
6. Browning also agrees that he will not make any written or oral
communications that could reasonably be considered to be in derogation of the
Company in any respect, including, but not limited to, the Company's business,
technology, products, employees, officers, directors, or agents.
2
<PAGE>
7. The Company also agrees that it will cause its officers and
directors not make any written or oral communications that could reasonably be
considered to be in derogation of Browning or the performance of his job duties
while employed by the Company.
8. During the Severance Period, Browning will make himself available
upon reasonable notice, at reasonable times and places, to act as a consultant
to the Company in connection with its business activities.
9. Browning further agrees that any and all information and data
obtained by or disclosed to him at any time during his employment with the
Company, which is not generally known to the public, including but not limited
to information concerning the Company's customers, methods of operation,
processes, practices, policies, programs procedures, and/or personnel data, are
confidential and/or proprietary to the Company, constitute trade secrets of the
Company and shall not be disclosed, discussed, or revealed to any persons,
entities or organizations, outside of the Company, without prior written
approval of an authorized representative of the Company, to the extent permitted
by law.
10. Browning also agrees that as part of his consideration for the
payments and benefits provided herein and to protect the Company's confidential
and proprietary information, Browning agrees that during the Severance Period:
a. he will not directly or indirectly solicit or accept
customers/clients/or business opportunities of the Company;
b. he will not directly or indirectly solicit or induce any
employee of the Company to terminate his or her employment with the
Company; and
c. he will not engage in or pursue any business opportunity to
develop or design products competitive with the products of the
Company. (Browning and the Company agree and acknowledge that the
Company's products include those products listed on Attachment B.)
11. As to the matters released in Paragraphs 4 and 5 above, Browning
and the Company hereby respectively waive and release any and all rights under
Section 1542 of the California Civil Code or any analogous state, local, or
federal law, statute, rule, order or regulation. California Civil Code Section
1542 reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
3
<PAGE>
Subject to the limitations of paragraphs 4 and 5 above, Browning and
the Company hereby expressly agree that this Agreement shall extend and apply to
all unknown, unsuspected and unanticipated injuries and damages as well as those
that are now disclosed.
9. Browning agrees that, if so requested by the Company and the
representative of the underwriter(s), he shall not sell or otherwise transfer
(other than to donees who agree to be similarly bound) any securities of the
Company during the 180 day period following the effective date of a registration
statement of the Company filed under the Securities Act of 1933, as amended,
provided that all officers and directors of the Company and persons holding 5%
or more of the Company's securities enter into similar agreements.
10. The parties hereby acknowledge that in signing this Agreement they
may be waiving certain legal rights.
11. Browning warrants and represents that he has not filed any claim,
charge, action or complaint concerning any matter referred to in this Agreement.
Browning further agrees neither to file nor to encourage another to file any
claims, charges, actions or complaints for damages concerning any matter
referred to in this Agreement, except as otherwise provided by law.
12. This settlement was either negotiated for the parties by
representatives of their own choosing, or, after having had a reasonable
opportunity to obtain representatives of their own choosing, they elected to
represent themselves in such negotiations. The parties are voluntarily agreeing
to this compromise agreement. It is agreed that this is a compromise settlement
and that the payment under this Agreement is not an admission of any liability
or obligation.
13. Browning and the Company agree that he and it will neither disclose
nor voluntarily allow anyone else to disclose either the fact of, the reasons
for, or the provisions of this Agreement without the prior written consent of
the other party, unless required to do so by law, provided, that Browning and
the Company nonetheless may disclose this Agreement and its provisions to his or
its attorney, accountants and any taxing authority, and that the Company may
disclose the fact of Browning's resignation and the fact that he is being paid
severance (including the amount of such severance) as required pursuant to
necessary corporate disclosures.
14. Browning and the Company expressly state that they have read this
Agreement and understands all of its terms, that the preceding paragraphs recite
the sole consideration for this Agreement, and that this Agreement constitutes
the entire agreement with respect to any matters referred to in it. This
Agreement supersedes any and all other agreements between Browning and the
Company. This Agreement may
4
<PAGE>
only be amended in writing signed by Browning and an officer of the Company, and
it is executed voluntarily and with full knowledge of its significance.
15. If any provision of this Agreement shall be determined to be
invalid or unenforceable for any reason, it shall be adjusted rather than
voided, if possible, in order to achieve the intent of the parties to the extent
possible. In any event, all other provisions of this Agreement shall be deemed
valid and enforceable to the full extent possible.
16. As further mutual consideration of the promises set forth herein,
the Company and Browning agree that they each are responsible for their own
attorney's fees and costs, and each agrees not to seek from the other or others
released hereby reimbursement for attorney's fees and/or costs incurred in this
action or relating to any matters addressed in this Agreement.
17. This Agreement shall be construed and interpreted in accordance
with the laws of the State of California.
18. Any notice required or permitted to be given under this Agreement
by one party hereto to the other shall be sufficient if given or confirmed in
writing addressed as respectively indicated:
To Company: Embarcadero Technologies, Inc
425 Market Street, Suite 425
San Francisco, CA 94105
Attention: President
To Browning: Mr. Stuart Browning
510 Stockton Street, Apt. 5
San Francisco, CA 94108
and
Blaine Greenberg, Esq.
3400 Red Rose Dr.
Encino, CA 91436
19. Browning acknowledges and agrees he has been told that he has up to
twenty one (21) days from the date he and his attorney (Blaine Greenberg, Esq.)
first received this Agreement to obtain the advice and counsel of the legal
representative of his choice and to decide whether to sign it. Browning
understands and agrees that for seven (7) calendar days after he signs this
Agreement he has the right to revoke it, and this Agreement shall not become
effective and enforceable until after the passage of this
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seven-day period without Browning having revoked it. This Agreement may not be
revoked by Browning after the seven-day period. Browning understands and agrees
that payment will be made and benefits extended to him pursuant to this
Agreement only if he signs and returns Attachment A, confirming that he does not
revoke this Agreement, and provided that Attachment A is signed no earlier than
eight (8) calendar days after Browning signs this Agreement.
IN WITNESS WHEREOF, the Company has caused its corporate name to be
subscribed hereto by its duly authorized officer, and Browning has hereunto set
his hand.
Dated: February 4, 2000 /s/ Stuart Browning
-----------------------------------
Stuart Browning
Dated: February 4, 2000 EMBARCADERO TECHNOLOGIES, INC.
By: /s/ Ellen Taylor
--------------------------------
Ellen Taylor
President and Chief Executive
Officer
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ATTACHMENT A
STATEMENT OF NON-REVOCATION
AS OF THE DATE SHOWN ON THIS FORM
By signing below, I hereby verify that I have chosen not to revoke my
agreement to and execution of the General Release and Settlement Agreement. My
signature confirms my renewed agreement to the terms of that agreement,
including the release and waiver of any and all claims relating to my employment
with the Embarcadero Technologies, Inc. and/or the termination of that
employment.
Stuart Browning
- -------------------------------- ----------------------
Name (Please Print) Social Security Number
/s/ Stuart Browning 2-13-2000
- -------------------------------- -----------------------
Signature* Date*
*DO NOT SIGN, DATE OR RETURN THIS DOCUMENT UNTIL EIGHT (8) DAYS AFTER YOU SIGN
THE GENERAL RELEASE AND SETTLEMENT AGREEMENT
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Exhibit 10.11
EMBARCADERO TECHNOLOGIES, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
made as of February 17, 2000, by and among Embarcadero Technologies, Inc., a
Delaware corporation (the "COMPANY"), and the persons listed on the attached
EXHIBIT A who become signatories to this Agreement (collectively, the
"INVESTORS").
RECITALS
A. The Board of Directors of the Company has adopted the Amended and
Restated Certificate of Incorporation (the "RESTATED CERTIFICATE") in the form
attached hereto as EXHIBIT B which, among other matters, establishes the rights,
preferences, and privileges of the Company's $0.001 par value Series A Preferred
Stock (the "PREFERRED STOCK") and the Restated Certificate has been filed with
the Delaware Secretary of State.
B. The Company desires to sell 253,893 shares of Preferred Stock to the
Investors, and the Investors desire to purchase 253,893 shares of Preferred
Stock from the Company, subject to the terms and conditions set forth in this
Agreement. The number of Shares to be purchased by each Investor is set forth
opposite the name of each Investor on EXHIBIT A.
THE PARTIES AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF PREFERRED STOCK. On the date hereof and subject
to the terms and conditions of this Agreement, each Investor hereby purchases
from the Company, and the Company hereby sells, at a purchase price of $7.20 per
share, that number of shares of Series A Preferred Stock (the "SHARES")
designated opposite such Investor's name on EXHIBIT A for the total purchase
price set forth on EXHIBIT A. Each Investor acknowledges receipt of a
certificate representing the Shares and the Company acknowledges receipt of an
executed counterpart of this Agreement, and the issue price of such Shares as
set forth on EXHIBIT A by wire transfer or by a check payable to the Company.
2. DEFINITIONS. For purposes of this Agreement the following terms
shall have the following meanings:
2.1 "COMMISSION" shall mean the Securities and Exchange
Commission.
2.2 "FINANCIAL STATEMENTS" shall mean the audited consolidated
balance sheet of the Company as of December 31,1999 and its audited consolidated
statement of operations, shareholders' equity and cash flows for the three-year
period then ended.
2.3 "GAAP" shall mean United States generally accepted
accounting principles.
<PAGE>
2.4 "INTELLECTUAL PROPERTY" shall mean patents, patent
applications, trademarks, service marks, mask works, trade names, copyrights,
trade secrets, information, proprietary rights and processes.
2.5 "MATERIAL ADVERSE EVENT" shall mean any change, event or
effect that is materially adverse to the general affairs, business, operations,
assets, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole; provided, however, that the
following shall not be taken into account in determining a "Material Adverse
Event": (a) any adverse change, event or effect that is directly attributable to
conditions affecting the United States economy generally unless such conditions
adversely affect the Company in a materially disproportionate manner, and (b)
any adverse change, event or effect that is directly attributable to conditions
affecting the Company's industry generally, unless such conditions adversely
affect the Company in a materially disproportionate manner.
2.6 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended and the rules and regulations of the Commission promulgated thereunder.
2.7 "SUBSIDIARY" shall mean any corporation, partnership or
other entity more than 50% of whose equity interests (measured by virtue of
voting rights) in the aggregate is owned by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY TO INVESTORS. Except
as set forth in the Schedule of Exceptions, the Company hereby represents and
warrants to the Investors that:
3.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company:
(a) is a corporation duly organized, validly
existing, authorized to exercise all its corporate powers, rights and
privileges, and in good standing in the State of Delaware;
(b) has the corporate power and corporate authority
to own and operate its properties and to carry on its business as now conducted
and as proposed to be conducted;
(c) is qualified as a foreign corporation in all
jurisdictions in which such qualification is required; provided, however, that
the Company need not be qualified in a jurisdiction in which its failure to
qualify would not constitute a Material Adverse Event; and
(d) has made available to the Investors or their
counsel a copy of the minute books of the Company. Said copies are true,
correct, and complete and contain all amendments and all minutes of meetings and
actions taken by the shareholders and directors of the Company through the date
of this Agreement.
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3.2 CAPITALIZATION. The authorized capital of the Company
consists of:
(a) PREFERRED STOCK. 5,000,000 shares of Preferred
Stock, with a par value of $0.001, of which 253,893 shares are designated as
Series A Preferred Stock (the "SERIES A PREFERRED"), none of which will be
issued or outstanding prior to the date of this Agreement.
(b) COMMON STOCK. 60,000,000 shares of Common Stock,
of which 21,195,564 shares are duly and validly issued (including, without
limitation, issued in compliance with applicable federal and state securities
laws), fully paid, nonassessable, outstanding and held prior to the date of this
Agreement by the persons and in the amounts set forth on the Schedule of
Exceptions.
(c) OTHER SECURITIES. The Company has reserved: (a)
253,893 shares of Series A Preferred Stock for issuance pursuant to the terms of
this Agreement; (b) 253,893 shares of Common Stock for issuance upon conversion
of the Series A Preferred (the "CONVERSION SHARES"); (c) 11,300,000 shares of
Common Stock for issuance under the Company's 1993 Stock Option Plan, pursuant
to which options for 4,395,564 shares have been granted and exercised and
options for an additional 3,810,800 shares are outstanding and (d) 200,000
shares of Common Stock for issuance under the Company's 2000 Nonemployee
Directors Stock Option Plan, pursuant to which no options have been granted.
There are no outstanding rights of first refusal, preemptive rights or other
rights, warrants, options, conversion privileges, subscriptions, or other rights
or agreements, either directly or indirectly, to purchase or otherwise acquire
or issue any equity securities of the Company.
3.3 SUBSIDIARIES. The Company does not presently own, have any
investment in, or control, directly or indirectly, any Subsidiaries. The Company
is not a participant in any joint venture or partnership.
3.4 FINANCIAL STATEMENTS.
(a) The Company has delivered the Financial
Statements to the Investors.
(b) The Financial Statements fairly and accurately
present the Company's financial position as of those dates and the results of
operations and changes in its financial position for such periods then ended,
and have been prepared in accordance with GAAP applied on a consistent basis,
subject to normal year-end adjustments.
(c) There are no debts, liabilities or claims against
the Company that are not currently reflected in the Financial Statements,
contingent or otherwise, which are or would be of a nature required to be
reflected in a balance sheet prepared in accordance with GAAP other than (a)
liabilities incurred in the ordinary course of business which, individually or
in the aggregate, do not constitute a Material Adverse Event; and (b)
liabilities set forth on the balance sheet included in the Financial Statements.
The Company has no material liabilities other than those set forth in the
Financial Statements and the Schedule of Exceptions. The Company's revenue
recognition policies are in accordance with GAAP. The Company maintains
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a standard system of accounting in accordance with GAAP. The Company's financial
reserves are adequate to cover claims incurred.
(d) All of the accounts receivable owing to the
Company as of the date hereof constitute valid and enforceable claims arising
from bona fide transactions in the ordinary course of business, subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of creditors'
rights and laws concerning equitable remedies, and there are no known,
contingent or asserted claims, refusals to pay, or other rights of set-off
against any thereof known to the Company.
3.5 CORPORATE POWER. The Company will have as of the date of
this Agreement all requisite legal and corporate power and authority to execute
and deliver this Agreement, to sell and issue the Shares hereunder, to issue the
Conversion Shares, and to carry out and perform its obligations under the terms
of the this Agreement.
3.6 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors, and shareholders necessary for the
authorization, execution, delivery, and performance of all obligations under
this Agreement, and for the authorization, issuance, and delivery of the Shares
and of the Conversion Shares has been taken. This Agreement constitutes legally
binding and valid obligations of the Company enforceable in accordance with
their respective terms, except to the extent that such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws of general application relating to or affecting enforcement of
creditors' rights and laws concerning equitable remedies.
3.7 VALIDITY OF SHARES. The Shares, when issued, sold, and
delivered in accordance with the terms and for the consideration expressed in
this Agreement, will be duly and validly issued (including, without limitation,
issued in compliance with applicable federal and state securities laws) and
non-assessable. The Conversion Shares have been duly and validly reserved and,
assuming such Conversion Shares are issued to the Investors, upon issuance in
accordance with the Restated Certificate, will be duly and validly issued
(including, without limitation, issued in compliance with applicable federal and
state securities laws) and non-assessable and will be free of any liens or
encumbrances other than any liens or encumbrances created by or imposed thereon
by the holders; provided, however, that the Shares (and the Conversion Shares)
shall be subject to restrictions on transfer under state and/or federal
securities laws. The Shares and the Conversion Shares are not subject to any
preemptive rights or rights of first refusal, except as otherwise so agreed to
by the holders thereof.
3.8 LITIGATION. There is no action, proceeding, or
investigation pending or, to the Company's knowledge, threatened, or any basis
therefor known to the Company, that questions the validity of this Agreement or
the right of the Company to enter into this Agreement or to consummate the
transactions contemplated thereby or that would result, either individually or
in the aggregate, in any Material Adverse Event. There is no judgment, decree,
or order of any court in effect against the Company and the Company is not in
default with respect to any order of any governmental authority to which the
Company is a party or by which it is bound.
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To the Company's knowledge, there is no action, suit, proceeding, or
investigation by the Company currently pending or which the Company presently
intends to initiate.
3.9 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company
has good and marketable title to all of its properties and assets, both real and
personal, and has good title to all its leasehold interests, in each case
subject to no mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance, or charge, other than (a) the lien of current taxes not
yet due and payable, and (b) liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company.
3.10 PATENTS AND OTHER PROPRIETARY RIGHTS.
(a) To the knowledge of the Company after reasonable
inquiry: (i) the Company has sufficient title and ownership of all Intellectual
Property necessary for its business as now conducted, and believes it can
obtain, on commercially reasonable terms, any additional rights necessary for
its business as contemplated as of the date of this Agreement, and (ii) the
Company's Intellectual Property does not, and would not, conflict with or
constitute an infringement of the rights of others;
(b) There are no outstanding options, licenses, or
agreements of any kind relating to the matters listed in subsection 3.10(a) or
that grant rights to any other person to manufacture, license, produce,
assemble, market or sell the Company's products, nor is the Company bound by or
a party to any options, licenses, or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights, and processes of any other person or
entity;
(c) The Company has not received any communications
alleging that the Company or its employees has violated or infringed or, by
conducting its business as proposed, would violate or infringe any of the
patents, trademarks, service marks, trade names, copyrights, or trade secrets,
or any proprietary rights of any other person or entity;
(d) To the knowledge of the Company, no employee is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as contemplated as of the date of this
Agreement; and
(e) Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as contemplated as of the
date of this Agreement, will, to the Company's knowledge, conflict with or
result in a breach of the terms, conditions, or provisions of, or constitute a
default under, any contract, covenant, or instrument under which any of such
employees is now obligated. The Company does not believe it is, or will be,
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
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3.11 TAXES. All federal, state, local, and foreign tax returns
required to be filed by the Company have been filed and are true and accurate in
all material respects, and all taxes, assessments, fees, and other governmental
charges upon the Company, or upon any of its properties, income, or franchises,
shown in such returns to be due and payable have been paid or if any of such tax
returns have not been filed or if any such taxes have not been paid or so
reserved for, the failure so to file or to pay would not in the aggregate
constitute a Material Adverse Event.
3.12 CHANGES IN CONDITION. Except as specifically set forth in
this Agreement, since December 31, 1999, (a) the Company has not entered into
any transaction which was not in the ordinary course of business, (b) there has
been no Material Adverse Event, (c) the Company has not incurred any material
tax liability, (d) there has been no resignation or termination of employment of
any officer or key employee of the Company and the Company does not know of any
impending resignation or termination of employment of any such officer or key
employee, (e) there has been no labor dispute involving the Company or any of
its respective employees and, to the Company's knowledge, none is pending or
threatened, (f) there has been no waiver by the Company of a valuable right or
of a debt owing to the Company which would constitute a Material Adverse Event,
and (g) there has not been any satisfaction or discharge of any material lien,
claim or encumbrance or any payment of any material obligation by the Company
except in the ordinary course of business.
3.13 COMPLIANCE WITH OTHER AGREEMENTS. The Company is not in
violation of any term or provision of its Restated Certificate, or Bylaws, each
as in effect as of the date of this Agreement. The Company is not in violation
of any material term or provision of any indebtedness, mortgage, indenture,
contract, agreement, judgment or, to the Company's knowledge, any decree, order,
statute, rule or regulation applicable to the Company, in each case, or in the
aggregate. The execution, delivery and performance of this Agreement by the
Company will not result in any violation of, be in conflict with, or constitute
a default under, with or without the passage of time or the giving of notice:
(a) any provision of the Company's Restated
Certificate or Bylaws;
(b) any provision of any judgment, decree or order to
which the Company is a party or by which it is bound;
(c) any material contract, obligation or commitment
to which the Company is a party or by which it is bound; or
(d) to the Company's knowledge, any statute, rule or
governmental regulation applicable to the Company.
3.14 INSURANCE. The Company has in effect insurance covering
risks associated with its business in such amounts as are customary in its
industry for entities of comparable size. The Company is not aware of any
pending or threatened claims against the Company for personal injuries or
property damages.
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3.15 COMPANY'S CONTRACTS. All of the Company's material
contracts and agreements are legally binding, valid, and in full force and
effect in all material respects, and there is no indication of reduced activity
relating to such contract or agreement (other than in the ordinary course of
business) by any of the parties to any such contract or agreement.
3.16 DIVIDENDS; INDEBTEDNESS. Except as set forth in the
Financial Statements, the Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its stock in the three years ending December 31, 1999 or redeemed or
purchased or otherwise acquired any of its stock, (ii) incurred any indebtedness
for money borrowed or any other liabilities individually in excess of $100,000,
or in the case of indebtedness and/or liabilities individually less than
$100,000, in excess of $500,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel, expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
3.17 PRIOR REGISTRATION RIGHTS. Except as provided in this
Agreement, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.18 EMPLOYEE RELATIONS AND COMPENSATION PLANS. The Company
believes its relations with its employees are satisfactory. The Company's
employees are not represented by any labor unions nor, to the Company's
knowledge, is any union organization campaign in progress. The Company is not
aware that any of its officers or employees intends to terminate employment nor
does the Company have any present intention to terminate the employment of any
of the foregoing. Subject to general principles related to wrongful termination
of employees, the employment of each officer and employee of the Company is
terminable at the will of the Company. The Company is not party to or bound by
any deferred compensation agreements, profit sharing plans or retirement
agreements.
3.19 EMPLOYEE NONDISCLOSURE AND ASSIGNMENT AGREEMENT. Each
officer, employee, and consultant of the Company has executed and delivered to
the Company an Employee Nondisclosure and Assignment Agreement. The Company,
after reasonable investigation, is not aware that any of its employees,
officers, or consultants is in violation thereof.
3.20 TRANSACTIONS WITH AFFILIATES. Except for regular salary
payments, dividends distributed to stockholders and fringe benefits under an
individual's compensation package with the Company, no officer, director, or
spouse, parent, sibling or child of any such person, or any other employee has
any proposed transaction or is indebted to the Company or any Subsidiary, nor is
the Company indebted (or committed to make loans or extend or guarantee credit)
to any of them. To the best of the Company's knowledge, no officer, director or
spouse, parent, sibling or child of any such person has any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that any such person may own
stock in publicly traded companies that may compete with the
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Company. No spouse, parent, sibling or child of any officer or director of the
Company is directly or indirectly interested in any material contract with the
Company.
3.21 GOVERNMENTAL AND THIRD PARTY CONSENTS. Subject to the
accuracy of the Investors' representations in Section 4 of this Agreement, no
consent, approval, order, or authorization of, or registration, qualification,
designation, declaration, or filing with, any federal, state, local, or
provincial governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement, except for the timely filing of the notice required pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and such other filings as are required by the securities laws of those states in
which Investors are resident.
3.22 BROKERS AND FINDERS. The Company has not retained any
investment banker, broker, or finder in connection with the transactions
contemplated by this Agreement.
3.23 FULL DISCLOSURE. This Agreement and all other documents
delivered by the Company to the Investors or the Investors' attorneys or agents
in connection with the transactions contemplated therein or herein, do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein or herein in view of the
circumstances under which they were made not misleading, except that with
respect to projections contained in any such material, the Company represents
only that such projections were prepared in good faith and the Company
reasonably believes that there is a reasonable basis for such projections. The
Company has provided the Investors with all the information that such Investors
has requested for deciding whether to purchase the Shares. The Company is not
aware of any fact which has not been disclosed to the Investors which would
constitute a Material Adverse Event with respect to the Company's business,
prospects, condition, affairs or operations.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor, severally and not jointly, represents and
warrants to the Company as follows:
4.1 AUTHORIZATION. When executed and delivered by the
Investors, and assuming execution and delivery by the Company, this Agreement
will constitute a valid obligation of the Investors, enforceable in accordance
with its terms.
4.2 BROKERS AND FINDERS. The Investors have not retained any
investment banker, broker, or finder in connection with the transactions
contemplated by this Agreement.
4.3 INVESTMENT. This Agreement is made with each Investor in
reliance upon his or her representation to the Company, which by the Investor's
execution of this Agreement, each Investor hereby confirms, that the Shares to
be received by such Investor will be acquired for investment for Investor's own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that the Investors has no present
intention of selling, granting any participation in, or otherwise distributing
any of the Shares. By executing this
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Agreement, each Investor further represents that he or she has no contract,
undertaking, agreement, or arrangement with any person to sell, transfer, or
grant participation to such person or to any third person, with respect to any
of the Shares.
4.4 NO PUBLIC MARKET. Each Investor understands and
acknowledges that the offering of the Shares pursuant to this Agreement will not
be registered under the Securities Act on the grounds that the offering and sale
of securities contemplated by this Agreement are exempt from registration
pursuant to Section 4(2) and/or Section 3(b) of the Securities Act, and that the
Company's reliance upon such exemption is predicated upon Investor's
representations as set forth in this Agreement. Each Investor further
understands that no public market now exists for any of the securities issued by
the Company and that the Company has given no assurances that a public market
will ever exist for the Company's securities.
4.5 LIMITATIONS ON TRANSFERABILITY. Each Investor covenants
that in no event will it dispose of any of the Shares (other than pursuant to
Rule 144 promulgated by Commission under the Securities Act ("RULE 144") or any
similar or analogous rule) unless and until (a) such Investor shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the proposed
disposition, and (b) if requested by the Company, the Investors shall have
furnished the Company with an opinion of counsel satisfactory in form and
substance to the Company and the Company's counsel to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act and any
applicable state, local, or foreign law has been taken. Notwithstanding the
limitations set forth in the foregoing sentence, if an Investor is a partnership
it may transfer Shares to its constituent partners or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or transfer by gift, will, or intestate succession to
any such partner's spouse or lineal descendants or ancestors without the
necessity of registration or opinion of counsel if the transferee agrees in
writing to be subject to the terms of this Agreement to the same extent if such
transferee were an Investor; provided, however, that each Investor hereby
covenants not to effect such transfer if such transfer either would invalidate
the securities laws exemptions pursuant to which the Shares were originally
offered and sold or would itself require registration and/or qualification under
the Securities Act or applicable state securities laws. Each certificate
evidencing the Shares transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 0 below, except that such certificate
shall not bear such legend if the transfer was made in compliance with
subsection (k) of Rule 144 or if the opinion of counsel referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
4.6 MARKET STANDOFF. Each Investor covenants that if so
requested by the Company or any representative of the underwriters in connection
with registration of the initial public offering of any securities of the
Company under the Act (the "IPO") and any subsequent public offering of such
securities that may occur within eighteen (18) months of the IPO, the Investor
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180 day period following the effective date of such
registration statement and shall execute and deliver to the underwriter of the
IPO or such subsequent public offering a lock-up letter in
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substantially the form of EXHIBIT D attached hereto; provided that the Company's
executive officers and directors are subject equivalent transfer restrictions in
connection with any such public offering. The Company may impose stop transfer
instructions with respect to securities subject to the foregoing restrictions
for such 180 day period following the IPO or such subsequent public offering.
4.7 EXPERIENCE. Each Investor represents that: (a) it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its prospective investment in the Shares; (b)
it believes it has received all the information it has requested from the
Company and considers necessary or appropriate for deciding whether to obtain
the Shares; (c) it has had the opportunity to discuss the Company's business,
management, and financial affairs with the Company's management, (d) it has the
ability to bear the economic risks of its prospective investment; and (e) it is
able, without materially impairing its financial condition, to hold the Shares
for an indefinite period of time and to suffer a complete loss on its
investment.
4.8 ACCREDITED INVESTOR. Each Investor presently qualifies as
an "accredited investor" within the meaning of Regulation D of the rules and
regulations promulgated under the Securities Act.
4.9 CONFIDENTIALITY. Each Investor agrees that it will keep
confidential and will not use, disclose or divulge for a period of two years
after receipt any information which such Investor may obtain from the Company,
pursuant to financial statements, reports and other materials submitted by the
Company as required hereunder or under any other documents unless such
information is known, or until such information becomes known, to the public
through no fault of such Investor or its agents, or unless the President of the
Company gives her written consent to the Investors' release of such information,
except that no such written consent shall be required (and Investors shall be
free to release such information) if such information is to be provided to
Investors' counsel or accountant, or to an officer, director, general partner,
limited partner, shareholder, investment counselor or advisor, or employee of an
Investors with a need to know such information; provided that any such counsel,
accountant, officer, director, general partner, limited partner, shareholder,
investment counselor or advisor, or employee shall be bound by the provisions of
this Section 4.9. Notwithstanding the foregoing, this Section 4.9 shall not
apply (a) to information which an Investor learns from a third party with the
right to make such disclosure, provided Investors complies with the restrictions
imposed by the third party, (b) to information which is in an Investor's
possession prior to the time of disclosure by the Company and not acquired by an
Investor under a confidentiality obligation, (c) to the minimum extent (after
requesting and pursuing confidential treatment to the extent reasonably
possible) an Investor is required to disclose such information by law or a
governmental regulatory authority, (d) to the minimum extent (after requesting
and pursuing confidential treatment to the extent reasonably possible) Investors
is required to disclose such information by court order.
5. LEGENDS.
10
<PAGE>
5.1 FEDERAL LEGEND. All certificates for the Shares shall bear
such restrictive legends as the Company and the Company's counsel deem necessary
or advisable under applicable law or pursuant to this Agreement, including,
without limitation, the following:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT
BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH TRANSFER OR, IN THE OPINION OF COUNSEL FOR THE
COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF
THE ACT."
5.2 OTHER LEGENDS. The certificates evidencing the Shares
shall also bear any legend required by the Commissioner of Corporations of the
State of California or required pursuant to any state, local, or foreign law or
regulation of the National Association of Securities Dealers or other agency
governing such securities.
6. PIGGYBACK REGISTRATION RIGHTS
6.1 NOTICE AND EFFECTIVE PERIOD. Subject to the terms of this
Agreement, in the event the Company decides to register under the Securities Act
any of its Common Stock (a "REGISTRATION"), the Company will (i) promptly give
each Investor written notice thereof and (ii) include in the Registration and in
any underwriting involved therein, that number of Conversion Shares specified in
a written request delivered to the Company by the undersigned within 15 days
after delivery of such written notice from the Company. These piggyback
registration rights shall not take effect until after the IPO. These piggyback
registration rights shall terminate with respect to each Investor at such time
the Investor is eligible to sell the Shares or Conversion Shares under Rule 144
of the Act within any three month period without volume limitations or under
Rule 144(k) thereunder.
6.2 INVESTOR INFORMATION. It shall be a condition precedent of
the Company's obligations under this Section 6 that the Investors shall furnish
to the Company such information regarding the undersigned and the distribution
proposed by the undersigned as the Company shall reasonably request.
6.3 UNDERWRITING.
(a) NOTICE OF UNDERWRITING IN PIGGYBACK
REGISTRATION. If the Registration of which the Company gives notice is for a
registered public offering involving an underwriting (other than the IPO),
the Company shall so advise each Investor as a part of the written notice
given pursuant to Section 6.1. In such event, the right of any Investor to be
included in the Registration shall be conditioned upon such underwriting and
the inclusion of such Investor's Conversion Shares in such underwriting to
the extent provided in this Section 6. All Investors proposing to distribute
their securities through such underwriting shall (together with the Company
and the other stockholders distributing their securities through such
11
<PAGE>
underwriting) enter into an underwriting agreement with the underwriter's
representative for such offering. The Investors shall have no right to
participate in the selection of the underwriters for an offering pursuant to
this Section 6.
(b) MARKETING LIMITATION IN PIGGYBACK REGISTRATION.
If the underwriter's representative advises the Investors seeking registration
of Conversion Shares pursuant to this Section 6 in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
underwriter's representative (subject to the allocation priority set forth in
Section 6.2(c)) may limit the number of shares of Conversion Shares to be
included in such Registration and underwriting to not less than 20% of the
securities included in such Registration.
(c) ALLOCATION OF SHARES IN PIGGYBACK REGISTRATION.
If the underwriter's representative limits the number of shares to be included
in a Registration pursuant to Section 6.2(b), the number of shares to be
included in such Registration shall be allocated (subject to Section 6.2(b)) in
the following manner. The shares (other than Conversion Shares) held by officers
or directors of the Company shall be excluded from such registration and
underwriting to the extent required by such limitation. If a limitation of the
number of shares is still required after such exclusion, the number of shares
that may be included in the Registration and underwriting by selling
stockholders shall be allocated among the Investors and all other selling
holders of the Company's securities requesting and legally entitled to include
securities in such Registration, in proportion, as nearly as practicable, to the
respective amounts of securities (including Conversion Shares) which such
Investors and such other holders would otherwise be entitled to include in such
Registration. No Conversion Shares or other securities excluded from the
underwriting by reason of this Section 6.2(c) shall be included in the
Registration.
(d) WITHDRAWAL IN PIGGYBACK REGISTRATION. If any
Investor disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter's representative delivered at least seven days prior to the
effective date of the Registration. Any Conversion Shares or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
Registration.
6.4 EXPENSES OF REGISTRATION. All expenses (other than
underwriting discounts and commissions) incurred in connection with
Registrations shall be borne by the Company.
6.5 REGISTRATION PROCEDURES AND OBLIGATIONS. Whenever required
under this Agreement to effect the registration of any Conversion Shares, the
Company shall, as expeditiously as reasonably possible:
(a) Use its reasonable efforts to cause the statement
filed with the Commission to effect the Registration (the "REGISTRATION
STATEMENT") to become effective, and, upon the request of the Holders of a
majority of the Conversion Shares registered thereunder, keep such Registration
Statement effective for up to 120 days.
12
<PAGE>
(b) Prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement.
(c) Furnish to the Investors such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Conversion Shares
owned by them.
(d) Use its reasonable efforts to register and
qualify the securities covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Investors, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, and provided further that in the event any jurisdiction in which
the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling stockholders, such expenses shall be payable pro rata by
selling stockholders.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each
Investor participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Investor who holds Conversion Shares
covered by such Registration Statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
7. INDEMNIFICATION.
7.1 COMPANY'S INDEMNIFICATION OF INVESTORS. To the extent
permitted by law, the Company will indemnify each Investor, and each of its
officers, directors, and constituent partners, legal counsel for the Investors,
and each person controlling such Investor, with respect to which Registration,
qualification, or compliance of Conversion Shares has been effected pursuant to
this Agreement, against all claims, losses, damages, liabilities, or actions in
respect thereof (collectively, "DAMAGES") to the extent such Damages arise out
of or are based upon any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or other document (including any
related Registration Statement) incident to any such Registration,
qualification, or compliance, or are 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 not misleading, or any violation by the Company of
any rule or regulation promulgated under the
13
<PAGE>
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such Registration, qualification,
or compliance; and the Company will reimburse each such Investor and each person
who controls any such Investor for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action; provided, however, that the indemnity contained in
this Section 7.1 shall not apply to amounts paid in settlement of any such
Damages if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); and provided, further, that the
Company will not be liable in any such case to the extent that any such Damages
arise out of or are based upon any untrue statement or omission based upon
written information furnished to the Company by such Investor, or controlling
person and stated to be for use in connection with the offering of securities of
the Company and provided, further, that the Company's liability under this
Section 7.1 shall not exceed the Company's proceeds from the sale of Preferred
Shares pursuant to this Agreement.
7.2 INVESTORS' INDEMNIFICATION OF COMPANY. To the extent
permitted by law, each Investor will, if Conversion Shares held by such Investor
are included in the securities as to which such Registration, qualification or,
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each person who controls the Company within the
meaning of the Securities Act, and each other such Investor, each of its
officers, directors, and constituent partners, and each person controlling such
other Investor, against all Damages arising out of or based upon 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 not misleading, or
any violation by such Investor of any rule or regulation promulgated under the
Securities Act applicable to such Investor and relating to action or inaction
required of such Investor in connection with any such Registration,
qualification, or compliance, and will reimburse the Company, such Investors,
such directors, officers, partners, persons, law and accounting firms, or
control persons for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent, that
such 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 Investor and stated to be specifically for use
in connection with the offering of securities of the Company, provided, however,
that the indemnity contained in this Section 7.2 shall not apply to amounts paid
in settlement of any such Damages if settlement is effected without the consent
of such Investor (which consent shall not be unreasonably withheld) and
provided, further, that each Investor's liability under this Section 7.2 shall
not exceed such Investor's proceeds from the offering of securities made in
connection with such Registration.
7.3 INDEMNIFICATION PROCEDURE. Promptly after receipt by an
indemnified party under this Section 7 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 7, notify the indemnifying
party in writing of the commencement thereof and generally
14
<PAGE>
summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense of such claim; provided, however, that
the indemnifying party shall be entitled to select counsel for the defense of
such claim with the approval of any parties entitled to indemnification, which
approval shall not be unreasonably withheld; provided further, however, that if
either party reasonably determines that there may be a conflict between the
position of the Company and the Investors in conducting the defense of such
action, suit, or proceeding by reason of recognized claims for indemnity under
this Section 7, then counsel for such party shall be entitled to conduct the
defense to the extent reasonably determined by such counsel to be necessary to
protect the interest of such party. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the ability
of the indemnifying party to defend such action, shall relieve such indemnifying
party, to the extent so prejudiced, of any liability to the indemnified party
under this Section 7, but the omission so to notify the indemnifying party will
not relieve such party of any liability that such party may have to any
indemnified party otherwise than under this Section 7.
7.4 CONTRIBUTION. If the indemnification provided for in this
Section 7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any Damages referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such Damages 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 Damages 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.
7.5 CONFLICTS. Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
7.6 SURVIVAL OF OBLIGATIONS. The obligations of the Company
and Investors under this Section 7 shall survive the completion of any offering
of Conversion Shares in a registration statement under this Agreement or
otherwise.
8. RELATIONSHIP BETWEEN ARTHUR ROCK AND THE COMPANY
8.1 ADVISORY SERVICE TO THE COMPANY Arthur Rock, one of the
Investors, shall have the right to serve as a strategic advisor to the Company
on such terms and conditions to be agreed by the Company and Mr. Rock from time
to time.
8.2 IDENTIFICATION IN IPO PROSPECTUS Mr. Rock hereby consents
to be identified as an advisor to the Company in the prospectus related to the
IPO, provided that the
15
<PAGE>
Company obtains his written consent to those portions of such prospectus that
describe his relationship with the Company prior to filing such prospectus with
the Commission.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. Except to the extent that the Delaware
General Corporation Law shall be applicable with respect to matters relating to
the internal corporate affairs of the Company, this Agreement shall be governed
by and construed in accordance with the laws of the State of California
applicable to contracts entered into and wholly performed within the State of
California by California residents.
9.2 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 HEADINGS. The headings of the sections of this Agreement
are for convenience and shall not by themselves determine the interpretation of
this Agreement.
9.4 NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be conclusively deemed effectively given upon
personal delivery or delivery by courier, or on the first business day after
transmission if sent by confirmed facsimile transmission, or five days after
deposit in the United States mail, by registered or certified mail, postage
prepaid, addressed (i) if to the Company, as set forth below the Company's name
on the signature page of this Agreement, and (ii) if to the Investors, at such
Investor's address as set forth on the signature page of this Agreement, or at
such other address as the Company or the Investors may designate by 10 days'
advance written notice to the other parties hereto.
9.5 SURVIVAL OF WARRANTIES. The warranties and representations
of the parties contained in or made pursuant to this Agreement shall survive for
one year after the execution and delivery of this Agreement; provided, however,
that such representations and warranties need only be accurate as of the date of
such execution and delivery.
9.6 AMENDMENT OF AGREEMENT. Any provision of this Agreement
may be amended by a written instrument signed by the Company and by persons who
after the date of this Agreement will hold at least a majority of the aggregate
of (a) the then outstanding Shares; and (b) the then outstanding Conversion
Shares other than shares of Common Stock which have been sold to the public.
9.7 FINDERS' FEES. Each of the Company and the Investors will
indemnify the other against all liabilities incurred by the indemnifying party
with respect to claims related to investment banking or finders' fees in
connection with the transactions contemplated by this Agreement, arising out of
arrangements between the party asserting such claims and the indemnifying party,
and all costs and expenses (including reasonable fees of counsel) of
investigating and defending such claims.
16
<PAGE>
9.8 EXPENSES. The Company and the Investors will bear their
respective legal and other fees and expenses with respect to this Agreement and
the transactions contemplated hereby.
9.9 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
(and the Exhibits hereto) constitutes the entire contract between the Company
and the Investors relative to the subject matter hereof. Any prior and
contemporaneous agreement, discussion, understanding or correspondence between
the Company and the Investors regarding the purchase of capital stock of the
Company is superseded by this Agreement. Subject to the exceptions specifically
set forth in this Agreement, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective executors,
administrators, heirs, successors, and assigns of the parties.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY: EMBARCADERO TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ Ellen Taylor
-------------------------------------
Ellen Taylor
President and Chief Executive Officer
Address: Embarcadero Technologies, Inc.
425 Market St.; Suite 425
San Francisco, CA 94105
INVESTORS:
/s/ Arthur Rock
----------------------------------------------
Arthur Rock
/s/ Toni Rembe
----------------------------------------------
Toni Rembe
/s/ Katherine Styles
----------------------------------------------
Katherine Styles
SIGNATURE PAGE TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
HOOKS TRUST DATED 11/04/98
By: /s/ Michael Hooks
-----------------------------------------
Michael Hooks, co-trustee
/s/ James Socas
----------------------------------------------
James Socas
/s/ Kevin Bauer
----------------------------------------------
Kevin Bauer
/s/ Kelly Masuda
----------------------------------------------
Kelly Masuda
/s/ Matthew Cwiertnia
----------------------------------------------
Matthew Cwiertnia
/s/ Navid Mahmoozadegan
----------------------------------------------
Navid Mahmoozadegan
SIGNATURE PAGE TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
Odenberg, Ullakko, Muranishi & Co. Exhibit 16.1
February 17, 2000
Mr. Stephen Wong
Embarcadero Technologies, Inc.
425 Montgomery Street, Suite 425
San Francisco, CA 94105
Re: Dismissal of Odenberg, Ullakko, Muranishi & Co. LLP
as Embarcadero Technologies, Inc.'s Principal Accountant
Dear Mr. Wong:
In accordance with SEC regulations, we are providing you notification of our
agreement with the language used in the "Change in Accountants" section of
Embarcadero Technologies' registration statement to be filed in February 2000.
Please call if you have any questions.
Yours very truly,
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
By /s/ Paul R. Ainslie
------------------------------------
Paul R. Ainslie
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 17, 2000 relating to the financial statements of
Embarcadero Technologies, Inc., which appear in such Registration Statement. We
also consent to the references to us under the headings "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
February 21, 2000
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