<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INTERLINK COMPUTER SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA (PRIOR TO 7373 94-2990567
REINCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
DELAWARE (AFTER INDUSTRIAL IDENTIFICATION NUMBER)
REINCORPORATION) CLASSIFICATION CODE
(STATE OR OTHER NUMBER)
JURISDICTION OF
INCORPORATION
OR ORGANIZATION)
INTERLINK COMPUTER SCIENCES, INC.
47370 FREMONT BOULEVARD
FREMONT, CA 94538
(510) 657-9800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CHARLES W. JEPSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERLINK COMPUTER SCIENCES, INC.
47370 FREMONT BOULEVARD
FREMONT, CA 94538
(510) 657-9800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
THOMAS C. DEFILIPPS, ESQ. THOMAS A. BEVILACQUA, ESQ.
WILSON SONSINI GOODRICH & ROSATI BROBECK, PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION ONE MARKET
650 PAGE MILL ROAD SPEAR STREET TOWER
PALO ALTO, CALIFORNIA 94304 SAN FRANCISCO, CA 94105
(415) 493-9300 (415) 442-0900
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please 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 PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (2) OFFERING PRICE (2) FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,600,000
Common Stock, $.001 par value.. shares (1) $11.00 $50,600,000 $17,448.28
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 600,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INTERLINK COMPUTER SCIENCES, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Part I Items of Form S-1
<TABLE>
<CAPTION>
ITEM AND HEADING IN FORM S-1 REGISTRATION
STATEMENT PROSPECTUS LOCATION IN PROSPECTUS
----------------------------------------- ----------------------
<C> <C> <S>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back
of Prospectus............................. Cover Pages
3. Summary Information, Risk Factors and Ratio Prospectus Summary; Risk
of Earnings to Fixed Charges.............. Factors
4. Use of Proceeds............................ Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price............ Outside Front Cover Page;
Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling
Stockholders
8. Plan of Distribution....................... Outside and Inside Front
Cover Pages; Underwriting
9. Description of Securities to be Registered. Prospectus Summary; Dividend
Policy; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the Registrant. Outside and Inside Front
Cover Pages; Prospectus
Summary; Risk Factors; Use
of Proceeds; Dividend
Policy; Capitalization;
Dilution; Selected
Consolidated Financial Data;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal and
Selling Stockholders;
Description of Capital
Stock; Shares Eligible for
Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 5, 1996
4,000,000 SHARES
[LOGO]
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 2,000,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $9.00 and $11.00. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "INLK."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholder
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated to be $900,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 600,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total $
and the Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices
of Montgomery Securities, on or about , 1996.
------------
MONTGOMERY SECURITIES
PUNK, ZIEGEL & KNOELL
VOLPE, WELTY & COMPANY
, 1996
<PAGE>
ENTERPRISE CLIENT/SERVER MODEL
Many large organizations are integrating their mainframe computers into their
distributed client/server networks as "enterprise servers." The enterprise
server and the systems management applications associated with its use have
proven capable of providing reliable and efficient systems management, data
security, and distribution of data and applications.
Centralized
Computing
Resources
Depiction of a three tier computing environment comprised of enterprise servers,
distributed servers and clients, all linked by common networked transport.
Distributed
Processing
Systems
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[GATEFOLD]
INTERLINK'S ENTERPRISE SOLUTIONS
Interlink offers a suite of high-performance network transport
products and systems management applications. The network
transport products provide the communication infrastructure
between distributed networks and the enterprise server.
Interlink's systems management applications allow centralized
management of applications and data across distributed systems.
Interlink's TCPaccess is a leading Enterprise Print Services manages
network transport product which the printing of enterprise server
connects the MVS enterprise server to applications to network printers
client/server networks using open
systems TCP/IP protocols
HARBOR Backup efficiently
backs up and restores data on
client/server networks to an
enterprise server
HARBOR Distributed Storage Server
allows local backup and restore on
the network with control over
transmission and security
HARBOR Distribution manages the
cataloging, installation, and up-
grading of applications, data files
and software packages across the
enterprise
Depiction of a three tier enterprise server environment comprised of network
systems management, HARBOR Distributed Storage Servers and HARBOR client
software, all linked by TC Paccess and TCP/IP.
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which would cause actual results to differ
materially from those indicated by such forward-looking statements. The
following summary is qualified in its entirety by the more detailed information
and financial statements, including notes thereto, appearing elsewhere in this
Prospectus.
THE COMPANY
Interlink Computer Sciences, Inc. ("Interlink" or the "Company") is a leading
supplier of high-performance solutions for enterprise networked systems
management. Interlink provides software and services which enable customers
implementing client/server systems to use their IBM and IBM-compatible MVS
mainframes as "enterprise servers" in distributed, heterogeneous client/server
network environments. The Company's products and services enable customers to
transport, access and manage mission-critical data and applications across
distributed network environments. The Company develops and markets the
TCPaccess products which provide for enterprise server TCP/IP connectivity,
fault tolerance and CICS-to-LAN application integration. Interlink also
develops and markets the HARBOR products for network backup, archive and
restore, and for application, data and software distribution. The Company also
supplies network printing and other applications which expand the functionality
of the enterprise server.
Many large organizations depend on centralized mainframe computer systems to
manage mission-critical software applications and to serve as the repository
for essential business data. Recently, advances in hardware, software, and
networking technologies have led to the deployment of client/server systems, in
which computing tasks are distributed throughout a network of computers.
Organizations are now integrating mainframe computers into client/server
networks as "enterprise servers" which, like other servers on the client/server
network, have a specialized purpose and function. Specifically, the enterprise
server and the systems management applications associated with its use have
proven capable of providing reliable and efficient systems management, data
security, and distribution of data and applications. Improvements in the cost-
effectiveness of mainframe systems have significantly increased the use of
mainframe computers as enterprise servers.
With almost ten years of experience in the networked systems management
industry, Interlink provides networking solutions that build upon its expertise
in the integration of the MVS operating system with TCP/IP and its reputation
for high-performance, efficient products. Interlink's objective is to enhance
its position as a leading supplier of high-performance solutions for enterprise
networked systems management. Key elements of the Company's strategy include:
supplying a suite of products that expand the functionality of the enterprise
server; leveraging the combined existing customer bases of TCPaccess and HARBOR
and capitalizing on new sales opportunities; employing a consultative sales
approach to build long-term customer relationships; differentiating its
networking solutions through superior customer support; and leveraging
strategic marketing and development relationships in order to provide complete
solutions to its customers' evolving network systems management needs.
As of March 31, 1996, the Company had licensed its TCPaccess and HARBOR
products to approximately 900 and 160 customer sites worldwide, respectively.
The Company markets and sells its software and services primarily through its
direct sales organization and, to a lesser extent, through resellers and
international distributors. The Company's major customers include, among
others, the Internal Revenue Service, MACIF, U.S. Sprint, W.R. Grace & Co. and
Wells Fargo Bank.
The Company recently formed a strategic relationship with Legato Systems,
Inc. ("Legato") to develop products which will enable the companies to provide
enterprise-class storage management solutions. Pursuant to the terms of the
agreement, Interlink intends to develop a new product called HARBOR Agent for
Networker (Legato's client/server storage management product) which will be
distributed by Legato. Interlink will be an authorized reseller of Legato's
storage management products, including HARBOR Agent for Networker.
On December 29, 1995, the Company acquired New Era Systems Services Ltd.
("New Era") and its HARBOR product line in exchange for cash and notes payable
totaling $12.4 million and warrants to purchase 700,000 shares of its Common
Stock with additional contingent earnout payments totaling up to $5.2 million
due January 31, 1997 and 1998.
Interlink was incorporated under the laws of the state of California in
December 1985. The Company will reincorporate in Delaware prior to the
completion of this offering. Unless the context otherwise requires, references
in this Prospectus to "Interlink" and the "Company" refer to Interlink Computer
Sciences, Inc., a California corporation, and its Delaware successor, together
with their subsidiaries. The Company's principal executive offices are located
at 47370 Fremont Boulevard, Fremont, California 94538, and its telephone number
is (510) 657-9800.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company............. 2,000,000 shares
Common Stock Offered by the Selling Stockhold-
ers............................................ 2,000,000 shares
Common Stock Outstanding after the Offering..... 9,557,249 shares (1)
Use of Proceeds................................. For repayment of
indebtedness, capital
expenditures, working capital
and other general corporate
purposes.
Proposed Nasdaq National Market symbol.......... INLK
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED PRO FORMA FOR
YEAR ENDED JUNE 30, MARCH 31, ACQUISITION (2)
------------------------------------------ ---------------- ----------------------------
NINE MONTHS
YEAR ENDED ENDED
1991 1992 1993 1994 1995 1995 1996 JUNE 30, 1995 MARCH 31, 1996
------- ------- ------- ------- ------- ------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............... $27,762 $23,326 $21,185 $21,875 $27,079 $18,538 $23,702 $29,954 $26,191
Gross profit........... 21,440 16,995 17,119 18,065 20,470 13,836 18,100 22,915 20,302
Purchased research and
development and prod-
uct amortization...... -- -- -- -- -- -- 10,318 640 480
Operating income
(loss)................ (953) (4,935) 2,167 844 104 (1,256) (7,744) (1,636) 3,009
Net income (loss)...... (1,941) (5,864) 2,902 1,667 1,647 (1,356) (7,897) (450) 2,533
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share (3)............. $ (0.90) $ (2.73) $ 0.59 $ 0.22 $ 0.17 $ (0.22) $ (1.26) $ (0.07) $ 0.26
======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used in per
share calculation (3). 2,145 2,145 4,945 7,616 9,628 6,206 6,250 6,217 9,770
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
AS
ACTUAL ADJUSTED (4)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................ $(6,320) $11,380
Total assets............................................. 24,158 41,858
Long-term debt, less current portion..................... 3,310 3,310
Total stockholders' equity (deficit)..................... (5,050) 12,650
</TABLE>
- -------
(1) Represents shares outstanding as of March 31, 1996. Excludes as of March
31, 1996: (i) options outstanding to purchase up to 2,015,455 shares of
Common Stock at a weighted average exercise price of $0.55 per share under
the Company's 1992 Stock Option Plan; (ii) 988,334 shares of Common Stock
issuable upon exercise of warrants outstanding at a weighted average
exercise price of $1.48 per share; (iii) 74,171 shares of Common Stock
reserved for issuance under the Company's 1992 Stock Option Plan and (iv)
12,000 shares of Common Stock reserved for issuance pursuant to a prior
acquisition. See "Management--Stock Plans," "Description of Capital Stock"
and Note 7 of Notes to Consolidated Financial Statements. Also excludes
2,300,000 shares reserved after March 31, 1996 for issuance under the 1992
Stock Option Plan, 1996 Director Option Plan and the Employee Stock
Purchase Plan.
(2) Pro forma to give effect to the Company's acquisition of New Era Systems
Services Ltd. in December 1995 as if such acquisition had taken place as of
July 1, 1994. See Notes 1 and 2 of Notes to Unaudited Pro Forma Combined
Condensed Consolidated Financial Statements.
(3) See Note 1 of Notes to Consolidated Financial Statements for a discussion
of the computation of net income (loss) per share.
(4) Adjusted to reflect the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $10.00 per share, and after deducting underwriting discounts and
commissions and the estimated expenses of the offering, and the anticipated
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
--------------
Enterprise Print Services, SNS and the Interlink logo are registered
trademarks of the Company and TCPaccess, TCPaccess Fault Tolerant, Interlink
3762 Network Controller, SNS/NFS, SNS/TCPaccess, Interlink 3700 Series Network
Controller, CICS Programmers Toolkit, and HARBOR are trademarks of the Company.
This Prospectus also contains trademarks and tradenames of other companies.
--------------
Except as otherwise indicated, all information contained in this Prospectus
(i) assumes that the Underwriters' over-allotment option is not exercised, (ii)
reflects an increase in the authorized shares of Common Stock to 25,000,000
shares which will occur prior to this offering, (iii) gives effect to the
reincorporation of the Company from California to Delaware which will occur
prior to this offering, (iv) reflects the conversion of all outstanding shares
of Preferred Stock into 2,459,000 shares of Common Stock, which will occur
automatically upon the closing of this offering, (v) reflects the filing, upon
the closing of this offering, of the Company's Restated Certificate of
Incorporation authorizing 5,000,000 shares of undesignated Preferred Stock, and
(vi) reflects the net exercise of outstanding warrants to purchase 150,000
shares on a net basis and the reduction of an outstanding warrant to purchase
162,500 shares to 125,000 shares, which will both occur upon the closing of
this offering. See "Description of Capital Stock," "Underwriting" and Note 7 of
Notes to Consolidated Financial Statements.
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. The following factors should be carefully considered in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
COMPETITION
General. The market in which the Company operates is intensely competitive
and is characterized by extreme price competition and rapid technological
change. The competitive factors influencing the markets for the Company's
products include product performance, price, reliability, features,
scalability, interoperability across multiple platforms, adherence to industry
standards, and the provision of support and maintenance services. The Company
competes with a number of companies, principally International Business
Machines Corp. ("IBM"), that specialize in one or more of the Company's
product lines, and such competitors may have greater financial, technical,
sales and marketing resources to devote to the development, promotion and sale
of their products, and may have longer operating histories, greater name
recognition, and greater market acceptance for their products and services
compared to those of the Company. There can be no assurance that the Company's
current competitors or any new market entrants will not develop networked
systems management products or other technologies that offer significant
performance, price or other advantages over the Company's technologies, the
occurrence of which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Network Transport Products. The Company sells its TCPaccess suite of
products principally to customers who have installed IBM mainframes using the
MVS operating system. The Company's main competition for its TCPaccess
products is IBM. IBM sells TCP/IP and associated products for its MVS
mainframe systems that compete directly with the Company's TCPaccess product
line. In addition, IBM recently released its OS/390 operating system, which
includes TCP/IP communications software in a bundle of software provided to
purchasers of OS/390. An IBM customer can request to have the IBM TCP/IP
product removed from the software bundle provided by IBM and thereby reduce
the purchase price of the system purchased. The reduction in the purchase
price related to the exclusion of IBM's TCP/IP for MVS product from its
software bundle, in certain model groups, is substantially smaller than the
price the customer would have to pay to purchase the Company's corresponding
TCPaccess product. Because in some IBM model groups IBM's TCP/IP product is
less expensive to purchase than the Company's corresponding TCPaccess products
in the same model groups, there could be substantial erosion of the Company's
margins if the Company reduces the price of its TCPaccess products in order to
compete against IBM, which erosion would have a material adverse effect on the
Company's business, financial condition and results of operations. Also, IBM
could in the future decide to include its TCP/IP product in the bundle of
software provided to purchasers of its OS/390 operating system without charge.
The Company believes that any reduction in price of the IBM TCP/IP products,
or the bundling of those products without charge in its OS/390 operating
system, would require the Company to either reduce the prices of its TCPaccess
products or substantially increase sales and marketing expenses, or both, in
order to continue to sell its TCPaccess products, which actions would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if IBM were to develop or design its
OS/390 operating system or other products so that its TCP/IP product cannot be
removed, customers who otherwise would have been inclined to purchase the
Company's TCPaccess product may not do so, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, the Company derives a substantial portion of its
revenues from maintenance agreements with its TCPaccess customers. If the
Company sells fewer TCPaccess products, either due to competition from IBM or
otherwise, the Company's maintenance revenues would be reduced, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. If IBM reduces the combined price of its TCP/IP
products and maintenance, IBM's combined price for its TCP/IP products and
maintenance would be more price competitive
5
<PAGE>
with the Company's product line, and the Company's product and maintenance
revenues would be adversely affected. The Company also competes with IBM,
Apertus Technologies Inc. ("Apertus"), Cisco Systems, Inc., Computerm
Corporation ("Computerm"), Network Solutions, Inc. and Memorex Telex Corp.
("Memorex") in the network controller market, where the Company resells the
network controller of Bus-Tech Inc. ("Bus-Tech"), a division of Storage
Technology Corp. ("Storage Technology"), to provide the hardware connection
which links the enterprise server to the client/server network.
System Management Applications. The primary competitors for the Company's
HARBOR Backup product are IBM, Storage Technology, Innovation Data Processing,
Inc. and Boole & Babbage, Inc. The Company's competition for the HARBOR
Distribution Manager are IBM, Novadigm, Inc. and Tangram Enterprise Solutions,
Inc. IBM is aggressively marketing its ADSM backup product, which is included
in the System View package on IBM's UNIX system, AIX. There can be no
assurance that IBM will not include the ADSM backup products in a software
"bundle" with the sale of its mainframe hardware systems. The bundling of
competing software products with mainframe hardware systems could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company also competes with software vendors who
develop and market products for UNIX and Windows NT operating systems, such as
Microsoft Corporation ("Microsoft"), Arcada Software, Inc., Cheyenne Software,
Inc., Computer Associates International, Inc., EMC Corporation, Hewlett-
Packard Company, Legato Systems, Inc. ("Legato"), Novadigm, Inc., OpenVision
Technology, Inc., PLATINUM technology, inc., Sterling Software, Inc., Sun
Microsystems, Inc. and Unison Software, Inc., which are focusing on enterprise
systems management applications. Although the Company recently signed a
strategic marketing agreement with Legato, the Company is still a competitor
of Legato in the storage management market. The Company also expects increased
competition from vendors of TCP/IP-to-SNA gateway products, including such
companies as Microsoft, Novell, Inc., Apertus and CNT/Brixton Systems, Inc.
Competition from these companies could increase due to an expansion of their
product lines or a change in their approach to enterprise systems management
or networking products. The bundling of network transport software with a
network controller by these competitors could prevent the Company from selling
TCPaccess to the customers of these competitors, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Other Factors. The Company's ability to compete successfully depends on many
factors, including the Company's success in developing new products that
implement new technologies, performance, price, product quality, reliability,
success of competitors' products, general economic conditions, and protection
of Interlink products by effective utilization of intellectual property laws.
In particular, competitive pressures from existing or new competitors who
offer lower prices or other incentives or introduce new products could result
in price reductions which would adversely affect the Company's profitability.
There can be no assurance that the Company's current or other new competitors
will not develop enhancements to, or future generations of, competitive
products that offer superior price or performance features, that the Company
will be able to compete successfully in the future, or that the Company will
not be required to incur substantial additional investment costs in connection
with its engineering, research, development, marketing and customer service
efforts in order to meet any competitive threat. The Company expects
competition to intensify, and increased competitive pressure could cause the
Company to lower prices for its products, or result in reduced profit margins
or loss of market share, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Competition."
RELIANCE ON IBM AND EMERGENCE OF MAINFRAME AS ENTERPRISE SERVER
The Company's current software products are designed for use with IBM and
IBM-compatible mainframe computers. Specifically, these software products
target users of the MVS operating system, the Customer Information Control
System ("CICS") communications subsystem and the IMS and DB2 database
management systems. As a result, future sales of the Company's existing
products and associated recurring maintenance revenues are dependent upon
continued use of mainframes and their related systems software. In addition,
because the Company's products operate in conjunction with IBM systems
software, changes to IBM systems
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software may require the Company to adapt its products to these changes, and
any inability to do so, or delays in doing so, may adversely affect the
Company's business, financial condition and results of operations. Currently,
TCP/IP is the communications protocol for the Internet and is being adopted by
some organizations as the communications protocol for their client/server
local area networks ("LANs") and wide area networks ("WANs"). This adoption
has allowed IBM MVS mainframe computers to act as enterprise servers on such
networks. The use of mainframes as enterprise servers is relatively new and
still emerging. The Company's future financial performance will depend in
large part on the acceptance and growth in the market for centralized network
management. Adoption of another communications protocol on client/server
networks could make TCP/IP communication not viable, which would undermine the
demand for the Company's TCPaccess products, and have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Sales, Marketing and Customer Support."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The markets for the Company's network transport products and systems
management applications are characterized by rapidly changing technologies,
evolving industry standards, frequent new product introductions and rapid
changes in customer requirements. The Company believes that its future success
will depend upon its ability to develop, manufacture and market products which
meet changing user needs, to continue to enhance its products and to develop
and introduce in a timely manner new products that take advantage of
technological advances, keep pace with emerging industry standards, and
address the increasingly sophisticated needs of its customers. There can be no
assurance whether TCP/IP will continue to be accepted as a communications
protocol on client/server networks. Furthermore, there can be no assurance
that the Company will be successful in developing and marketing, on a timely
basis, product enhancements or new products that respond to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and sale of these products, or that any such new products or
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. The Company's failure or inability to adapt its
products to technological changes or to develop new products successfully
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The introduction or announcement of products by the Company or one or more
of its competitors, including but not limited to IBM, embodying new
technologies, or changes in customer requirements or the emergence of new
industry standards and practices could render the Company's existing products
obsolete and unmarketable. As markets for the Company's products develop and
competition increases, the Company anticipates that product life cycles will
shorten and average selling prices will decline. In particular, average
selling prices and gross margins for each of the Company's products are
expected to decline as each product matures. There can be no assurance that
the introduction or announcement of new product offerings by the Company or
one or more of its competitors will not cause customers to defer purchasing
the existing products of the Company or that the Company will successfully
manage the transition from older products to new or enhanced products in order
to minimize disruption in customer ordering. Such deferment of purchases or
inability to manage the transition of products could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that the Company will
successfully identify new product opportunities, develop and bring to market
in a timely manner such new products, or that products or technologies
developed by others will not render the Company's products or technologies
noncompetitive or obsolete. See "Business--Product Development."
To date, the Company's core technologies for its principal network transport
products and systems management applications have been acquired and have not
been developed internally. There can be no assurance that the Company will
have the opportunity to successfully acquire or develop new technologies in
the future or that such technology, if acquired, can be successfully
integrated and commercialized by the Company. An inability to acquire, develop
or commercialize new technologies would have a material adverse affect on the
Company's business, financial condition and results of operations.
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FLUCTUATIONS IN OPERATING RESULTS; ABSENCE OF BACKLOG; SEASONALITY
The Company's operating results have historically been, and will continue to
be, subject to quarterly and annual fluctuations due to a variety of factors,
including: timely introduction, enhancement and market acceptance of new
versions of the Company's products; seasonal customer demand; timing of
significant orders; changes in the pricing policies by the Company or its
competitors; anticipated and unanticipated decreases in unit average selling
prices of the Company's products; increased competition; changes in the mix of
the products sold and in the mix of sales by distribution channel; the gain or
loss of significant customers; the introduction of new products or product
enhancements by competitors; currency fluctuations; and the failure to
anticipate changing customer product requirements. The Company typically sells
its products through a trial process to allow customers to evaluate the
effectiveness of the Company's products before determining whether to proceed
with broader deployment of such products. The Company's sales cycle, from the
date the sales agent first contacts a prospective customer to the date a
customer ultimately purchases the Company's product, is typically three to six
months for the TCPaccess products and six to nine months for the HARBOR
products. There can be no assurance however that the customers will purchase
the Company's products after such trial period or that the Company's sales
cycle will not lengthen, exposing it to the possibility of shortfalls in
quarterly revenues, which could have a material adverse effect on the
Company's business, financial condition or results of operations and cause
results to vary from period to period. The Company's operating results will
also be affected by general economic and other conditions affecting the timing
of customer orders and capital spending, and order cancellations or
rescheduling. Furthermore, it is possible that the Company's products may be
found to be defective after the Company has already shipped in volume such
products. There can be no assurance that defects in the Company's products or
failures in the Company's product quality, performance and reliability, will
not occur and such defects or failures will not have a material adverse effect
on the Company's business, financial condition and results of operations. If
such defects or failures occur, the Company could experience a decline in
revenue, increased costs (including warranty expense and costs associated with
customer support), delays in or cancellations or reschedulings of orders or
shipments, and increased product returns, any of which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company operates with very little backlog and most of its product
revenues in each quarter result from orders closed in that quarter, and a
substantial majority of those orders are completed at the end of that quarter.
The Company establishes its expenditure levels for sales, marketing, product
development and other operating expenses based in large part on its
expectations as to future revenues, and revenue levels below expectations
could cause expenses to be disproportionately high. If revenues fall below
expectations in a particular quarter, operating results and net income are
likely to be materially adversely affected. Any inability of the Company to
adjust spending to compensate for failure to meet sales forecasts or to
collect accounts receivable, or any unexpected increase in product returns or
other costs, could magnify the adverse impact of such events on the Company's
operating results.
The Company's business has experienced and is expected to continue to
experience significant seasonality. The Company has higher sales of its
software products in the quarters ending in December and June and weaker sales
in the quarters ending in September and March. The decrease in product
revenues in the quarters ending in September is due to the international
customer seasonal buying patterns. The quarters ending in March are
historically weak due to government and large organization annual budgeting
cycles. Due to the foregoing factors, quarterly revenue and operating results
are likely to vary significantly in the future and period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Further, it is
likely that in some future quarters the Company's revenue or operating results
will be below the expectations of public market analysts and investors. In
such event, the price of the Company's Common Stock would likely be materially
adversely affected. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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INTEGRATION OF ACQUISITION; HISTORY OF ACQUIRED TECHNOLOGIES
The Company has no significant history of operations on a combined basis
with New Era, the developer of the HARBOR products, which the Company acquired
in December 1995 in a purchase transaction. Accordingly, the historical
financial statements and pro forma financial information presented in this
Prospectus may not be indicative of the results that would have been obtained
had the acquisition occurred prior to the commencement of the periods covered
therein. There can be no assurance that the Company will be successful in
integrating the operations and personnel of New Era into its business,
incorporating the HARBOR products and any other acquired technologies into its
product lines, establishing and maintaining uniform standards, controls,
procedures and policies, avoiding the impairment of relationships with
employees and customers as a result of changes in management, or overcoming
other problems that may be encountered in connection with the integration of
New Era. See "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Unaudited
Pro Forma Combined Condensed Consolidated Financial Statements and Notes
thereto.
To date, the Company's core technologies for its principal network transport
products and systems management applications have been acquired and have not
been developed internally. There can be no assurance that the Company will
have the opportunity to successfully acquire or develop new technologies in
the future or that such technology, if acquired, can be successfully
integrated and commercialized by the Company. An inability to acquire, develop
or commercialize new technologies would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
may also seek to acquire or invest in businesses, products or technologies
that expand, complement or otherwise relate to the Company's current business
or product line. There can be no assurance that such acquisitions will be
successfully or cost-effectively integrated into the Company's current
operations, or that the acquired technologies will provide the necessary
complement to the Company's current products. If the Company consummates
additional acquisitions in the future that must be accounted for under the
purchase method of accounting, such acquisitions would likely increase the
Company's amortization expenses. In addition, any such acquisitions would be
subject to the risks of integration mentioned above. The Company does not
currently have any understandings, commitments or agreements with respect to
any potential acquisition or corporate partnering arrangements, nor is it
currently engaged in any discussions or negotiations with respect to any such
transaction.
RELIANCE ON AND RISKS ASSOCIATED WITH INTERNATIONAL SALES
During the fiscal year ended June 30, 1995 and the nine months ended March
31, 1996, 42% and 43%, respectively, of the Company's total revenues were
derived from sales to international customers. The Company's international
sales have been primarily to European markets, and sales are generally
denominated in local currencies. In addition, sales in Europe and certain
other parts of the world typically are adversely affected in the third quarter
of each calendar year as many customers reduce their business activities
during the summer months. The Company expects that international revenue will
continue to represent a significant portion of its total revenue. The Company
intends to enter into additional international markets and to continue to
expand its operations outside of North America by expanding its direct sales
force, adding distributors and pursuing additional strategic relationships
which will require significant management attention and expenditure of
significant financial resources. To the extent that the Company is unable to
make additional international sales in a timely manner, the Company's growth,
if any, in international revenues will be limited, and the Company's business,
financial condition and results of operations would be materially adversely
affected. Sales to international customers are subject to additional risks
including longer receivables collection periods, greater difficulty in
accounts receivable collection, failure of distributors to report sales of the
Company's products, political and economic instability, nationalization, trade
restrictions, the impact of possible recessionary environments in economies
outside the United States, reduced protection for intellectual property rights
in some countries, currency fluctuations and tariff regulations and
requirements for export licenses. There can be no assurance that foreign
intellectual property laws will adequately protect the Company's intellectual
property rights. In addition, effective copyright and trade secret protection
may be unavailable or limited in certain foreign countries. Substantially all
of the Company's distribution and other agreements with international
distributors require any dispute between the Company and any distributor to be
settled by arbitration. Under these
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agreements, the party bringing the action, suit or claim is required to
conduct the arbitration in the domicile of the defendant. The result is that,
if the Company has a cause of action against a party, it may not be feasible
for the Company to pursue such action, as arbitration in a foreign country
could prove to be excessively costly and have a less certain outcome depending
on the laws and customs in the foreign country. These international factors
could have a material adverse effect on future sales of the Company's products
to international end users and, consequently, the Company's business,
financial condition and results of operations.
Most of the Company's international sales are denominated in local
currencies. In addition, at March 31, 1996 a majority of the Company's cash is
in international bank accounts. The Company has not historically attempted to
reduce the risk of currency fluctuations by hedging except in certain limited
circumstances where the Company has held an account receivable expected to be
outstanding for a period approximating at least 12 months. The Company may be
disadvantaged with respect to its competitors operating in a foreign country
by foreign currency exchange rate fluctuations that make the Company's
products more expensive relative to those of the local competitors. The
Company may attempt to reduce these risks by hedging in the future.
Accordingly, changes in the exchange rates of foreign currencies or exchange
controls may adversely affect the Company's results of operations. There can
be no assurance that the Company's current or any future currency exchange
strategy will be successful in avoiding exchange related losses or that any of
the factors listed above will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business--Sales, Marketing and Customer Support" and "--Customers."
DEPENDENCE ON DISTRIBUTORS AND STRATEGIC RELATIONSHIPS
The Company's sales are primarily made through the Company's direct sales
force and the Company's distributors in international markets. In May 1996,
the Company entered into a strategic marketing agreement with Legato. The
Company has no historical relationship with Legato, and there can be no
assurance that the Company will be able to sell its products through Legato.
The Company is currently investing, and plans to continue to invest,
significant resources to develop additional relationships, which investments
could adversely affect the Company's operating margins. The Company believes
that its success in penetrating markets for its products depends in large part
on its ability to maintain these relationships, to cultivate additional
relationships and to cultivate alternative relationships if distribution
channels change. There can be no assurance that any distributor, systems
integrator or strategic partner will not discontinue its relationship with the
Company, form competing arrangements with the Company's competitors, or
dispute the Company's other strategic relationships. A former distributor of
the Company's TCPaccess products in Italy, Selesta Integrazioni SRL
("Selesta"), has threatened legal action over the recent termination of
Selesta as a distributor of the Company's TCPaccess products. Selesta
continues to distribute the Company's HARBOR products in Italy and Spain,
pursuant to its existing distributor relationship with New Era. See "--Legal
Dispute." The loss of, or a significant reduction in revenues from, the
Company's distributors through which the Company sells its products could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, if one of the Company's distributors
declares bankruptcy, becomes insolvent, or is declared bankrupt before the
distributor remits to the Company the payments for the Company's products, the
Company may not be able to obtain the revenues to which it would be entitled
for sales made by such distributor prior to the bankruptcy or insolvency
proceeding. In addition, the Company's distributors generally offer other
products and these distributors may give higher priority to sales of such
other products.
DEPENDENCE UPON SUPPLIER
Network access from the enterprise server to the network via the Company's
TCPaccess product requires a network controller, which the Company sells to
its customers. The Company's principal network controller, the 3762 Network
Controller, is supplied only by Bus-Tech and is resold by the Company. Sales
of network controllers have accounted for substantially all of the Company's
hardware revenues to date, and has accounted for 25% and 19% of product
revenues in the fiscal year ended June 30, 1995 and for the nine months ended
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March 31, 1996, respectively. In addition, the Company also relies upon Bus-
Tech for network controller replacement parts. If the Company were unable to
purchase an adequate supply of such sole-sourced product on a timely basis,
the Company would be required to develop or locate alternative sources. If
such product became unavailable, the Company could be required to design a
comparable product, qualify an alternative source, or redesign its products
based upon different components. Furthermore, IBM could use its position as a
supplier of network controllers to gain a competitive advantage over the
Company. To date, the Company has not experienced any difficulty or
significant delay in obtaining any such sole-sourced product. However, there
can be no assurance that the Company will not face such difficulties or delay
in the future. An inability of the Company or its customers to obtain such
sole-sourced controllers could significantly delay shipment of products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS OF
INFRINGEMENT
The Company's success and ability to compete is dependent in part upon its
proprietary information. The Company relies primarily on a combination of
copyright and trademark laws, trade secrets, software security measures,
license agreements and nondisclosure agreements to protect its proprietary
technology and software products. There can be no assurance, however, that
such protection will be adequate to deter misappropriation, deter unauthorized
third parties from copying aspects of, or otherwise obtaining and using, the
Company's software products and technology without authorization, or that the
rights secured thereby will provide competitive advantages to the Company. In
addition, the Company cannot be certain that others will not develop
substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's
proprietary rights. Furthermore, there can be no assurance that any
confidentiality agreements between the Company and its employees or any
license agreements with its customers will provide meaningful protection for
the Company's proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.
There can be no assurance that others will not independently develop similar
products or duplicate the Company's products. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary technology will prevent
misappropriation of such technology, and such protections may not preclude
competitors from developing products with functionality or features similar to
or superior to the Company's products. A substantial amount of the Company's
sales are in international markets, and the laws of other countries may afford
the Company little or no effective protection of its intellectual property.
While the Company believes that its products and trademarks do not infringe
upon the proprietary rights of third parties, there can be no assurance that
the Company will not receive future communications from third parties
asserting that the Company's products infringe, or may infringe, the
proprietary rights of third parties. The Company expects that software product
developers will be increasingly subject to infringement claims as the number
of products and competitors in the Company's industry segments grow and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming, result in costly
litigation and diversion of technical and management personnel, cause product
shipment delays or require the Company to develop non-infringing technology or
enter into royalty or licensing agreements, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. In the event of a
successful claim of product infringement against the Company and failure or
inability of the Company to develop non-infringing technology or license the
infringed or similar technology, the Company's business, financial condition
and results of operations could be materially adversely affected. In addition,
the Company may initiate claims or litigation against third parties for
infringement of the Company's proprietary rights or to establish the validity
of the Company's proprietary rights. Any such claims could be time consuming,
result in costly litigation, or lead the Company to enter into royalty or
licensing agreements rather than litigating such claims on their merits.
Moreover, an adverse outcome in
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litigation or similar adversarial proceedings could subject the Company to
significant liabilities to third parties, require expenditure of significant
resources to develop non-infringing technology, require disputed rights to be
licensed from others or require the Company to cease the marketing or use of
certain products, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Intellectual Property and Other Proprietary Rights."
PRODUCT ERRORS; PRODUCT LIABILITY
Software products as complex as those offered by the Company often contain
undetected errors or failures when first introduced or as new versions are
released. Testing of the Company's products is particularly challenging
because it is difficult to simulate the wide variety of computing environments
in which the Company's customers may deploy those products. Accordingly, there
can be no assurance that, despite testing by the Company and by current and
potential customers, errors will not be found after commencement of commercial
shipments, resulting in loss of or delay in market acceptance and negative
publicity about the Company and its products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's license agreements with customers typically contain provisions
designed to limit the Company's exposure to potential product liability
claims. The limitation of liability provisions contained in such license
agreements may not be effective under the laws of some jurisdictions,
particularly if the Company in the future relies on "shrink wrap" licenses
that are not signed by licensees. The Company's products are generally used to
manage data critical to organizations, and as a result, the sale and support
of products by the Company may entail the risk of product liability claims. A
successful liability claim brought against the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Product Development."
RELIANCE ON TCP/IP AND MAINTENANCE; CONCENTRATION OF PRODUCT SALES
During the fiscal year ended June 30, 1995 and the nine months ended March
31, 1996, sales of the TCPaccess products, excluding maintenance and hardware,
accounted for approximately 34% and 36%, and, including related maintenance
and hardware, accounted for approximately 66% and 68%, respectively, of the
Company's total revenues. Accordingly, the Company's operating results,
particularly in the near term, are significantly dependent upon the continued
market acceptance of the TCPaccess products. During the fiscal year ended June
30, 1995 and the nine months ended March 31, 1996, maintenance and consulting
revenue accounted for approximately 42% and 44%, respectively, of the
Company's total revenues. A portion of the maintenance revenues are from
historical customers of the Company's DECnet product. The Company no longer
actively markets the DECnet product, and maintenance revenues from DECnet
customers have declined each year since the fiscal year ended June 30, 1993,
and are expected to continue to decline. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The life cycles of
the Company's products are difficult to estimate due in part to the effect of
future product enhancements and competition. A decline in the demand for the
Company's products as a result of competition, technological change or other
factors would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company estimates that the total number of potential sites where its
TCPaccess products could be installed is limited. Many of those sites have
already been serviced by either IBM or the Company. The Company expects that
it will continue to depend upon this limited number of prospective customers
for a significant portion of its revenues in future periods. As a result of
this concentration, the Company's business, financial condition and results of
operations could be materially adversely affected by the failure of
anticipated orders to materialize and by deferrals or cancellations of orders
as a result of changes in customer requirements. In addition, the Company's
future success depends upon the capital spending patterns of such customers
and the continued demand by such customers for the Company's products. The
Company's operating results may in the future be subject to substantial
period-to-period fluctuations as a consequence of such concentration and
factors affecting capital spending in the enterprise networked systems
management market.
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DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the continued service of, and on its
ability to attract and retain, qualified technical, sales, marketing and
managerial personnel, in particular, its key New Era employees. While the
Company intends to expand its field sales force, experienced field sales
personnel in the Company's industry are in high demand and may not be
attracted and retained on terms advantageous to the Company. Furthermore,
there can be no assurance that the Company's efforts to expand its field sales
force will be successful. The competition for qualified personnel in the
software industry is intense, and the loss of any such persons, as well as the
failure to recruit additional key personnel in a timely manner, could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to continue to attract and retain the qualified personnel necessary for the
development of its business. The Company has employment agreements with
certain executive officers, but such agreements do not ensure their continued
service to the Company or prevent their competition with the Company following
a termination of employment. The Company does not maintain key man life
insurance on the lives of its key employees. See "Business--Employees,"
"Management--Executive Officers and Directors" and "--Employment Agreements
and Change in Control Arrangements."
LEGAL DISPUTE
The Company and the Company's subsidiary in France are involved in a
commercial dispute with Selesta, a former Italian distributor of the Company's
TCPaccess products. Selesta alleged in a letter sent to the Company that the
Company had breached and unlawfully terminated the agreement pursuant to which
Selesta was appointed a distributor of the Company's products in Italy and
asserted other related claims against the Company. The letter demanded
Selesta's reinstatement as a distributor, the execution of a written
distribution agreement setting forth the distribution arrangements between the
parties, and compensation in an unspecified amount to be paid to Selesta for
the harm that it has suffered. The Company's Canadian subsidiary, New Era, has
also used Selesta as a distributor of the HARBOR products in Italy pursuant to
a separate agreement and may or may not continue to do so in the future. No
legal claim has been filed nor has arbitration been invoked by Selesta
regarding this matter. Should Selesta initiate legal proceedings and prevail
on such claims, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Business--Legal
Dispute."
NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to this offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
of the Common Stock offered hereby will be determined through negotiations
among the Company, the representatives of the Selling Stockholders and the
Representatives of the Underwriters, and may not be indicative of future
market prices. There can be no assurance that the market price of the Common
Stock will not decline below the initial public offering price. The trading
prices of the Company's Common Stock may be subject to wide fluctuations in
response to a number of factors, including variations in operating results,
changes in earnings estimates by securities analysts, announcements of
extraordinary events such as litigation or acquisitions, announcements of
technological innovations or new products or new contracts by the Company or
its competitors, announcements and reports about the declining number of
mainframe computers shipped, press releases or reports of IBM or other
competitors introducing competitive or substitute products, as well as general
economic, political and market conditions. In addition, the stock market has
from time-to-time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stocks of
technology companies and that have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may also
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future
with respect to the Company. Such litigation could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on
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the Company's business, financial condition and results of operations. Any
adverse determination in such litigation could also subject the Company to
significant liabilities.
CONTROL BY CURRENT STOCKHOLDERS
The Company's officers, directors and principal stockholders and their
affiliates will in the aggregate beneficially own approximately 50% of the
Company's outstanding shares of Common Stock after this offering. As a result,
these stockholders, acting together, would be able to effectively control most
matters requiring approval by the stockholders of the Company, including the
election of directors and any merger, consolidation or sale of all the
Company's assets. See "Principal and Selling Stockholders" and "Description of
Capital Stock."
POTENTIAL IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market after the
offering could adversely affect the market price of the Company's Common
Stock. In addition to the 4,000,000 shares offered hereby, as of the effective
date of the Registration Statement (the "Effective Date"), 125,822 shares of
Common Stock will become eligible for sale in the public market in reliance on
Rule 144(k) under the Securities Act of 1933, as amended (the "Securities
Act"). Approximately 5,690,068 shares of Common Stock will become eligible for
sale in the public market, subject to compliance with Rules 144 and 701 under
the Securities Act, when certain 180-day lock-up agreements between the
Company and/or the Representatives and certain stockholders of the Company,
including officers, directors and Selling Stockholders, expire. In addition,
holders of warrants exercisable into an aggregate of 701,984 shares of Common
Stock have entered into 180-day lock-up agreements and no such shares may be
sold 180 days after commencement of this offering upon exercise. Upon
expiration of the lock-up agreements and assuming the warrants are then
exercised for cash, the shares acquired upon exercise of the warrants, in the
absence of registration, may only be publicly resold pursuant to Rule 144.
Furthermore, all of the optionholders are subject to a 180-day lock-up period
pursuant to their option agreements and the holders of 100% of the shares of
Common Stock subject to options have entered into the same 180-day lock-up
agreements as referenced above. Montgomery Securities may, in its sole
discretion, and at any time without notice, release all or any portion of the
securities subject to such lock-up agreements.
The Company intends to file a registration statement under the Securities
Act covering approximately 4,379,275 shares of Common Stock issued or reserved
for issuance under the 1992 Stock Option Plan, the 1996 Employee Stock
Purchase Plan and the 1996 Director Option Plan. That registration statement
is expected to be filed within 90 days after the date of this Prospectus and
will automatically become effective upon filing. Accordingly, all the shares
registered under that registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, as that term is defined in the
Securities Act, be available for resale in the open market on such date. At
March 31, 1996, options to purchase 2,015,455 shares were issued and
outstanding under the 1992 Stock Option Plan, 1,083,295 of which were vested
and eligible for exercise as of that date. See "Management--Stock Plans" and
"Shares Eligible for Future Sale."
After the closing of the offering, the holders of up to 6,119,936 issued or
issuable shares of Common Stock, of which 988,334 shares are issuable upon
exercise of warrants, will be entitled to certain demand and piggyback rights
with respect to the registration of those shares under the Securities Act.
Demand registration rights will be exercisable commencing six months after the
Effective Date. If the holders of registration rights cause a large number of
shares to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's Common Stock. See
"Description of Capital Stock--Registration Rights."
Holders of 6,429,552 shares of Common Stock of the Company have agreed with
the Company and/or the Representatives that until 180 days after the Effective
Date, they will not sell, offer to sell, contract to sell or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase shares of Common Stock, or
any securities convertible or exchangeable for shares of Common Stock, owned
directly by such holders or with respect to which they have power of
14
<PAGE>
disposition, without the prior written consent of the Company and/or
Montgomery Securities, as the case may be. The Company has agreed with the
Representatives not to release any holders from such agreements without the
prior written consent of Montgomery Securities. The Company has also agreed
not to sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any rights to acquire
Common Stock for a period of 180 days after the Effective Date without the
prior written consent of Montgomery Securities, subject to certain limited
exceptions including sales of shares under the stock plans. The lock-up
agreements with the Representatives may be released at any time as to all or
any portion of the shares subject to such agreements at the sole discretion of
Montgomery Securities.
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER AND BYLAWS PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from attempting to acquire control of
the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common
Stock. Certain of these provisions provide for the elimination of the right of
stockholders to act by written consent without a meeting and specify
procedures for director nominations by stockholders and submission of other
proposals for consideration at stockholder meetings. In addition, the
Company's Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The 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 a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock.
Certain provisions of Delaware law applicable to the Company could also delay
or make more difficult a merger, tender offer or proxy contest involving the
Company, including Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met. The inability of stockholders to act by written consent
without a meeting, the procedures required for director nominations and
stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of the Company, including without
limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay
in the future for shares of the Company's Common Stock. See "Description of
Capital Stock--Preferred Stock," "--Certain Provisions of the Certificate of
Incorporation and Bylaws" and "--Certain Provisions of Delaware Law."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate,
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. See "Dilution."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $17.7
million ($23.3 million if the over-allotment option is exercised in full),
based on an assumed initial public offering price of $10.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholders.
From these estimated net proceeds, the Company will repay the outstanding
balance of the Company's domestic bank line of credit of approximately $5.0
million at March 31, 1996, which borrowings bear interest at prime plus 1.5%
per annum and mature in November 1996. If the over-allotment option is
exercised in full, the Company intends to repay the outstanding balance of the
Company's long-term note of approximately $3.0 million at March 31, 1996,
which borrowings bear interest at prime plus 2.5% per annum and mature in
December 1998. The bank line of credit and the long-term note were incurred in
connection with the acquisition of New Era. In addition, the Company currently
expects to utilize $500,000 of the net proceeds to the Company from the
offering for capital expenditures, including expanding the Company's customer
support system. The remaining net proceeds to the Company from the offering
will be used for working capital and other general corporate purposes. The
Company may use a portion of the net proceeds for the acquisition of
complementary businesses and technologies or for the implementation of various
corporate partnering arrangements. However the Company has no present
understandings, commitments or agreements, nor is it currently engaged in any
discussions or negotiations with respect to any such transaction, except for
the development of HARBOR Agent for Networker in connection with the strategic
alliance with Legato. Pending such uses, the Company intends to invest the net
proceeds in short-term, investment grade interest bearing securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain its earnings, if any, to fund its business and
therefore does not anticipate paying cash dividends in the foreseeable future.
The Company's bank line of credit agreement contains a restrictive covenant
which limits the Company's ability to pay cash dividends or make stock
purchases without the prior written consent of the lender. See Note 4 of Notes
to Consolidated Financial Statements.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization after giving
effect to the conversion of all outstanding Preferred Stock into Common Stock
and the filing of the Company's Restated Certificate of Incorporation and
(iii) the capitalization as adjusted to reflect the sale of 2,000,000 shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $10.00 per share and the application of the net proceeds
therefrom. This table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------
PRO AS
ACTUAL FORMA (1) ADJUSTED (2)(4)
------- --------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Bank line of credit and current portion of
long-term debt............................. $ 7,741 $ 7,741 $ 2,741
======= ======= =======
Long-term debt, less current portion (3).... 3,310 3,310 3,310
------- ------- -------
Stockholders' equity:
Preferred Stock, no par value; 2,625,000
shares authorized, 2,459,424 issued and
outstanding, actual; 5,000,000 shares
authorized, no shares issued and
outstanding, pro forma and as adjusted... 6,310 -- --
Common Stock, no par value; 15,000,000
shares authorized, 4,954,575 shares
issued and outstanding, actual;
25,000,000 shares authorized, 7,413,999
shares issued and outstanding, pro forma;
25,000,000 shares authorized, 9,557,249
shares issued and outstanding, as
adjusted (2)(4).......................... 14,580 20,890 38,590
Cumulative translation adjustment......... (743) (743) (743)
Accumulated deficit....................... (25,197) (25,197) (25,197)
------- ------- -------
Total stockholders' equity (deficit).... (5,050) (5,050) 12,650
------- ------- -------
Total capitalization.................. $(1,740) $(1,740) $15,960
======= ======= =======
</TABLE>
- --------
(1) Pro forma to give effect as if such conversion had taken place as of March
31, 1996. See Note 13 of Notes to Consolidated Financial Statements.
(2) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of
$10.00 per share, and after deducting underwriting discounts and
commissions and the estimated expenses of the offering and the anticipated
application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(3) See Note 5 of Notes to Consolidated Financial Statements.
(4) Excludes as of March 31, 1996: (i) options outstanding to purchase up to
2,015,455 shares of Common Stock at a weighted average exercise price of
$0.55 per share under the Company's 1992 Stock Option Plan; (ii) 988,334
shares of Common Stock issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.48 per share; (iii) 74,171 shares of
Common Stock reserved for future issuance under the Company's 1992 Stock
Option Plan; and (iv) 12,000 shares of Common Stock reserved for issuance
pursuant to a prior acquisition. See "Management--Stock Plans,"
"Description of Capital Stock" and Note 7 of Notes to Consolidated
Financial Statements. Also excludes 2,300,000 shares reserved after March
31, 1996 for issuance under the 1992 Stock Option Plan, 1996 Director
Option Plan and the Employee Stock Purchase Plan.
17
<PAGE>
DILUTION
The pro forma net tangible negative book value of the Company at March 31,
1996 was approximately $(8.3) million, or $(1.12) per share of Common Stock.
Pro forma net tangible negative book value per share represents the amount of
total tangible assets less total liabilities, divided by the number of shares
of Common Stock then outstanding (assuming the conversion of all then
outstanding Preferred Stock into Common Stock). After giving effect to the
sale by the Company of the 2,000,000 shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $10.00 per
share and after deduction of estimated underwriting discounts and commissions
and offering expenses), the Company's pro forma net tangible book value at
March 31, 1996 would have been $9.4 million, or $0.98 per share of Common
Stock. This represents an immediate increase in net tangible book value of
$2.10 per share to existing stockholders and an immediate dilution of $9.02
per share to investors purchasing shares in this offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $10.00
Pro forma net tangible book value per share at March 31,
1996...................................................... $(1.12)
Increase in net tangible book value per share attributable
to new investors.......................................... 2.10
------
Pro forma net tangible book value per share after this
offering.................................................... 0.98
------
Dilution per share to new investors.......................... $ 9.02
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the differences in the total consideration paid and the average price per
share paid by the Company's existing stockholders and the new investors with
respect to the 2,000,000 shares of Common Stock to be sold by the Company (at
an assumed initial public offering price of $10.00 per share and before
deduction of estimated underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).... 7,557,249 79.1% $21,630,000 52.0% $ 2.86
New public investors (1)..... 2,000,000 20.9 20,000,000 48.0 10.00
--------- ----- ----------- -----
Total.................... 9,557,249 100.0% $41,630,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 5,557,249 or
approximately 58% (5,557,249 shares, or approximately 55%, if the
Underwriters' over-allotment option is exercised in full) and will
increase the number of shares held by new investors to 4,000,000 or
approximately 42% (4,600,000 shares, or approximately 45%, if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Stockholders."
The foregoing computations assume no exercise of stock options or warrants
after March 31, 1996, except for the net exercise of warrants for 150,000
shares of Common Stock which warrants expire upon the closing of this
offering. As of March 31, 1996, there were outstanding options to purchase
2,015,455 shares of Common Stock, with a weighted average exercise price of
$0.55 per share and warrants to purchase 988,334 shares of Common Stock with a
weighted average exercise price of $1.48 per share. In addition, as of March
31, 1996, 74,171 shares of Common Stock were reserved for future issuance
under the Company's 1992 Stock Option Plan. To the extent that any shares
available for issuance upon exercise of outstanding options or warrants or
reserved for future issuance under the Company's stock plans are issued, there
will be further dilution to new investors. See "Management--Stock Plans,"
"Description of Capital Stock" and Note 7 of Notes to Consolidated Financial
Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company should be
read in conjunction with the Company's consolidated financial statements and
the notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere herein. The
consolidated statement of operations data for the fiscal years ended June 30,
1993, 1994 and 1995 and the consolidated balance sheet data as of June 30,
1994 and 1995 are derived from financial statements of the Company that have
been audited by Coopers & Lybrand L.L.P., independent accountants, and are
included elsewhere herein. The consolidated statement of operations data for
the fiscal years ended June 30, 1991 and 1992 and the consolidated balance
sheet data as of June 30, 1991, 1992 and 1993 are derived from financial
statements of the Company audited by Coopers & Lybrand L.L.P. that are not
included herein. The consolidated statement of operations data for the nine
months ended March 31, 1995 and 1996 and the consolidated balance sheet data
as of March 31, 1996 are derived from unaudited financial statements of the
Company and are included elsewhere herein. The pro forma selected consolidated
financial data are derived from unaudited consolidated financial statements
included elsewhere in this prospectus. The unaudited financial statements have
been prepared by the Company on a basis consistent with the Company's audited
financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's operating results and financial position
for the periods to which such statements relate. The results of operations for
the nine months ended March 31, 1996 are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
PRO FORMA FOR
ACQUISITION (1)
-------------------
NINE
NINE MONTHS YEAR MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31, ENDED ENDED
------------------------------------------- ---------------- JUNE 30, MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1995 1996 (2)
------- ------- ------- ------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Product................ $20,677 $14,904 $11,914 $12,350 $15,818 $10,168 $13,196 $17,543 $14,938
Maintenance and
consulting............ 7,085 8,422 9,271 9,525 11,261 8,370 10,506 12,411 11,253
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 27,762 23,326 21,185 21,875 27,079 18,538 23,702 29,954 26,191
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Product................ 2,862 4,628 2,679 2,380 3,316 2,355 2,283 3,366 2,323
Maintenance and
consulting............ 3,460 1,703 1,387 1,430 3,293 2,347 3,319 3,673 3,566
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............ 6,322 6,331 4,066 3,810 6,609 4,702 5,602 7,039 5,889
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 21,440 16,995 17,119 18,065 20,470 13,836 18,100 22,915 20,302
Operating expenses:
Product development.... 4,697 5,155 5,042 6,276 6,245 5,092 3,781 7,251 4,205
Sales and marketing.... 13,251 10,998 6,638 8,384 10,792 7,443 8,857 12,667 9,480
General and
administrative........ 4,445 2,727 3,272 2,561 3,329 2,557 2,888 3,923 3,128
Restructuring charge... -- 3,050 -- -- -- -- -- -- --
Purchased research and
development and
product amortization.. -- -- -- -- -- -- 10,318 640 480
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 22,393 21,930 14,952 17,221 20,366 15,092 25,844 24,551 17,293
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss). (953) (4,935) 2,167 844 104 (1,256) (7,744) (1,636) 3,009
Other income............ -- -- 1,000 -- -- -- -- 61 501
Interest expense, net... (871) (743) (387) (224) (81) (100) (220) (1,251) (818)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary items.... (1,824) (5,678) 2,780 620 23 (1,356) (7,964) (2,896) 2,099
Benefit from (provision
for) income taxes...... (117) (186) (953) (273) 1,624 -- 67 2,376 434
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary items.... (1,941) (5,864) 1,827 347 1,647 (1,356) (7,897) (450) 2,533
Extraordinary items..... -- -- 1,075 1,320 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,941) $(5,864) $ 2,902 $ 1,667 $ 1,647 $(1,356) $(7,897) $ (450) $ 2,533
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share (3).............. $ (0.90) $ (2.73) $ 0.59 $ 0.22 $ 0.17 $ (0.22) $ (1.26) $ (0.07) $ 0.26
======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculation (3)........ 2,145 2,145 4,945 7,616 9,628 6,206 6,250 6,217 9,770
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
-------- -------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $(10,460) $(12,815) $(2,877) $ 212 $ (183) $(6,320)
Total assets........... 12,897 8,674 8,754 15,853 20,000 24,158
Long-term debt, less
current portion....... 413 146 5,175 672 368 3,310
Total stockholders'
equity (deficit)...... (4,903) (10,948) (6,915) 996 2,641 (5,050)
</TABLE>
- --------
(1) Pro forma to give effect to the Company's acquisition of New Era on
December 29, 1995 as if it had occurred on July 1, 1994. See Notes 1 and 2
of Notes to Consolidated Financial Statements and the Unaudited Pro Forma
Combined Condensed Consolidated Financial Statements, including the Notes
thereto.
(2) A non-recurring charge for purchased research and development was recorded
in the nine months ended March 31, 1996 in connection with the acquisition
of New Era. For pro forma data, this charge has been assumed to have been
incurred before the periods presented, due to the non-recurring nature of
the charge. See Note 2 of Notes to the Unaudited Pro Forma Combined
Condensed Consolidated Financial Statements.
(3) See Note 1 of Notes to Consolidated Financial Statements for a discussion
of the computation of net income (loss) per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
The Company offers a suite of high-performance, network transport products
and systems management applications which efficiently transport, store and
protect the integrity of mission-critical data and applications. The Company
was incorporated in December 1985 and initially focused its products and
development on providing interoperability between IBM mainframes and DECnet
network environments. In 1990, the Company acquired the core technology of its
TCPaccess suite of products. In January 1996, the Company began offering its
HARBOR products through the acquisition of New Era Systems Services, Ltd.
("New Era"). HARBOR is a software product line providing enterprise systems
management applications for client/server networks. New Era is a wholly-owned
subsidiary headquartered in Calgary, Alberta with 36 full time employees, as
of March 31, 1996. The Company is operating the New Era development and
support teams as the HARBOR division of Interlink.
The Company acquired New Era in exchange for cash and notes payable totaling
$12.4 million and warrants to purchase 700,000 shares of the Company's Common
Stock with additional contingent earnout payments of up to a total of
$5.2 million due January 31, 1997 and 1998. Because the New Era acquisition
was accounted for as a purchase, the Company's operating results only include
the results of New Era operations subsequent to December 29, 1995, the
acquisition date. As a result, comparisons of results for the nine months
ended March 31, 1996 and 1995 are not meaningful. For the quarter ended
December 31, 1995, the Company charged to operations approximately
$10.2 million of purchased research and development in connection with the New
Era acquisition. The Company's future operating costs will include the
amortization of intangible assets arising from the acquisition of New Era. At
March 31, 1996, remaining intangible assets derived from the New Era
acquisition total approximately $3.0 million and are being amortized over a
five-year period. The amortization is expected to be approximately $160,000
per quarter through December 31, 2000, but may increase after December 31,
1996 if certain contingent payments are made, based upon meeting revenue
targets for calendar years 1996 and 1997. See Note 2 of Notes to Consolidated
Financial Statements.
The Company's revenues are derived from product sales and related
maintenance and consulting contracts. Product revenues are derived from
software license fees and sales of related hardware to end users, resellers
and distributors. The Company's sales cycle, from the date the sales agent
first contacts a prospective customer to the date a customer ultimately
purchases the Company's product, is typically three to six months for the
TCPaccess products and six to nine months for the HARBOR products. Typically,
a customer purchases the Company's products following a trial period. Because
licenses are noncancellable and do not impose significant obligations on the
Company, the Company recognizes software license revenues upon completion of
the trial period and a signed contract. Fees for service revenues are charged
separately from the Company's product sales. The Company recognizes revenues
ratably over the term of agreement. Maintenance agreements are typically one-
year renewable contracts, pursuant to which, historically, a substantial
majority of the Company's maintenance agreements have been renewed upon
expiration. However, there can be no assurance that customers will continue to
renew expiring maintenance agreements at the historical rate. The Company
recognizes consulting revenues as services are accepted.
The Company currently derives substantially all of its product revenues from
its TCPaccess software and related hardware products and services. Although
the Company expects HARBOR products to contribute more substantially to the
Company's product revenues in future periods, broad market acceptance for
TCPaccess and HARBOR is critical to the Company's success. Failure to achieve
broad market acceptance of TCPaccess and
21
<PAGE>
HARBOR, as a result of competition, technological change or otherwise, would
have a material adverse effect on the business, financial condition and
results of operations of the Company. The Company's future performance will
depend in large part on continued growth in the number of organizations
adopting enterprise networked systems management products, and the Company's
successful development, introduction and customer acceptance of new and
enhanced versions of its software products. There can be no assurance that the
market for enterprise networked systems management products will grow or that
the Company will continue to be successful in marketing TCPaccess or HARBOR or
any new or enhanced products.
The Company's maintenance revenues are derived primarily from its TCPaccess
and DECnet product lines. The Company expects maintenance revenue from its
HARBOR line to grow in relation to growth in the HARBOR customer base. The
Company no longer actively markets its DECnet product line. As a consequence,
license revenues from this product line have declined substantially, although
the Company continues to provide maintenance to its installed DECnet
customers. Total revenues from the Company's DECnet product line were $11.6
million, $8.5 million, $7.1 million, and $5.1 million for the fiscal years
ended June 30, 1993, 1994 and 1995 and for the nine months ended March 31,
1996, respectively. Maintenance revenues from the DECnet product were $7.5
million, $6.6 million, $6.5 million and $4.6 million for the fiscal years
ended June 30, 1993, 1994 and 1995 and for the nine months ended March 31,
1996, respectively. The Company expects that maintenance revenues from this
product line will continue to decline in the future.
The Company licenses its software in U.S. dollars and certain foreign
currencies. The Company has experienced foreign currency exchange gains and
losses. The Company expects that fluctuations in foreign currencies may have a
significant impact on either its revenues or expenses in the future. See "Risk
Factors--Reliance on and Risks Associated with International Sales."
The Company completed a recapitalization in October 1992 in which all
previously outstanding Preferred Stock was converted to Common Stock and the
Company restructured its bank lines of credit. At that time, the Company hired
new members of its management team including a new chief executive officer and
chief financial officer. The financial statements of the Company for the
fiscal years ended June 30, 1991 and 1992 were restated due to material
misstatements contained in such financial statements resulting from misconduct
involving the preparation of accounting records, particularly in regard to the
recording of revenue. No officer of the Company at the time any such
misconduct occurred is currently an employee or officer of the Company.
Although one director at the time remains a director, the Company believes
that such director was not involved in such misconduct.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE NINE MONTHS ENDED
30, MARCH 31,
------------------- ----------------------
1993 1994 1995 1995 1996
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product......................... 56.2% 56.5% 58.4% 54.8% 55.7%
Maintenance and consulting...... 43.8 43.5 41.6 45.2 44.3
----- ----- ----- ------ ------
Total revenues................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ------
Cost of revenues:
Product......................... 12.7 10.9 12.2 12.7 9.6
Maintenance and consulting...... 6.5 6.5 12.2 12.7 14.0
----- ----- ----- ------ ------
Total cost of revenues........ 19.2 17.4 24.4 25.4 23.6
----- ----- ----- ------ ------
Gross profit...................... 80.8 82.6 75.6 74.6 76.4
Operating expenses:
Product development............. 23.8 28.7 23.0 27.5 16.0
Sales and marketing............. 31.3 38.3 39.9 40.1 37.3
General and administrative...... 15.4 11.7 12.3 13.8 12.2
Purchased research and
development and product
amortization................... -- -- -- -- 43.6
----- ----- ----- ------ ------
Total operating expenses...... 70.5 78.7 75.2 81.4 109.1
----- ----- ----- ------ ------
Operating income (loss)........... 10.3 3.9 0.4 (6.8) (32.7)
Other income...................... 4.6 -- -- -- --
Interest expense, net............. (1.8) (1.1) (0.3) (0.5) (0.9)
----- ----- ----- ------ ------
Income (loss) before income taxes
and extraordinary items.......... 13.1 2.8 0.1 (7.3) (33.6)
Benefit from (provision for)
income taxes..................... (4.5) (1.2) 6.0 -- 0.3
----- ----- ----- ------ ------
Income (loss) before extraordinary
items............................ 8.6 1.6 6.1 (7.3) (33.3)
Extraordinary items............... 5.1 6.0 -- -- --
----- ----- ----- ------ ------
Net income (loss)................. 13.7% 7.6% 6.1% (7.3)% (33.3)%
===== ===== ===== ====== ======
Cost of sales as a percentage of
the related revenues:
Product......................... 22.5% 19.3% 21.0% 23.2% 17.3%
Maintenance and consulting...... 15.0 15.0 29.2 28.0 31.6
</TABLE>
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
As a result of the acquisition of New Era in December 1995, the Company's
operating results for the nine months ended March 31, 1995 and 1996 are not
directly comparable. The results of the Company's operations for the first
nine months of fiscal 1996 are not representative of the combined anticipated
results of operations of the Company and New Era.
Revenues
Total revenues were $18.5 million and $23.7 million for the nine months
ended March 31, 1995 and 1996, respectively, representing an increase of 28%.
Product sales were $10.2 million and $13.2 million for the nine months ended
March 31, 1995 and 1996, respectively, representing an increase of 30%. This
increase was primarily due to increased TCPaccess license fees as well as the
addition of revenues from HARBOR products.
23
<PAGE>
Maintenance and consulting revenues were $8.4 million and $10.5 million for
the nine months ended March 31, 1995 and 1996, respectively, representing an
increase of 26%, resulting principally from an increase in the number of
customers purchasing maintenance agreements.
Cost of Revenues
Product. Cost of revenues from product sales consists primarily of hardware,
product media, documentation and packaging costs. Cost of revenues for product
sales was $2.4 million and $2.3 million, representing 23% and 17% of total
product revenues for the nine months ended March 31, 1995 and 1996,
respectively. This decrease was due to a reduction in third-party product
revenue and a decline in hardware revenue, which carry higher product costs as
a percentage of their respective revenue items.
Maintenance and Consulting. Cost of revenues from maintenance and consulting
consists primarily of personnel related costs incurred in providing telephone
support and software updates. Cost of revenues from maintenance and consulting
was $2.3 million and $3.3 million, representing 28% and 32% of total
maintenance and consulting revenues for the nine months ended March 31, 1995
and 1996, respectively. This increase is due to added headcount in the
worldwide customer support department required to keep pace with the increased
product sales from period to period.
Operating Expenses
Total operating expenses were $15.1 million and $25.8 million, representing
81% and 109% of total revenues for the nine months ended March 31, 1995 and
1996, respectively. Excluding the charge for purchased research and
development related to the New Era acquisition, the operating expenses for the
nine months ended March 31, 1996 were $15.7 million representing 66% of total
revenues.
Product Development. Product development expenses consist primarily of
personnel related costs. Product development expenses were $5.1 million and
$3.8 million, representing 28% and 16% of total revenues for the nine months
ended March 31, 1995 and 1996, respectively. The reduction in product
development expenses resulted from the cancellation in March 1995 of a
significant product development program. The Company believes that research
and development expenses will increase in the future primarily as a result of
the acquisition of New Era and other anticipated product development efforts.
Product development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of a working model. Costs incurred by the Company between completion of the
working model and the point at which the product is ready for general release
have not been significant in recent periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions for sales and marketing personnel, the fixed costs of
worldwide field offices, and promotional costs. The Company sells through its
direct sales force, resellers and distributors. The direct channel produced
88% and 86% of product revenues for the nine months ended March 31, 1995 and
1996, respectively, and is also the major component of sales channel costs.
Sales and marketing expenses were $7.4 million and $8.9 million, representing
40% and 37% of total revenues for the nine months ended March 31, 1995 and
1996. The increase in absolute dollars was a result of higher commission
rates, marketing program costs and the New Era acquisition. The Company
believes that sales and marketing expenses will increase in absolute dollar
amount as the Company continues to expand its sales force for both HARBOR and
TCPaccess and launch new corporate marketing programs.
General and Administrative. General and administrative expenses include
personnel and other costs of the finance, human resources and administrative
departments of the Company, and includes gains and losses on
24
<PAGE>
foreign currency exchange. General and administrative expenses were $2.6
million and $2.9 million, representing 14% and 12% of total revenues for the
nine months ended March 31, 1995 and 1996, respectively. The increase in
dollar amounts for general and administrative is attributable to the increased
headcount required to support the Company's expansion and an increase in
allowance for doubtful accounts.
Purchased Research and Development and Product Amortization. Purchased
research and development expense incurred in connection with the New Era
acquisition was approximately $10.2 million, representing 43% of total
revenues for the nine months ended March 31, 1996. In addition, approximately
$160,000 of product amortization resulting from such acquisition was included
in the quarter ended March 31, 1996. See Note 2 of Notes to Consolidated
Financial Statements.
Interest Expense, net. Net interest expense was $100,000 and $220,000 for
the nine months ended March 31, 1995 and 1996, respectively. The increase was
due primarily to bank borrowings related to the New Era acquisition which were
outstanding for the quarter ended March 31, 1996.
Benefit from (Provision for) Income Taxes. The income tax provision for the
nine months ended March 31, 1995 was zero, with a tax benefit of $67,000
recorded for the nine months ended March 31, 1996. The effective tax rate for
the nine months ended March 31, 1996 was approximately 1%, which is net of the
approximate 39% benefit relating to the recognition of the Company's deferred
tax asset. Excluding the impact of the Company's deferred tax asset, the tax
rate would be 39%. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). The current and cumulative effects of the adoption of SFAS 109 were not
material to the Company's financial position or results of operations. See
Note 8 of Notes to Consolidated Financial Statements.
FISCAL YEARS ENDED JUNE 30, 1993, 1994 AND 1995
Revenues
Total revenues were $21.2 million, $21.9 million and $27.1 million for the
fiscal years ended June 30, 1993, 1994 and 1995, respectively, representing
increases of 3% from fiscal 1993 to fiscal 1994 and 24% from fiscal 1994 to
fiscal 1995. International revenues accounted for 39%, 37% and 42% of total
revenues for the fiscal years ended June 30, 1993, 1994 and 1995,
respectively. The increase in international revenues in fiscal 1995 was
primarily attributable to an increase in the market acceptance of the
Company's products overseas and an increase in the number of international
sales offices, distributors and resellers selling the Company's products. The
Company established a sales and support office in Switzerland during fiscal
1994 and a sales and support office in Spain during fiscal 1995.
Product. Product revenues were $11.9 million, $12.4 million and $15.8
million for the fiscal years ended June 30, 1993, 1994 and 1995, respectively,
representing increases of 4% from fiscal 1993 to fiscal 1994 and 28% from
fiscal 1994 to fiscal 1995. The increases from year to year are primarily the
result of increased sales of TCPaccess which reflect the accelerated
acceptance of TCP/IP as a networking protocol. Product revenues derived from
hardware product sales were $3.2 million, $2.8 million and $4.0 million for
the fiscal years ended June 30, 1993, 1994 and 1995, respectively.
Maintenance and Consulting. Maintenance and consulting revenues were $9.3
million, $9.5 million and $11.3 million, representing 44%, 44% and 42% of
total revenues for the fiscal years ended June 30, 1993, 1994 and 1995,
respectively, and represented increases of 3% from fiscal 1993 to fiscal 1994
and 18% from fiscal 1994 to fiscal 1995. These increases were primarily due to
an increase in the number of registered customers electing to subscribe to
maintenance and support contracts after the expiration of the warranty period,
which is generally 90 days. The modest increase in maintenance from fiscal
1993 to fiscal 1994 reflects an increase in associated TCPaccess maintenance
agreements somewhat offset by a decline in maintenance renewals for the DECnet
product line. The increase from fiscal 1994 to fiscal 1995 parallels the
overall higher increase in product revenues. In fiscal 1995, the Company began
to sell consulting services.
25
<PAGE>
Cost of Revenues
Product. Cost of revenues from product sales was $2.7 million, $2.4 million
and $3.3 million, representing 22%, 19% and 21% of the related revenues for
the fiscal years ended June 30, 1993, 1994 and 1995, respectively. The
increase in cost of revenues in absolute dollars and as a percentage of total
revenues from fiscal 1994 to fiscal 1995 is primarily related to an increase
in third-party product revenue, which carry a higher cost of revenues than the
Company's software products. The decrease in cost of revenues as a percentage
of the related revenues in fiscal 1994 and fiscal 1995 compared to fiscal 1993
was attributable to a decrease in the percentage of hardware revenue.
Maintenance and Consulting. Cost of revenues from maintenance and consulting
was $1.4 million, $1.4 million and $3.3 million, representing 15%, 15% and 29%
of the related revenues for the fiscal years ended June 30, 1993, 1994 and
1995, respectively. The increase in cost of revenues in fiscal 1995 as a
percentage of related revenues compared to fiscal 1993 and fiscal 1994 was
attributable to added headcount in worldwide customer support and consulting
and a change in the estimate for the recoverability of support inventory.
Operating Expenses
Product Development. Product development expenses were $5.0 million, $6.3
million and $6.2 million, representing 24%, 29% and 23% of total revenues for
the fiscal years ended June 30, 1993, 1994 and 1995, respectively. Product
development expenses increased in fiscal 1994 due to increased staffing for
software engineers required to research and develop new client/server
technology. In fiscal 1995, the Company canceled its research investment in
new technology and reduced the staffing levels in research and development.
Sales and Marketing. Sales and marketing expenses were $6.6 million, $8.4
million and $10.8 million, representing 31%, 38% and 40% of total revenues for
the fiscal years ended June 30, 1993, 1994 and 1995, respectively. Sales and
marketing expenses increased in such periods due to the opening of two
international subsidiaries, expansion of the Company's sales force and
associated support staff, increased marketing and promotional activities and
increased commission expenses.
General and Administrative. General and administrative expenses were $3.3
million, $2.6 million and $3.3 million, representing 15%, 12% and 12% of total
revenues for the fiscal years ended June 30, 1993, 1994 and 1995,
respectively. The increases in absolute dollars in fiscal 1995 compared to
fiscal 1994 were primarily the result of prior period adjustments for import
duties and sales tax liability.
Interest Expense, net. Net interest expense was $387,000, $224,000, and
$81,000, for the fiscal years ended June 30, 1993, 1994, and 1995,
respectively. Net interest expense decreased year to year as bank borrowings
declined and as interest income increased due to higher invested cash
balances.
Other Income. The Company recorded $1.0 million of other income related to a
transfer of technology for the fiscal year ended June 30, 1993.
Benefit from (Provision for) Income Taxes. The Company recorded an income
tax benefit of $1.6 million in the fiscal year ended June 30, 1995, reflecting
partial reversal of the valuation allowance against the Company's deferred tax
asset. The income tax provision for the fiscal years ended June 30, 1993 and
1994 was $953,000 and $273,000, respectively.
Extraordinary Items. The Company recognized a $1.1 million extraordinary
gain related to the utilization of net operating loss carryforward in fiscal
1993. In fiscal 1994, the Company recorded a gain of $1.3 million as the
result of restructuring debt with a commercial lender. See Note 5 of Notes to
Consolidated Financial Statements.
26
<PAGE>
QUARTERLY RESULTS
The following tables set forth certain unaudited consolidated statement of
operations data for the seven quarters ended March 31, 1996, as well as such
data expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Company's
audited consolidated financial statements and notes thereto. The Company
believes that results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1995 1995 1995 1995 1996
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product............... $3,533 $4,016 $ 2,619 $5,650 $3,034 $ 4,880 $5,282
Maintenance and
consulting........... 2,473 2,720 3,177 2,891 3,531 3,284 3,691
------ ------ ------- ------ ------ ------- ------
Total revenues...... 6,006 6,736 5,796 8,541 6,565 8,164 8,973
------ ------ ------- ------ ------ ------- ------
Cost of revenues:
Product............... 856 834 665 961 640 1,002 641
Maintenance and
consulting........... 555 669 1,123 946 1,067 1,081 1,171
------ ------ ------- ------ ------ ------- ------
Total cost of
revenues........... 1,411 1,503 1,788 1,907 1,707 2,083 1,812
------ ------ ------- ------ ------ ------- ------
Gross profit............ 4,595 5,233 4,008 6,634 4,858 6,081 7,161
Operating expenses:
Product development... 1,604 1,737 1,751 1,153 1,124 1,170 1,487
Sales and marketing... 2,292 2,651 2,500 3,349 2,505 2,930 3,422
General and
administrative....... 648 771 1,138 772 833 853 1,202
Purchased research and
development and
product amortization. -- -- -- -- -- 10,158 160
------ ------ ------- ------ ------ ------- ------
Total operating
expenses............ 4,544 5,159 5,389 5,274 4,462 15,111 6,271
------ ------ ------- ------ ------ ------- ------
Operating income (loss). 51 74 (1,381) 1,360 396 (9,030) 890
Interest expense, net... (44) (30) (26) 19 21 20 (261)
------ ------ ------- ------ ------ ------- ------
Income (loss) before
provision for income
taxes.................. 7 44 (1,407) 1,379 417 (9,010) 629
Benefit from (provision
for) income taxes...... -- -- -- 1,624 (163) 475 (245)
------ ------ ------- ------ ------ ------- ------
Net income (loss)....... $ 7 $ 44 $(1,407) $3,003 $ 254 $(8,535) $ 384
====== ====== ======= ====== ====== ======= ======
Net income (loss) per
share.................. $ 0.00 $ 0.00 $ (0.23) $ 0.31 $ 0.03 $ (1.37) $ 0.04
====== ====== ======= ====== ====== ======= ======
Shares used in per share
calculation............ 9,540 9,645 6,228 9,698 9,657 6,250 10,031
====== ====== ======= ====== ====== ======= ======
</TABLE>
27
<PAGE>
The following table sets forth certain unaudited quarterly financial
information of the Company for each of the Company's last seven fiscal
quarters expressed as a percent of total revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1995 1995 1995 1995 1996
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product............... 58.8% 59.6% 45.2% 66.2% 46.2% 59.8% 58.9%
Maintenance and
consulting........... 41.2 40.4 54.8 33.8 53.8 40.2 41.1
----- ----- ----- ----- ----- ------ -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ------ -----
Cost of revenues:
Product............... 14.3 12.4 11.5 11.3 9.7 12.3 7.1
Maintenance and
consulting........... 9.2 9.9 19.3 11.0 16.3 13.2 13.1
----- ----- ----- ----- ----- ------ -----
Total cost of
revenues........... 23.5 22.3 30.8 22.3 26.0 25.5 20.2
----- ----- ----- ----- ----- ------ -----
Gross profit............ 76.5 77.7 69.2 77.7 74.0 74.5 79.8
Operating expenses:
Product development... 26.7 25.8 30.2 13.5 17.1 14.3 16.6
Sales and marketing... 38.2 39.4 43.1 39.2 38.2 35.9 38.1
General and
administrative....... 10.8 11.4 19.7 9.1 12.7 10.5 13.4
Purchased research and
development and
product amortization. -- -- -- -- -- 124.4 1.8
----- ----- ----- ----- ----- ------ -----
Total operating
expenses........... 75.7 76.6 93.0 61.8 68.0 185.1 69.9
----- ----- ----- ----- ----- ------ -----
Operating income (loss). 0.8 1.1 (23.8) 15.9 6.0 (110.6) 9.9
Interest expense, net... (0.7) (0.4) (0.5) 0.3 0.4 0.2 (2.9)
----- ----- ----- ----- ----- ------ -----
Income (loss) before
provision for income
taxes.................. 0.1 0.7 (24.3) 16.2 6.4 (110.4) 7.0
Benefit from (provision
for) income taxes...... -- -- -- 19.0 (2.5) 5.9 (2.7)
----- ----- ----- ----- ----- ------ -----
Net income (loss)....... 0.1% 0.7% (24.3)% 35.2% 3.9% (104.5)% 4.3%
===== ===== ===== ===== ===== ====== =====
</TABLE>
The Company's business has experienced and is expected to continue to
experience significant seasonality. The Company has higher sales of its
software products in the quarters ending in December and June and weaker sales
in the quarters ending in September and March. The decrease in product
revenues in the quarters ending in September is due to the international
customer seasonal buying patterns. The quarters ending in March are
historically weak due to government and large organization annual budgeting
cycles. The Company believes this pattern will continue. The increase in
product revenues in the two most recent quarters is primarily attributable to
increased software license fees for the Company's TCPaccess product as well as
the sale of the HARBOR product internationally. The decrease in product
revenues in the quarter ended in March 31, 1995 also reflected the delay in
the release of Version 3.1 of TCPaccess until the quarter ended June 30, 1995.
The increase in maintenance and consulting revenue in the quarter ended
September 30, 1995 related primarily to delays in renewals of customer
maintenance agreements and increased consulting and a maintenance revenue
adjustment for prior periods.
The Company's operating results have historically been, and will continue to
be, subject to quarterly and annual fluctuations due to a variety of factors,
including: timely introduction, enhancement and market acceptance of new
versions of the Company's products; seasonal customer demand; timing of
significant orders; changes in the pricing policies by the Company or its
competitors; anticipated and unanticipated decreases in unit average selling
prices of the Company's products; increased competition; changes in the mix of
the products sold and in the mix of sales by distribution channel; the gain or
loss of significant customers; the introduction of new products or product
enhancements by competitors; currency fluctuations; and the failure to
anticipate
28
<PAGE>
changing customer product requirements. The Company's sales cycle, from the
date the sales agent first contacts a prospective customer to the date a
customer ultimately purchases the Company's product, is typically three to six
months for the TCPaccess products and six to nine months for the HARBOR
products. There can be no assurance that the Company's sales cycle will not
lengthen, exposing it to the possibility of shortfalls in quarterly revenues,
which could have a material adverse effect on the Company's business,
financial condition or results of operations, and cause results to vary from
period to period. The Company's operating results will also be affected by
general economic and other conditions affecting the timing of customer orders
and capital spending, and order cancellations or rescheduling. The Company
operates with very little backlog and most of its product revenues in each
quarter result from orders closed in that quarter, and a substantial majority
of those orders are completed at the end of that quarter. The Company
establishes its expenditure levels for sales, marketing, product development
and other operating expenses based in large part on its expectations as to
future revenues, and revenue levels below expectations could cause expenses to
be disproportionately high. If revenues fall below expectations in a
particular quarter, operating results and net income are likely to be
materially adversely affected. Any inability of the Company to adjust spending
to compensate for failure to meet sales forecasts or to collect accounts
receivable, or any unexpected increase in product returns or other costs,
could magnify the adverse impact of such events on the Company's operating
results. Due to the foregoing factors, quarterly revenue and operating results
are likely to vary significantly in the future and period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since the beginning of fiscal 1993, the Company has financed its operations
primarily through private sales of Preferred Stock, totaling $6.7 million,
bank borrowings and cash generated from operations. Net cash provided by (used
in) operating activities was $1.9 million, $(1.4) million, $2.2 million and
$3.6 million for the fiscal years ended June 30, 1993, 1994 and 1995 and for
the nine months ended March 31, 1996, respectively. Net cash provided by
operating activities in fiscal 1993 consisted primarily of the net income and
depreciation and amortization, partially offset by a decrease in accrued
expenses. Net cash used in operating activities in fiscal 1994 consisted
primarily of an increase in accounts receivable and a non-cash gain on debt
restructuring, partially offset by net income. Net cash provided by operating
activities in fiscal 1995 consisted primarily of the net income, depreciation
and amortization and an increase in accrued liabilities, partially offset by
an increase in deferred income taxes. Net cash provided by operating
activities for the nine months ended March 31, 1996 consisted primarily of
purchased research and development partially offset by a net loss. Net cash
used in investing activities was $492,000, $952,000, $2.6 million and $7.9
million for the fiscal years ended June 30, 1993, 1994 and 1995 and for the
nine months ended March 31, 1996, respectively. Net cash used in investing
activities in fiscal 1993 and fiscal 1994 related to the acquisition of
property and equipment and capitalization of software development costs. Net
cash used in fiscal 1995 consisted primarily of the purchase of available-for-
sale securities. Net cash used in investing activities for the nine months
ended March 31, 1996 was primarily due to the Company's acquisition of New
Era. Net cash provided by (used in) financing activities was $346,000, $4.5
million, $(1.4) million and $6.2 million for the fiscal years ended 1993, 1994
and 1995 and for the nine months ended March 31, 1996, respectively. Net cash
provided by financing activities in fiscal 1993 consisted primarily of
proceeds from issuance of Common Stock. Net cash provided by financing
activities in fiscal 1994 consisted primarily of proceeds from issuance of
Preferred Stock and proceeds from bank line of credit and notes payable to
stockholder, partially offset by payments on notes payable. Net cash provided
by financing activities in fiscal 1995 was primarily from payments on capital
lease and customer service obligations and payments on notes payable and bank
line of credit. Net cash provided by financing activities for the nine months
ended March 31, 1996 consisted primarily of proceeds from the bank line of
credit and term loan established for the New Era acquisition. The Company's
business is geographically dispersed resulting in a significant portion of its
cash residing outside of the United States. At March 31, 1996, 61% of the
Company's cash was in international bank accounts.
Historically, the Company has not invested in derivative securities or any
other financial instruments that involve a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in investment grade, interest-bearing securities.
29
<PAGE>
At March 31, 1996, the Company had $5.9 million in cash and cash equivalents
and $(6.3) million in working capital. The negative working capital balance at
March 31, 1996 resulted from the use of working capital in connection with the
acquisition of New Era in December 1995. The Company also has available a line
of credit agreement with a bank that expires on November 29, 1996, which is
collateralized by certain assets of the Company and permits borrowings of a
percentage of eligible accounts receivable and bears interest at the lender's
prime rate plus 1.5%. Under the terms of the agreement, the Company is
required to maintain a certain minimum quick ratio and tangible net worth and
maximum debt to tangible net worth, as well as quarterly profitability. At
March 31, 1996, $5.0 million was outstanding under the line of credit. In
addition, the Company has a note payable with a bank that is due on December
31, 1998, is collateralized by certain assets of the Company and bears
interest at the lender's prime rate plus 2.5%. Under the terms of the note,
the Company is required to maintain certain financial covenants. At March 31,
1996, $3.0 million was outstanding under the note. The Company had $8.1
million in accounts receivable, net of allowance for doubtful accounts, and
$9.0 million of unearned revenues, substantially all of which will be earned
over the 12-month period following March 31, 1996.
Capital expenditures, including amounts financed under capital leases, have
remained relatively constant in recent periods, aggregating approximately
$461,000, $885,000, $721,000 and $273,000 for the fiscal years ended June 30,
1993, 1994 and 1995 and for the nine months ended March 31, 1996,
respectively. The Company had no material capital expenditure commitments at
March 31, 1996. The Company expects that it will have $1.1 million of capital
expenditures through March 31, 1997, including approximately $500,000 to
expand its customer support system.
The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with its current balances, cash available under its
line of credit and cash flow from operations, if any, will be sufficient to
meet its working capital and capital expenditure requirements at least through
December 31, 1997. Although operating activities may provide cash in certain
periods, to the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash.
Consequently, any such future growth may require the Company to obtain
additional equity or debt financing, which may not be available or may be
dilutive.
30
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Interlink Computer Sciences, Inc. ("Interlink" or the "Company") is a
leading supplier of high- performance solutions for enterprise networked
systems management. Interlink provides software and services which enable
customers implementing client/server systems to use their IBM and IBM-
compatible MVS mainframes as "enterprise servers" in distributed,
heterogeneous client/server network environments. The Company's products and
services enable customers to transport, access and manage mission-critical
data and applications across distributed network environments. The Company
develops and markets the TCPaccess products which provide for enterprise
server TCP/IP connectivity, fault tolerance, and CICS-to-LAN application
integration. Interlink also develops and markets the HARBOR products for
network backup, archive and restore, and application, data and software
distribution. The Company also supplies network printing and other
applications which expand the functionality of the enterprise server. As of
March 31, 1996, the Company licensed its TCPaccess products to approximately
900 customer sites and its HARBOR products to over 160 customer sites
worldwide.
The Company markets and sells its software and services primarily through
its direct sales organization and, to a lesser extent, through resellers and
international distributors. Significant customers which have purchased/
licensed the Company's products include the Internal Revenue Service, MACIF,
U.S. Sprint, W.R. Grace & Co. and Wells Fargo Bank. The Company recently
entered a strategic relationship with Legato to develop products which will
enable the companies to provide enterprise-class storage management solutions.
INDUSTRY BACKGROUND
Many large organizations depend on centralized mainframe computer systems to
manage mission-critical software applications and to serve as the repository
for essential business data. These systems, along with sophisticated systems
management software, provide highly available computer processing resources,
are extremely reliable over extended periods of usage, are scalable to
accommodate a large number of users, and provide for secure movement and
storage of large amounts of data.
Recently, advances in hardware, software, and networking technologies have
led to the deployment of client/server systems, in which computing tasks are
distributed throughout a network of computers. Organizations have adopted
client/server networks to obtain the advantages inherent in distributed
computing, such as independent local processing and storage of data, lower
initial cost, and efficient use of common software programs.
Organizations are now integrating mainframe computers into their
client/server networks as "enterprise servers" which, like other servers on
the client/server network, have a specialized purpose and function.
Specifically, the enterprise server and the systems management applications
associated with its use have proven capable of providing reliable and
efficient systems management, data security, and distribution of data and
applications. Improvements in the cost-effectiveness of mainframe systems have
significantly increased the use of mainframe computers as enterprise servers.
The integration of TCP/IP, an open systems transport protocol, with the IBM
MVS mainframe operating system, has enabled the connection of centralized
mainframes to distributed client/server networks on a peer-to-peer basis
regardless of the hardware or software used on such networks. Organizations
seeking distributed access to mainframe data, highly reliable computing
resources, and leverage from existing investments in
31
<PAGE>
hardware, applications and training, have seen the integration of the
enterprise server into the client/server network as a logical evolution.
Software is now available that allows client/server networks to take advantage
of the mainframe as an enterprise server. By recognizing this movement to
"network-centric" computing and incorporating TCP/IP functionality in recent
releases of the MVS operating system, IBM has also acknowledged the emergence
of the mainframe as an enterprise server. Organizations now can take advantage
of investments in mainframe computers and applications by leveraging these
investments across the client/server network.
Organizations implementing client/server computing environments which
leverage the benefits of the enterprise server require rapid TCP/IP access and
a new class of software solutions to enable these previously disparate
computing environments to efficiently interoperate. At the network transport
level, the speed, efficiency and reliability of a given transport solution can
have a considerable impact on the effectiveness of the overall computing
environment, particularly as the volume of data stored and accessed across the
network increases. Organizations which implement high-performance efficient
network transport solutions are able to lower the computing burden on their
enterprise servers and increase the potential to defer costly hardware
upgrades. At the systems level, the complexity of networks with both
centralized and distributed resources creates the need for robust applications
to perform storage management, software distribution and output management.
Customers thus require both high-performance network transport products and
systems management applications to transport, store and protect critical data
and applications. Furthermore, users require a high level of customer service
and support as they strive to leverage the advantages of both centralized and
distributed architectures in a single seamless network.
THE INTERLINK SOLUTION
Interlink's products enable MVS mainframes to function as enterprise servers
in client/server environments. The Company offers a suite of high-performance
network transport products and systems management applications which
efficiently transport, store and protect the integrity of mission-critical
data and applications. By providing both network transport products and
systems management applications as a single solution, the Company enhances the
customer's ability to manage complex computing resources. The Company believes
its high level of customer service and technical support form a key component
of its enterprise networked systems management solution by addressing the
customer's need to integrate the enterprise server with complex, heterogeneous
client/server networks. With almost ten years of experience in the networked
systems management industry, Interlink provides networking solutions that
build upon its expertise in the integration of the MVS operating system with
TCP/IP and its reputation for high-performance, efficient products.
The Company's principal network transport product, TCPaccess, connects the
MVS enterprise server to client/server networks using open systems TCP/IP
protocols. The Company's HARBOR and other systems management applications
backup data from, distribute software to, and allow printing across the
clients and servers on the network, which expands the functionality of the
enterprise server.
STRATEGY
Interlink's objective is to enhance its position as a leading supplier of
high-performance solutions for enterprise networked systems management. Key
elements of the Company's strategy include:
Expand Functionality of the Enterprise Server. Interlink seeks to enable
customers to leverage the benefits of the enterprise server by integrating it
into client/server networks and by optimizing the utilization of powerful
existing computing resources. The Company's approach to providing integrated
enterprise server-to-network connectivity and systems management solutions is
to develop, market and support a suite of products that collectively address
the needs of the organization seeking to fully exploit the benefits of an
enterprise server. To address the needs of the enterprise networked systems
management market, the Company recently acquired New Era and its HARBOR
products, is developing enhanced versions of Enterprise Print Services, and
intends to continue to upgrade and enhance its existing product line.
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Capitalize on Sales Opportunities. The Company intends to leverage the
combined existing customer bases of TCPaccess and HARBOR to capitalize on
significant cross-selling opportunities. The Company is expanding its sales
force and has dedicated substantial additional resources to pursue sales of
HARBOR products to the Company's installed base of approximately 900 TCPaccess
customers as well as sales of TCPaccess products to its installed base of over
160 HARBOR customers. The Company also plans to market and sell its HARBOR
products to organizations that utilize SNA rather than TCP/IP networks.
Employ Consultative Sales Approach to Build Long-term Customer
Relationships. The Company intends to develop and maintain strong customer
relationships by leveraging the broad range of expertise of its consultative
sales force to address the complexity of network solutions. This expertise
includes knowledge of mainframes, numerous server operating systems, TCP/IP,
networking technologies and a variety of third-party software products. The
Company seeks to provide comprehensive solutions to its customers by examining
their current network architectures and system problems and by configuring
solutions that best leverage the use of enterprise servers and other existing
computing resources. The Company believes that providing a comprehensive
solution, using both Interlink and complementary third-party products, builds
long-term customer relationships and facilitates future add-on sales efforts.
Differentiate Through Superior Customer Support. To support customers that
have implemented complex networks to manage mission-critical applications and
data, the Company provides local-language customer service and technical
support for both domestic and international customers. This support includes
24-hour, 7 day worldwide telephone support, on-site problem resolution, and
comprehensive consulting and training. The Company believes that this high
level of customer support not only differentiates its solution but also
provides insight into customer needs which influences the Company's future
product development efforts.
Leverage Strategic Relationships. The Company will leverage strategic
marketing and development relationships in order to provide a complete
solution to its customers' evolving network systems management needs. The
Company recently formed a strategic relationship with Legato to develop
products which will enable the companies to provide enterprise-class storage
management solutions. In addition, the Company is a member of the IBM S/390
Partners in Development group, which provides the Company advance notification
of developments in the MVS operating system.
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PRODUCTS
The Company's principal software products include its network transport
products and its systems management applications. The Company's network
transport products provide the communication infrastructure between
distributed networks and the enterprise server. Interlink's systems management
applications allow centralized management of applications and data across
distributed systems. The following table summarizes the Company's software
products and their principal functions:
<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION
<C> <S>
NETWORK TRANSPORT PRODUCTS
--------------------------
TCPaccess Provides TCP/IP networking protocols that
allow MVS mainframes to communicate with
clients and servers.
TCPaccess Fault Tolerant TCPaccess enhanced to provide redundancy to
achieve high levels of reliability in
networks with multiple paths.
SNS/NFS Allows the enterprise server to act as a
file server in Network File System ("NFS")
environments.
SYSTEMS MANAGEMENT APPLICATIONS
-------------------------------
HARBOR Backup Efficiently backs up and restores data on
client/server networks to an enterprise
server.
HARBOR Distribution Manages cataloging, installation, and up-
grading of applications, data files and
software packages across the enterprise.
HARBOR Distributed Storage Server Allows local backup and restore on the LAN
with centralized control over transmission
and security.
Enterprise Print Services Manages the printing of enterprise server
applications to network printers.
CICS Programmers Toolkit Simplifies the development of applications
for the CICS on-line transaction processing
environment across TCP/IP networks.
</TABLE>
Network Transport Products
The Company's network transport products, including its TCPaccess products,
enable peer-to-peer communication and processing between enterprise servers
and heterogeneous network systems. The TCPaccess products operate with all IBM
System/370 and System/390 and compatible enterprise servers operating on
essentially all MVS operating systems. The network transport products include
a base module and several optional modules. For the last fiscal year, the
price of the Company's network transport products sold both domestically and
internationally typically ranged from $50,000 to $100,000, per enterprise
server based on its size and customer location.
TCPaccess. TCPaccess provides TCP/IP protocols and common applications such
as file transfer, terminal access, electronic mail and system management.
TCPaccess is manageable from remote Simple Network Management Protocol
("SNMP") management stations through the SNMP agent contained in the product.
TCPaccess includes an Application Programmer Interface ("API") which allows
customers to easily write interfaces to applications.
TCPaccess Fault Tolerant. TCPaccess Fault Tolerant helps ensure continuous
operations for mission-critical production environments and allows user
sessions to continue across hardware failures and routing changes by quickly
re-establishing failed connections. This optional product is contained within
TCPaccess, and is enabled with a software key.
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SNS/NFS. SNS/NFS enables LAN clients that support the NFS model to
transparently access the wide variety of file types on the enterprise server.
SNS/NFS gives LAN users the ability to access remote MVS datasets as if they
were local.
Systems Management Applications
The Company's systems management applications provide centralized backup,
restore, distribution and output management. The Company's recent acquisition
of New Era and its HARBOR products enhanced the Company's systems management
applications product line. The HARBOR products are integrated client/server
applications, which enable management of distributed systems at the enterprise
level. The HARBOR products allow information technology personnel to centrally
manage a variety of client systems and communications products. For the last
fiscal year, the price of the Company's systems management applications sold
both domestically and internationally typically ranged from $20,000 to
$100,000, based on the number of servers and clients as well as the customer's
location.
HARBOR Backup. HARBOR Backup provides reliable, centralized backup and
restore for distributed environments. This product efficiently backs up data
stored on clients and servers to the enterprise server. HARBOR Backup features
a file redundancy checker to scan for identical files to avoid duplicative
data movement, a consolidation routine to ensure that a full backup of a
server or client need only be done once, and exclusion rules to eliminate
backing up temporary or system files that would not need to be restored in the
event of loss.
HARBOR Distribution. HARBOR Distribution offers management of applications,
data files and software packages across the enterprise. HARBOR Distribution
enables administrators to catalog, install, upgrade and de-install
applications, data files and software packages for all clients and servers. By
using HARBOR Distribution, customers can eliminate repetitive installation and
upgrade procedures through enterprise level automation. HARBOR Distribution
updates all clients and servers with the most recent application release,
before application processing resumes, and reports the inventory of software
for each client and server on the system. A distributed LAN server can be used
to store files for later delivery to client systems, substantially reducing
delivery times, especially over WANs.
HARBOR Distributed Storage Server. HARBOR Distributed Storage Server allows
for local network storage backup and restore of data, while utilizing the
enterprise server to provide overall control. HARBOR Distributed Storage
Server reduces restore time and minimizes communications costs.
Enterprise Print Services. Enterprise Print Services ("EPS") manages the
printing of enterprise server applications to network printers. Each printing
resource in the enterprise can be utilized from other environments. EPS
resides on the enterprise server, providing bi-directional access from
applications in one environment to printers in the other.
CICS Programmers Toolkit. CICS Programmers Toolkit simplifies the task of
developing applications for the CICS on-line transaction processing
environment that communicate with peer applications in the TCP/IP environment.
Key features of the product include: an easy-to-use API and tools that allow
for more rapid development of applications; efficient operation allowing
higher transaction volumes; and a powerful administrator interface allowing
product configuration, operation and debugging in real-time without adversely
affecting on-line applications.
Other Products
The Company sells a network controller which is the physical hardware
connection between the enterprise server and the network. This product,
manufactured by Bus-Tech, is generally sold with the Company's TCPaccess
product. The list price of the current network controller ranges from $17,000
to $48,000. Sales of network controllers accounted for 15% of total revenues
in the fiscal year ended June 30, 1995 and 11% of total revenues for the nine
months ended March 31, 1996. The Company's DECnet products provide networking
protocols that allow MVS and VM mainframes to communicate with devices using
the DECnet protocol. Although the Company no longer actively markets this
product, the Company derives substantial maintenance revenues from the DECnet
installed customer base.
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SALES, MARKETING AND CUSTOMER SUPPORT
The Company markets and sells its software and services primarily through
its direct sales organization and, to a lesser extent, through resellers and
international distributors. The Company intends to develop and maintain strong
customer relations by leveraging the broad range of expertise of its
consultative sales force to address the complexity of network solutions. The
Company's large national and multinational customers require a highly
consultative sales approach and specialized account management due to the
technical complexities of their network environments, their geographically
dispersed installations, systems management needs and centralized decision
making processes. The sales process normally requires a customer trial, which
is managed by the Company's local technical systems engineers to aid the
customer in planning and selecting their enterprise products. The Company
believes that its consultative sales approach provides it with valuable
customer feedback which the Company uses to direct product development. The
Company facilitates third-party leasing for its customers who prefer monthly
payment arrangements, usually over a term of 36 months. As of March 31, 1996,
the Company employed 63 persons in sales, marketing and customer support. For
the fiscal year ending June 30, 1995 and for the nine months ended March 31,
1996, 42% and 43%, respectively, of the Company's total revenues were derived
from international sales and 88% and 86%, respectively, of the Company's total
revenues were derived from direct sales.
Sales
Direct Sales. The Company's sales organization consists of a staff of
software sales professionals based in field sales offices. As of March 31,
1996, the Company's direct sales force included 26 account executives and 20
technical pre-sales systems engineers. Field offices are staffed by both sales
and technical pre-sales systems engineers who are located in Atlanta, Chicago,
Dallas, San Francisco and Washington, D.C. The international sales
organization has offices in Calgary, Koln, London, Madrid, Paris and Zurich.
Strategic Relationship with Legato. The Company recently formed a strategic
relationship with Legato to develop products which will enable the companies
to provide enterprise-class storage management solutions. Pursuant to the
terms of the agreement, Interlink intends to develop a new product called
HARBOR Agent for Networker (Legato's client/server storage management
product), which will be distributed by Legato. Interlink will be an authorized
reseller of Legato's storage management products, including the new HARBOR
Agent for Networker. The Company has no historical relationship with Legato,
and there can be no assurance that the Company will be able to sell its
products through Legato.
Indirect Distribution Channels. The Company currently has reseller
relationships with Hitachi Data Systems Corp., which distributes the Company's
products in certain markets, and with Computerm Corp. which sells Interlink's
products in the United States. The Company also sells through international
distributors that provide pre- and post-sale local-language support in
Australia, Belgium, Brazil, Denmark, Finland, Holland, Italy, Japan, Norway,
the Philippines, Singapore, South Africa, Sweden and Venezuela.
Marketing
In support of its direct and indirect sales, the Company conducts marketing
programs to position and promote its products and services. Marketing
personnel engage in a wide variety of activities to support the distribution
channels, including direct mail, advertising, seminars, public relations and
trade shows. In addition, the marketing department also conducts sales and
product training seminars for both the Company's internal sales force and
those of its channel partners. The marketing organization also has a leading
role in product marketing activities, including product management,
competitive positioning and long term product direction.
Customer Support
For the fiscal year ended June 30, 1995 and the nine months ended March 31,
1996, 42% and 44%, respectively, of the Company's total revenues were derived
from maintenance and consulting. The Company offers an annual maintenance
program to its licensees through its own support organization that includes
product
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<PAGE>
updates and post-sales telephone, electronic mail, Internet and fax hotline
support. The price for annual maintenance is typically 15% to 18% of the
product list price. The Company also offers installation and training services
on a fee basis to assist customers in deploying enterprise wide applications
utilizing the Company's products. Training is offered at the Company's in-
house facilities or at the customers' site. The Company's distributors and
resellers also offer first level customer support to their end users, while
relying on the Company for any additional support as needed. Because the
Company's customers depend on the Company's products to transport, store and
protect critical data, the Company believes its ability to provide a high
level of customer service and technical support is important to its marketing
efforts and to the building of long-term customer relationships.
CUSTOMERS
As of March 31, 1996, the Company had approximately 1,200 customers, with no
single customer accounting for more than 5% of the Company's net revenues in
any of the last three fiscal years. The following is a representative list of
the Company's customers categorized by industry. The Company believes these
customers are typical of the Company's customer base by virtue of the
industries they represent and the computer operations they manage using the
Company's products.
<TABLE>
<CAPTION>
Communications Financial Services Insurance Services
- -------------- ------------------ --------- --------
<S> <C> <C> <C>
BellSouth Corp. ABN-Amro Bank Allstate Insurance Group Axiom Corporation
NYNEX Corp. Bank for International Abbey Life Assurance Co., Ltd. Comdisco, Inc.
Pacific Telecom, Inc. Settlements California State Auto Association Debis Munich
SITA Bank of Montreal Kemper National Insurance The Dun & Bradstreet Corp.
SBC Communications, Inc. Bank Vontobel Companies Lexis-Nexis
Telecom Eirann Barclays Bank PLC MACIF Mastercard International, Inc.
Telecomm Italia S.p.A. Citicorp Pearl Insurance Mead Corporation
U.S. Sprint Corp. Commerzbank A.G. State Farm Mutual Automobile Reuters Holdings PLC
Williams Information Credit Agricole Pyrenees Insurance Company
Services Gascogne
Edward D. Jones Manufacturing
Consumer/Retail Imperio -------------
- --------------- Pictet & Cie Air Products and Chemicals, Inc.
Argos Distributers SIBS Apple Computer, Inc.
Federated Systems Group Inc. Schweiz Kreditanstalt Boeing Company
Giant Food Inc. United Overseas Bank Ford Werks
J. Crew Group, Inc. Wells Fargo & Company Inland Steel Industries, Inc.
Johnson & Johnson Leggett & Platt, Inc.
Publix SuperMarkets, Inc. Government Legrand, S.A.
Quaker Oats Company ---------- MAN A.G.
Sara Lee Corp. Aok Bundesverband McDonnell Douglas Corp.
Service Merchandise Internal Revenue Service Otis Elivator Company, Inc.
Company, Inc. NASA Rolls Royce PLC
Sherwin-Williams Company Securities and Exchange Commission Ross Laboratories
Talbots Inc. U.S. Department of State Saarstahl A.G.
Tandy Information Services Virginia Department of Information Snecma Group
The Gap, Inc. Technology Sollac
Wilson's House of Suede Sony Corp.
Health Care Thyssen AG
Energy ----------- W.R. Grace & Company
- ------ CHU Nancy Hospital General
British Gas PLC Cox Medical System
Florida Power & Light Corp. University of California at Davis
Powergen PLC University of Pittsburgh
South Wales Electricity PLC Vision Service Plan
Southern California Edison
Company
Southern Company
</TABLE>
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<PAGE>
The following examples are representative of how the Company's present
customers utilize TCPaccess and HARBOR in solving their network transport and
systems management needs. These examples have been prepared by the Company
based on information provided by the respective customer.
University Medical Center
A major university medical center with more than 1,000 patient beds and
10,000 employees sought to centralize the management of computerized patient
records, enable the collection of critical information from numerous sources,
such as physicians offices, surgery areas, test labs and pharmacy, and provide
data access wherever needed to assure that doctors, nurses and lab technicians
have up-to-date information. The university decided to integrate its mainframe
applications with numerous LANs and thousands of terminal devices located
across the campus. When the university standardized on TCP/IP as its
interconnectivity protocol, it selected Interlink to provide connectivity
between the mainframe and the LANs. The university installed TCPaccess,
Enterprise Print Services, and the CICS Toolkit for query processing to handle
both inbound and outbound telnet terminal sessions, file transfers and large
volumes of remote printing to the mainframe's page printers. Using Interlink's
capabilities, the university has been sending all of the major print jobs on
this system to the enterprise server. The university cited the Company's
superior customer support in addition to the functionality of the Company's
products as principal reasons for its decision to use the Company's products.
Natural Gas Supplier
A large supplier of industrial gases serving 2 million customers in Europe
is using TCPaccess to leverage the power of its mainframe resources to enhance
its client/server network. This customer's computer network in the United
Kingdom is used to ensure that its customers receive effective service
regardless of their geographic location. Historically, this customer used an
SNA network with approximately 2,000 terminals connected to an IBM mainframe.
In implementing its client/server environment this customer replaced its
terminals with PCs connected to Compaq servers running Windows NT, but wanted
to maintain the enterprise server to provide centralized data storage and
offer all users on the entire network a single point-of-contact for all key
customer information. As TCP/IP traffic increased, this customer's existing
TCP/IP product became less efficient. Switching to TCPaccess allowed this
customer to make more efficient use of its enterprise server by providing more
clients access to the central data store of the company.
Banking Institutions
Information is vital to the banking industry and protecting customer and
bank data is one of the foremost priorities at this major bank. This bank is a
full service financial organization serving customers throughout North America
and managing assets in excess of $150 billion. The bank has over 1,000
branches/offices and utilizes over 8,000 workstations and servers. The bank
chose HARBOR as its backup product because HARBOR meets its multi-site, data
integrity and high security needs.
A major European bank, with numerous worldwide subsidiaries, is using HARBOR
Backup in their decentralized back-up system project. This customer sought
host-initiated, unattended over-night backup, and user-oriented and helpdesk-
supported restore in the case of emergency. The first phase of the project
covers backup and restore of approximately 700 OS/2 servers. Functionality,
security and support were the crucial factors in the bank's decision to choose
HARBOR. The bank plans to extend the project to an additional 500 OS/2
software development servers. In addition, in the first quarter 1996, the
decision was made to use HARBOR Distribution as the solution for software
distribution and management for their electronic software distribution
project.
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TECHNOLOGY
The Company's core technologies are the basis for its enterprise networked
systems management products. These technologies allow for the expansion of
existing products and addition of new products to the Company's systems
management architecture.
Network Transport Products
The TCPaccess product line, the Company's principal network transport
products, was developed within an application architecture consisting of key
components which provide high-performance, efficient operation, rapid
development, reusable code and improved maintainability. These key components
are: (i) TCP/IP Base; (ii) TCP/IP APIs; (iii) TCP/IP Applications; and (iv)
IFS Architecture.
TCP/IP Base. The TCP/IP base technology incorporates a high speed, efficient
transport protocol implementation which allows client/server applications to
communicate using TCP/IP. This software product is a multi-layered
communications module with two basic functions: (i) communicating via drivers
with the LAN controller devices to provide physical network connectivity; and
(ii) implementing protocols to establish interoperability between TCP/IP
environments and the enterprise server. Included within the base technology
are fault tolerant features enabled when the customer purchases TCPaccess
Fault Tolerant. This fault tolerant technology allows TCP/IP to recover
automatically from hardware problems in the network to preserve the sessions
between the enterprise server and remote TCP/IP systems. All portions of
TCPaccess critical to high performance and efficient operation are written in
assembler language. The base technology was architected and implemented
natively in MVS for the enterprise server environment. Use of technology
porting was minimized to ensure optimum performance and efficiency. The
technology is developed in accordance with Requests for Comments governed by
the Internet Engineering Task Force, and the Company's personnel participate
in the standards development process for key TCP/IP standards.
TCP/IP Application Programming Interfaces. TCPaccess contains an API layer
to allow independent software vendors ("ISVs") and the Company's customers to
use the TCP/IP technology to develop client/server applications. A variety of
industry standard APIs are provided, including BSD sockets, X/Open Transport
Interface and Sun/ONC RPC/XDR. All of the APIs in TCPaccess were architected
and designed specifically for the enterprise server environment to deliver
high performance and efficient operation for ISV and customer applications.
TCP/IP Applications. Certain TCP/IP applications such as file transfer
protocol and tn3270 terminal access are implemented in the same address space
as the TCP/IP base technology. This architecture, in which key servers are in
the same address space, enhances the performance and efficiency of these
important services. The TCP/IP base and application services are implemented
as threads within a multi-threaded environment provided as part of the base
connectivity technology. The use of threading technology provides scalability
and permits large numbers and applications to be supported in TCPaccess.
IFS Architecture. IFS Architecture ("IFS") is proprietary enterprise server
software that provides for rapid development of systems management
applications within the enterprise server environment. TCPaccess is an IFS
application. Components of TCPaccess execute within IFS as separate processes
(e.g., TCP/IP protocol stack, API, domain name resolver, SNMP agent and
others). IFS is written in assembler language for high performance and low CPU
resource usage. Applications developed in IFS can span threads, processes and
address spaces, providing location transparency to developers to simplify and
speed the development of software. IFS also provides common system-level
services for IFS application developers. IFS significantly reduces the time
required to create new TCPaccess applications.
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<PAGE>
Systems Management Applications
The HARBOR products, the Company's principal systems management
applications, were developed within an application architecture consisting of
key components which provide high-performance, efficient operation, rapid
development, reusable code, portable code and improved maintainability. These
key components are: (i) HARBOR Transport Services; (ii) HARBOR Transport
Gateway; (iii) HARBOR Multi-System Platform; (iv) HARBOR Policy Database; and
(v) HARBOR Client User Interface.
HARBOR Transport Services. The HARBOR Transport Services is proprietary
networking middleware software that connects a large variety of clients,
servers, and networks in a customer's distributed system. HARBOR Backup,
HARBOR Distribution, HARBOR Transport Gateway and HARBOR Distributed Storage
Server all make use of HARBOR Transport Services. The technology enables
HARBOR developers to use one programming interface for network access,
regardless of the underlying transport protocol, shielding them from the
issues and difficulties that can be encountered in programming to individual
network transport protocol interfaces. HARBOR Transport Services can
automatically recover from network failures, including retrying operations
over an alternate protocol, transparently to the application. This single
networking API, and other APIs within HARBOR Transport Services, are key to
being able to develop portable networked systems management applications on a
variety of common client/server platforms.
HARBOR Transport Gateway. The HARBOR Transport Gateway is an application
built upon the HARBOR Transport Services which connects a large variety of
clients, servers and networks in a customer's distributed system. This
technology provides transparent conversion between LAN/WAN transport protocols
including TCP/IP, APPC, 3270, IPX/SPX, Asynch and others. The HARBOR Transport
Gateway permits a customer to utilize two or more dissimilar network transport
protocols in their environment, with the gateway performing the mapping of
HARBOR application data streams from one transport to another.
HARBOR Multi-System Platform. The HARBOR Multi-System Platform ("MSP") is
proprietary enterprise server software that permits rapid development of
applications within the HARBOR environment. The HARBOR Backup and HARBOR
Distribution products are MSP applications. Applications developed in MSP can
span threads, processes, address spaces and machines, providing location
transparency to developers to simplify and speed development of software. The
support within MSP for threading is a key to providing scalability,
performance and efficiency for HARBOR applications. MSP also provides common
system-level services for HARBOR software developers.
HARBOR Policy Database. The HARBOR Policy Database is a proprietary database
and an administrative facility that controls all HARBOR management functions,
and improves user and system administrator productivity. It provides a single
location for defining and managing security access, administrative policies
and distribution schedules for HARBOR Backup and HARBOR Distribution. The
database is hierarchical in nature allowing rules to be defined at a high
level as defaults and then augmented by different levels of administration.
The technology is integrated with standard security management interfaces such
as RACF, CA-Top Secret and CA-ACF2.
HARBOR Client User Interface. The HARBOR Client User Interface is the
graphical user interface presented to both HARBOR Backup and HARBOR
Distribution client users. Technology for the development of graphical user
interfaces provided by a third party enables the Company to develop HARBOR
user interfaces rapidly, with a high degree of portability and with a
consistent "look and feel" across platforms.
PRODUCT DEVELOPMENT
The Company has made substantial investments in research and development to
produce high-performance network transport products and systems management
applications. As of March 31, 1996, the Company's research and development and
quality assurance organization consisted of 49 employees. The Company intends
to enhance its existing product offerings and to introduce additional products
for the enterprise networked
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<PAGE>
systems management market. The Company uses standard product development
methodologies in the design and development of its products to ensure
efficiency in development and high product quality. In addition, the Company
solicits input from its customers to gain insight into their specific network
requirements, enabling the research and development staff to enhance existing
products and create new products to suit the market. The Company designs its
products to be portable and adaptable to new client/server hardware and
software environments. The Company uses software development tools such as
configuration management, code testing, and performance monitoring to aid in
this development. The Company outsources its host computing resource
requirements for cost effectiveness and efficiency. To date, most of the
Company's core technologies for its network transport products and systems
management applications have been acquired and have not been developed
internally. While the Company expects that certain of its new products will be
developed internally, the Company may also, based on timing and cost
considerations, acquire technology and products.
The Company is currently completing the development of TCPaccess Version
4.1, which is expected to be released late 1996 and is intended to support
open edition MVS-API. The Company intends to develop additional versions to
provide compatibility with IBM APIs and certain IBM user-level applications.
The Company is also developing enhancements to the HARBOR products, including
a version of HARBOR to support Windows NT on platforms other than the Intel-
based NT platform currently supported. The Company expects to also add Netware
remote administration with a graphical user interface for Windows 95. The
Company intends to develop HARBOR Agent for Networker (Legato's client/server
storage management solution) which will provide HARBOR functionality to
client/server storage management products sold by Legato. There can be no
assurance that the Company's new or enhanced products will be timely
developed, or at all, and even if developed, that such products will achieve
market acceptance.
COMPETITION
General. The market in which the Company operates is intensely competitive
and is characterized by extreme price competition and rapid technological
change. The competitive factors influencing the markets for the Company's
products include product performance, price, reliability, features,
scalability, interoperability across multiple platforms, adherence to industry
standards, and the provision of support and maintenance services. The Company
competes with a number of companies, principally IBM, that specialize in one
or more of the Company's product lines, and such competitors may have greater
financial, technical, sales and marketing resources to devote to the
development, promotion and sale of their products, and may have longer
operating histories, greater name recognition, and greater market acceptance
for their products and services compared to those of the Company. There can be
no assurance that the Company's current competitors or any new market entrants
will not develop networked systems management products or other technologies
that offer significant performance, price or other advantages over the
Company's technologies, the occurrence of which would have a material adverse
effect on the Company's business, financial condition and results of
operations.
Network Transport Products. The Company sells its TCPaccess suite of
products principally to customers who have installed IBM mainframes using the
MVS operating system. The Company's main competition for its TCPaccess
products is IBM. IBM sells TCP/IP and associated products for its MVS
mainframe systems that compete directly with the Company's TCPaccess product
line. In addition, IBM recently released its OS/390 operating system, which
includes TCP/IP communications software in a bundle of software provided to
purchasers of OS/390. An IBM customer can request to have the IBM TCP/IP
product removed from the software bundle provided by IBM and thereby reduce
the purchase price of the system purchased. The reduction in the purchase
price related to the exclusion of IBM's TCP/IP for MVS product from its
software bundle, in certain model groups, is substantially smaller than the
price the customer would have to pay to purchase the Company's corresponding
TCPaccess product. Because in some IBM model groups IBM's TCP/IP product is
less expensive to purchase than the Company's corresponding TCPaccess products
in the same model groups, there could be substantial erosion of the Company's
margins if the Company reduces the price of its TCPaccess products in order to
compete against IBM, which erosion would have a material adverse effect on the
Company's business, financial condition and results of operations. Also, IBM
could in the future decide to include
41
<PAGE>
its TCP/IP product in the bundle of software provided to purchasers of its
OS/390 operating system without charge. The Company believes that any
reduction in price of the IBM TCP/IP products, or the bundling of those
products without charge in its OS/390 operating system, would require the
Company to either reduce the prices of its TCPaccess products or substantially
increase sales and marketing expenses, or both, in order to continue to sell
its TCPaccess products, which actions would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, if IBM were to develop or design its OS/390 operating system or
other products so that its TCP/IP product cannot be removed, customers who
otherwise would have been inclined to purchase the Company's TCPaccess product
may not do so, which would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company derives a substantial portion of its revenues from maintenance
agreements with its TCPaccess customers. If the Company sells fewer TCPaccess
products, either due to competition from IBM or otherwise, the Company's
maintenance revenues would be reduced, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. If IBM reduces the combined price of its TCP/IP products and
maintenance, IBM's combined price for its TCP/IP products and maintenance
would be more price competitive with the Company's product line, and the
Company's product and maintenance revenues would be adversely affected. The
Company also competes with IBM, Apertus, Cisco Systems, Inc., Computerm,
Network Solutions, Inc. and Memorex in the network controller market, where
the Company resells the network controller of Bus-Tech to provide the hardware
connection which links the enterprise server to the client/server network.
System Management Applications. The primary competitors for the Company's
HARBOR Backup product are IBM, Storage Technology, Innovation Data Processing,
Inc. and Boole & Babbage, Inc. The Company's competition for the HARBOR
Distribution Manager are IBM, Novadigm, Inc. and Tangram Enterprise Solutions,
Inc. IBM is aggressively marketing its ADSM backup product, which is included
in the System View package on IBM's UNIX system, AIX. There can be no
assurance that IBM will not include the ADSM backup products in a software
"bundle" with the sale of its mainframe hardware systems. The bundling of
competing software products with mainframe hardware systems could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company also competes with software vendors who
develop and market products for UNIX and Windows NT operating systems, such as
Microsoft, Arcada Software, Inc., Cheyenne Software, Inc., Computer
Associates, Inc., EMC Corporation, Hewlett-Packard Company, Legato, Novadigm,
Inc., OpenVision Technology, Inc., PLATINUM technology, inc., Sterling
Software, Inc., Sun Microsystems, Inc. and Unison Software, Inc., which are
focusing on enterprise systems management applications. Although the Company
recently signed a strategic marketing agreement with Legato, the Company is
still a competitor of Legato in the storage management market. The Company
also expects increased competition from vendors of TCP/IP-to-SNA gateway
products, including such companies as Microsoft, Novell, Inc., Apertus and
CNT/Brixton Systems, Inc. Competition from these companies could increase due
to an expansion of their product lines or a change in their approach to
enterprise systems management or networking products. The bundling of network
transport software with a network controller by these competitors could
prevent the Company from selling TCPaccess to the customers of these
competitors, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Other Factors. The Company's ability to compete successfully depends on many
factors, including the Company's success in developing new products that
implement new technologies, performance, price, product quality, reliability,
success of competitors' products, general economic conditions, and protection
of Interlink products by effective utilization of intellectual property laws.
In particular, competitive pressures from existing or new competitors who
offer lower prices or other incentives or introduce new products could result
in price reductions which would adversely affect the Company's profitability.
There can be no assurance that the Company's current or other new competitors
will not develop enhancements to, or future generations of, competitive
products that offer superior price or performance features, that the Company
will be able to compete successfully in the future, or that the Company will
not be required to incur substantial additional investment costs in connection
with its engineering, research, development, marketing and customer service
efforts in order to meet any competitive threat. The Company expects
competition to intensify, and increased competitive
42
<PAGE>
pressure could cause the Company to lower prices for its products, or result
in reduced profit margins or loss of market share, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary information. The Company relies primarily on a combination of
copyright and trademark laws, trade secrets, software security measures,
license agreements and nondisclosure agreements to protect its proprietary
technology and software products. There can be no assurance, however, that
such protection will be adequate to deter misappropriation, deter unauthorized
third parties from copying aspects of, or otherwise obtaining and using, the
Company's software products and technology without authorization, or that the
rights secured thereby will provide competitive advantages to the Company. In
addition, the Company cannot be certain that others will not develop
substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's
proprietary rights. Furthermore, there can be no assurance that any
confidentiality agreements between the Company and its employees or any
license agreements with its customers will provide meaningful protection for
the Company's proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.
There can be no assurance that others will not independently develop similar
products or duplicate the Company's products. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary technology will prevent
misappropriation of such technology, and such protections may not preclude
competitors from developing products with functionality or features similar to
or superior to the Company's products. A substantial amount of the Company's
sales are in international markets, and the laws of other countries may afford
the Company little or no effective protection of its intellectual property.
While the Company believes that its products and trademarks do not infringe
upon the proprietary rights of third parties, there can be no assurance that
the Company will not receive future communications from third parties
asserting that the Company's products infringe, or may infringe, the
proprietary rights of third parties. The Company expects that software product
developers will be increasingly subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming, result in costly
litigation and diversion of technical and management personnel, cause product
shipment delays or require the Company to develop non-infringing technology or
enter into royalty or licensing agreements, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. In the event of a
successful claim of product infringement against the Company and failure or
inability of the Company to develop non-infringing technology or license the
infringed or similar technology, the Company's business, financial condition
and results of operations could be materially adversely affected. In addition,
the Company may initiate claims or litigation against third parties for
infringement of the Company's proprietary rights or to establish the validity
of the Company's proprietary rights. Any such claims could be time consuming,
result in costly litigation, or lead the Company to enter into royalty or
licensing agreements rather than litigating such claims on their merits.
Moreover, an adverse outcome in litigation or similar adversarial proceedings
could subject the Company to significant liabilities to third parties, require
expenditure of significant resources to develop non-infringing technology,
require disputed rights to be licensed from others or require the Company to
cease the marketing or use of certain products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
43
<PAGE>
EMPLOYEES
As of March 31, 1996, the Company and its subsidiaries employed a total of
158 persons, of which 63 are in sales and marketing, 49 are in research and
development and quality assurance, 23 are in customer support and 23 are in
finance and administration. Interlink employs 85 persons in the United States,
36 persons in Canada, and 37 persons in Europe. The Company's continued
success will depend on its ability to attract and retain key employees. No
employees are represented by a labor union, and the Company considers its
employee relations to be good.
FACILITIES
The Company is headquartered in a 24,000 square foot facility in Fremont,
California. The Fremont facility houses the corporate functions, marketing,
research and development, customer support and finance and administration.
Interlink occupies this space under a lease agreement that expires on December
31, 2000. The Company has a research and development center in Columbia,
Maryland where the TCPaccess product line is developed, and in Calgary,
Alberta, Canada where the HARBOR products are developed and supported. The
Company leases office space in ten locations in the United States and Europe
for use by its regional sales and support staff. The Company believes that its
facilities are adequate to meet its requirements through the expiration of its
leases.
LEGAL DISPUTE
The Company and the Company's subsidiary in France are involved in a
commercial dispute with Selesta, a former Italian distributor of the Company's
TCPaccess products. Selesta alleged in a letter sent to the Company that the
Company had breached and unlawfully terminated the agreement pursuant to which
Selesta was appointed a distributor of the Company's products in Italy and
asserted other related claims against the Company. The letter demanded
Selesta's reinstatement as a distributor, the execution of a written
distribution agreement setting forth the distribution arrangements between the
parties, and compensation in an unspecified amount to be paid to Selesta for
the harm that it has suffered. The Company's Canadian subsidiary, New Era, has
also used Selesta as a distributor of the HARBOR products in Italy pursuant to
a separate agreement and may or may not continue to do so in the future. No
legal claim has been filed nor has arbitration been invoked by Selesta
regarding this matter. Should Selesta initiate legal proceedings and prevail
on such claims, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Risk Factors--Legal
Dispute."
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles W. Jepson 49 President, Chief Executive Officer and Director
Augustus J. Berkeley 50 Vice President of Worldwide Sales
Barbara A. Booth 40 Vice President of Research & Development and
Customer Support
D. Benedict Dulley 53 Vice President of the HARBOR Division and Director
Donald R. Gammon 50 Vice President of Marketing
Gloria M. Purdy 48 Vice President of Finance, Chief Financial Officer,
Treasurer and Secretary
Thomas H. Bredt (1) 54 Chairman of the Board of Directors
Ronald W. Braniff (1)(2) 60 Director
Andrew I. Fillat (2) 48 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Charles W. Jepson has served as President, Chief Executive Officer and a
member of the Board of Directors since May 1992. Prior to joining Interlink,
he served as President and Chief Executive Officer for Touch Communications, a
networking software company, from April 1991 to January 1992. He holds an
M.B.A. from the University of California at Berkeley and a B.A. in Economics
from San Jose State University.
Augustus J. Berkeley has served as Vice President of North American Sales
from January 1995 to December 1995 and has served as Vice President of
Worldwide Sales from January 1996 to the present. From March 1993 to January
1995, he served as Vice President of Sales and Marketing at CRAY Research
Superserver Inc., a computer systems company. From May 1990 to January 1993,
Mr. Berkeley served as Vice President of Marketing at Sequoia Systems, Inc. a
computer systems company. Mr. Berkeley holds a B.S. in Economics and Finance
from University of Southwestern Louisiana.
Barbara A. Booth served as Vice President of Research and Development from
December 1992 to October 1994 and has served as Vice President of Research and
Development and Customer Support from February 1996 to the present. From
September 1995 to February 1996, Ms. Booth was a business development
consultant for Inter-Island Systems Development & Integration. Ms. Booth co-
founded and served as Vice President of Technology for Viewpoint System
Software, Inc., a client/server tools company, from June 1988 until September
1992. Ms. Booth holds a B.A. in Mathematics from the University of California
at Berkeley.
D. Benedict Dulley has served as Vice President of the HARBOR Division since
the acquisition of New Era in December 1995 and as a member of the Board of
Directors since January 1996. From August 1988 to December 1995, he served as
President and Chief Executive Officer of New Era Systems Services, Ltd., now a
wholly-owned subsidiary of the Company. Mr. Dulley holds a B.S. in Mathematics
from the University of Nottingham in the United Kingdom.
Donald R. Gammon has been Vice President of Marketing since July 1994. He
also served as acting Vice President of Research and Development from April
1995 to January 1996. From December 1992 to June 1994, Mr. Gammon was the
owner of Gammon & Co., a consulting company specializing in marketing strategy
and market development. From May 1991 to December 1992, he served as Vice
President of Sales and Marketing of Structural Research and Analysis
Corporation, an analysis software company. Mr. Gammon holds a B.A. in
Marketing Management from Oklahoma State University.
45
<PAGE>
Gloria M. Purdy has served as Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary from January 1996 to the present. She had
also served as Chief Financial Officer of the Company from June 1992 to
October 1992 and from February 1993 to May 1994. She also served as Vice
President of International Operations from February 1994 to September 1995 and
Vice President of Business Development from October 1995 to January 1996. She
served as Chief Financial Officer for Viewpoint System Software, Inc., a
client/server tools company, from 1990 to 1992. She holds a B.S. in Accounting
from Golden Gate University.
Thomas H. Bredt has served as a member of the Board of Directors since March
1990 and as Chairman of the Board of Directors since May 1992. Mr. Bredt has
been a general partner with Menlo Ventures, a venture capital firm, from April
1986 to the present. He also serves as a director and member of the
Compensation Committee of Red Brick Systems, a data warehousing company and
Clarify, an applications software company. Mr. Bredt holds a Ph.D. in Computer
Sciences from Stanford University, an M.E.E. from New York University and a
B.S. in Engineering from the University of Michigan.
Ronald W. Braniff has served as a member of the Board of Directors since
March 1993. Mr. Braniff is a private investor and software business
consultant. Mr. Braniff served as President and Chief Executive Officer of ASK
Computer Systems, a computer systems company, from 1984 to 1989. From 1966 to
1984 he was employed by Tymshare, a networking company, and held the position
of Vice President and General Manager of the Computer Systems Division. Mr.
Braniff holds a B.S.M.E. from Oregon State University.
Andrew I. Fillat has served as a member of the Board of Directors since
January 1994. From April 1989 to the present, Mr. Fillat has been a partner
with Advent International, Corp., a management company for several venture
capital and private equity funds ("Advent") and from June 1995 to the present,
he has served as Senior Vice President with Advent. He serves as a director
and member of the Compensation and Audit Committees of Advanced Radio Telecom,
a wireless services provider company, and Lightbridge, Inc., a services and
software provider to wireless carriers. Mr. Fillat holds a B.S. and M.S. in
Electrical Engineering and Computer Science from the Massachusetts Institute
of Technology and an M.B.A. from Harvard Graduate School of Business
Administration.
All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors. There are no family relationships
between any of the directors or executive officers of the Company.
The Company's Board of Directors has established a Compensation Committee
and an Audit Committee. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, and administers various incentive compensation and
benefit plans. The Audit Committee oversees actions taken by the Company's
independent accountants and reviews the Company's internal financial controls.
DIRECTOR COMPENSATION
Members of the Company's Board of Directors do not receive compensation for
their services as directors. The Company's 1996 Director Option Plan
("Director Plan") provides that options will be granted to non-employee
directors of the Company pursuant to an automatic nondiscretionary grant
mechanism. On the effective date of the Director Plan or when the director
becomes an outside director, each of the non-employee directors will
automatically be granted an option to purchase 10,000 shares of the Company's
Common Stock at an exercise price equal to the initial public offering price.
In addition, upon joining the Board of Directors, each new non-employee
director will automatically be granted an option to purchase 10,000 shares of
Common Stock and each non-employee director will subsequently be granted an
additional option to purchase 2,500 shares of Common Stock, each such option
to be granted at the fair market value of the Common Stock on the date of
grant. In addition, the Company reimburses the reasonable travel expenses of
the directors. See "--Stock Plans--Director Option Plan."
46
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of Mr. Braniff and Mr.
Fillat. Mr. Jepson, President, Chief Executive Officer and a director of the
Company, participates in all discussions and decisions regarding salaries and
incentive compensation for all employees and consultants of the Company,
except that Mr. Jepson is excluded from discussions regarding his own salary
and incentive compensation.
EXECUTIVE COMPENSATION
The following table sets forth all compensation for services rendered in all
capacities during the fiscal year ended June 30, 1995 awarded to, earned by,
or paid to (i) the Company's Chief Executive Officer and (ii) the Company's
other most highly compensated officers whose salary and bonus for such fiscal
year exceeded $100,000 and who were serving as an officer of the Company as of
the end of such fiscal year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION (1)
------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION SALARY ($) BONUS ($) COMPENSATION (2) OPTIONS (#) COMPENSATION
------------------ ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles W. Jepson....... $175,007 $45,937 -- -- $ 680(3)
President and Chief
Executive Officer
Donald R. Gammon........ 153,984 41,250 -- 75,000 40,158(4)
Vice President of
Marketing
Gloria M. Purdy......... 128,500 85,001 -- -- 675(3)
Vice President of
International
Operations
</TABLE>
- --------
(1) Includes all compensation earned in the fiscal year ended June 30, 1995.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer for such year.
(3) Includes premiums paid by the Company on life insurance policies where the
Company was not the beneficiary.
(4) Includes premiums paid by the Company on life insurance policies where the
Company was not the beneficiary and relocation and temporary housing
expenses in the amount of $39,085 for Mr. Gammon.
47
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1995
The following table sets forth information regarding the grant of stock
options to each of the Named Executive Officers during the fiscal year ended
June 30, 1995.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF STOCK
--------------------------------------------------- PRICE
NUMBER OF PERCENTAGE OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION TERM
NAME UNDERLYING GRANTED TO (1)
---- OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------
GRANTED (2) FISCAL 1995 PER SHARE (3) DATE 5% 10%
----------- ------------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Jepson....... -- -- -- -- -- --
Donald R. Gammon........ 75,000 12% $0.55 7/19/01 $16,793 $39,135
Gloria M. Purdy......... -- -- -- -- -- --
</TABLE>
- --------
(1) This column shows the hypothetical gains or "option spreads" of the
options granted based on assumed annual compound stock appreciation rates
of 5% and 10% over the full seven-year term of the options. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of future Common Stock prices. The gains shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise of the option or the sale of the
underlying shares. The actual gains, if any, on the exercises of stock
options will depend on the future performance of the Common Stock, the
option holder's continued employment through the option period, and the
date on which the options are exercised.
(2) Options vest as to 9/48th of the option shares after nine months from the
vesting commencement date and as to 1/48th of the option shares each month
thereafter, with full vesting occurring on the fourth anniversary of the
vesting commencement date. The Board of Directors determined the market
value of the Common Stock based on various factors, including the illiquid
nature of an investment in the Common Stock, the Company's historical
financial performance, the preferences (including liquidation) of the
outstanding Series 1 Preferred Stock, the Company's future prospects and
the prices paid for securities of the Company in arm's length transactions
between third parties.
(3) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors on
the date of grant. Exercise price may be paid in cash, promissory note, by
delivery of already-owned shares subject to certain conditions, or
pursuant to a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
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<PAGE>
AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No Named Executive Officer exercised stock options during fiscal 1995. The
following table sets forth certain information regarding stock options held as
of June 30, 1995 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1995 JUNE 30, 1995 (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles W. Jepson.......... 267,187 245,813 2,671,870 2,458,130
Donald R. Gammon........... 18,750 56,250 187,500 562,500
Gloria M. Purdy............ 79,125 105,875 791,250 1,058,750
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of June 30,
1995. Accordingly, these values have been calculated on the basis of an
assumed initial public offering of $10.00 per share, less the applicable
option exercise price.
STOCK PLANS
1992 Stock Option Plan. The Company's 1992 Stock Option Plan (as amended,
the "1992 Plan") was adopted by the Board of Directors in June 1992, approved
by the Company's stockholders in July 1992 and amended in June 1996. In June
1996, the Company increased the number of shares of Common Stock reserved
under the 1992 Plan by 1,700,000 shares to 3,910,000 shares. The 1992 Plan
provides for grants of incentive stock options, restricted stock and stock
purchase rights to employees (including officers and employee directors) and
nonstatutory stock options to employees (including officers and employee
directors) and consultants of the Company. The purpose of the 1992 Plan is to
attract and retain the best available personnel to the Company and to
encourage stock ownership by employees, officers and consultants of the
Company to give them a greater personal stake in the success of the Company.
The 1992 Plan is presently being administered by the Board of Directors, which
determines optionees and the terms of options granted, including the exercise
price, number of shares subject to the option and the exercisability thereof.
The terms of options granted under the Option Plan generally may not exceed
ten years. However, the term of all incentive stock options and nonstatutory
stock options granted to an optionee who, at the time of grant, owns stock
representing more than 10% of the Company's outstanding capital stock, may not
exceed five years. The vesting of all stock option grants is determined by the
Board of Directors. Generally options granted under the 1992 Plan vest and
become exercisable starting nine months after the date of grant, with 9/48th
of the shares subject to option becoming exercisable at that time and an
additional 1/48th of such shares subject to the option becoming exercisable
each month thereafter. No option may be transferred by the optionee other than
by will or the laws of descent or distribution, and each option may be
exercised, during the lifetime of the optionee, only by such optionee. An
optionee whose relationship with the Company or any related corporation ceases
for any reason (other than by death or permanent and total disability) may
exercise options in the 30-day period following such cessation (unless such
options terminate or expire sooner by their terms) or in such longer period as
is determined by the Board of Directors. In the event of a merger of the
Company with or into another corporation, all outstanding options may either
be assumed or an equivalent option may be substituted by the surviving entity
or, if such options are not assumed or substituted, such options shall
terminate as of the date of closing of the merger. The exercise price of
incentive stock options granted under the 1992 Plan must be at least equal to
the fair market value of the shares on the date of grant. The exercise price
of nonstatutory stock options granted under the 1992 Plan is determined by the
administrator. With respect to any participant who owns stock possessing more
than 10% of the voting rights of the Company's outstanding capital stock, the
exercise price of any incentive stock option or any nonstatutory stock option
granted must equal at least 110% of the fair market value on the grant date.
The consideration for exercising any incentive stock option or any
nonstatutory stock option may consist of cash, check, promissory note,
delivery of already-owned shares of the Company's Common Stock subject to
certain conditions, delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale or loan proceeds
49
<PAGE>
required to pay the exercise price, a reduction in the amount of any Company
liability to an optionee, or any combination of the foregoing methods of
payment or such other consideration or method of payment to the extent
permitted under applicable law. No incentive stock options may be granted to a
participant, which, when aggregated with all other incentive stock options
granted to such participant, would have an aggregate fair market value in
excess of $100,000 becoming exercisable in any calendar year.
As of March 31, 1996, 120,374 shares of Common Stock had been issued upon
the exercise of options granted under the 1992 Plan, options to purchase
2,015,455 shares of Common Stock at a weighted average exercise price of $0.55
share were outstanding and 74,171 shares remained available for future option
grants. The 1992 Plan will terminate in June 2002, unless sooner terminated by
the Board of Directors.
Employee Stock Purchase Plan. The Company's 1996 Employee Stock Purchase
Plan (the "Purchase Plan") was adopted by the Board of Directors and approved
by the stockholders in June 1996. A total of 500,000 shares of Common Stock
has been reserved for issuance under the Purchase Plan. The Purchase Plan,
which is intended to qualify under Section 423 of the Internal Revenue Code of
1986, as amended, is administered by the Board of Directors or by a committee
appointed by the Board. Employees (including officers and employee directors
of the Company) are eligible to participate if they are customarily employed
for at least 20 hours per week and for more than five months in any calendar
year. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's
compensation; provided that a participant may not purchase more than $12,500
worth of shares of the Company's Common Stock during each purchase period. The
Purchase Plan will be implemented in a series of overlapping purchase periods,
each to be of approximately six months duration. The initial purchase period
under the Purchase Plan will begin on the effective date of this offering and
subsequent purchase periods will begin on the first trading day on or after
November 1 and May 1 of each year. Each participant will be granted an option
on the first day of the purchase period and such option will be automatically
exercised on the last date of each semi-annual period throughout the purchase
period. If the fair market value of the Common Stock on any purchase date is
lower than such fair market value on the start date of that purchase period,
then all participants in that purchase period will be automatically withdrawn
from such purchase period and reenrolled in the immediately following purchase
period. The purchase price of the Common Stock under the Purchase Plan will be
equal to 85% of the lesser of the fair market value per share of Common Stock
on the start date of the purchase period or on the date on which the option is
exercised. Employees may end their participation in a purchase period at any
time during that period, and participation ends automatically on termination
of employment with the Company. The Purchase Plan will terminate in June 2006,
unless sooner terminated by the Board of Directors.
Director Option Plan. The Company's 1996 Director Option Plan (the "Director
Plan") was adopted by the Board of Directors and approved by the stockholders
of the Company in June 1996. A total of 100,000 shares of Common Stock are
reserved for issuance under the Director Plan. The option grants under the
Director Plan are automatic and non-discretionary, and the exercise price of
the options is 100% of the fair market value of the Common Stock on the grant
date. The Director Plan provides for an initial grant of options to purchase
10,000 shares of Common Stock to each non-employee director of the Company (an
"Outside Director") upon the later of the effective date of the Director Plan
or when the director becomes an outside director after the effective date of
this offering. Each new non-employee director will automatically be granted an
option to purchase 10,000 shares of Common Stock upon joining the Board of
Directors. Subsequently, each Outside Director will automatically be granted
an additional option to purchase 2,500 shares of Common Stock at the next
meeting of the Board of Directors following the annual meeting of stockholders
in each year beginning with the 1997 annual meeting of stockholders, if on
such date, such Outside Director has served on the Board of Directors for at
least six months. The term of such options is ten years. The initial option
grant of 10,000 shares to an Outside Director shall vest at a rate of 1/48th
of the shares per month following the date of grant and the subsequent option
grant of 2,500 shares shall vest at the end of four year. The Director Plan
will terminate in June 2006, unless sooner terminated by the Board of
Directors.
50
<PAGE>
401(K) PLAN
Effective in September 1990, the Company adopted the 401(k) Profit Sharing
Plan (the "401(k) Plan") that covers all eligible employees of the Company. An
eligible employee may elect to defer, in the form of contributions to the
401(k) Plan, up to 15% of the total compensation that would otherwise be paid
to the employee, not to exceed approximately $9,500 per year (adjusted for
cost-of-living increases). Employee contributions are invested in selected
equity mutual funds, a guaranteed interest contract account or a money market
fund according to the directions of the employees. The contributions are fully
vested and nonforfeitable at all times. The 401(k) Plan provides for employer
contributions as determined by the Board of Directors. The Company has not
made any contributions through fiscal 1996.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Messrs. Jepson, Gammon, Berkeley, Ms. Purdy and Ms. Booth each have entered
into letter agreements with the Company which provide for severance payments
if they are terminated without cause. Messrs. Jepson, Gammon and Ms. Purdy
will be entitled to severance payments equal to six months salary, and Mr.
Berkeley and Ms. Booth will be entitled to severance payments equal to three
months salary. All of the Named Executive Officers' employment with the
Company is terminable at will.
In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by the Named Executive Officers under the 1992
Stock Option Plan will automatically accelerate in full and all unvested
shares of Common Stock held by such individuals subject to direct issuances
made under the 1992 Stock Option Plan will immediately vest in full, except to
the extent such options are to be assumed by, and the Company's repurchase
rights with respect to these shares are to be assigned to, the successor
corporation.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Delaware law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Delaware law, including in circumstances in which indemnification is otherwise
discretionary under Delaware law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than 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.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
51
<PAGE>
CERTAIN TRANSACTIONS
On December 29, 1995, the Company acquired New Era ("New Era Acquisition").
In connection with the New Era Acquisition, the Company, through a wholly-
owned Canadian acquisition subsidiary, acquired the outstanding New Era Common
Stock, Class B Preferred Stock and outstanding options. Immediately prior to
the closing of the New Era Acquisition, Mr. Dulley beneficially controlled
26,616 shares of New Era Common Stock and an option to acquire 8,230 shares of
New Era Common Stock. At the closing of the New Era Acquisition, Mr. Dulley
and his relatives collectively received $1,700,387 from the Company as
consideration for their New Era Common Stock. Pursuant to the New Era
Acquisition, Mr. Dulley and his relatives received warrants to purchase an
aggregate of 81,440 shares of the Company's Common Stock.
In January and March 1994, the Company sold 2,459,424 shares of Series 1
Preferred Stock to certain individuals and entities in a private placement
transaction at $2.75 per share. The holders of the Series 1 Preferred Stock
are entitled to certain registration rights. See "Descriptions of Capital
Stock--Registration Rights." The purchasers of the Series 1 Preferred Stock
included, among others, the following entities affiliated with directors and
underwriters of the Company's proposed initial public offering:
<TABLE>
<CAPTION>
NAME SHARES
---- ---------
<S> <C>
Entities affiliated with Menlo Ventures............................ 367,062
Entities affiliated with Advent International...................... 2,000,000
Punk, Ziegel & Knoell, L.P......................................... 23,670
</TABLE>
In December 1993, the Company granted Menlo Ventures IV, L.P. and Menlo
Evergreen V, L.P. (collectively the "Menlo Entities") warrants to purchase an
aggregate of 63,334 shares of the Company's Common Stock (collectively, the
"Menlo Warrants"). The Menlo Warrants resulted from bridge financing from the
Menlo Entities of $1,000,000 to the Company.
The Company believes that the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its 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 outside directors, and will
continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Executive Officers (See "Management--Executive Compensation"), (iv)
all executive officers and directors as a group and (v) each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
THE OFFERING (1) SHARES OFFERING (1)
----------------- BEING -----------------
NAME OF STOCKHOLDER NUMBER PERCENT SOLD NUMBER PERCENT
- ------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Entities affiliated with Menlo
Ventures (2).................... 2,436,948 32.3% -- 2,436,948 25.5%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Entities affiliated with Advent
International Corporation (3)... 2,000,000 26.5 -- 2,000,000 20.9
101 Federal Street
Boston, MA 02110
Charles W. Jepson (4)............ 418,999 5.3 -- 418,999 4.2
Gloria M. Purdy (5).............. 151,520 2.0 -- 151,520 1.6
D. Benedict Dulley (6)........... 81,440 1.1 -- 81,440 *
Donald R. Gammon (7)............. 81,249 1.1 -- 81,249 *
Augustus J. Berkeley (8)......... 74,167 * -- 74,167 *
Barbara A. Booth................. 40,000 * -- 40,000 *
Ronald W. Braniff (9)............ 30,042 * -- 30,042 *
Thomas H. Bredt (10)............. 2,436,948 32.3 -- 2,436,948 25.5
Andrew I. Fillat (11)............ 2,000,000 26.5 -- 2,000,000 20.9
All directors and executive
officers as a group
(9 persons) (12)................ 5,314,365 70.3 -- 5,314,365 51.1
Selling Stockholders as a group.. 2,990,491 39.6 2,000,000 990,491 10.4
</TABLE>
- --------
* Less than 1% of the outstanding shares.
(1) Applicable percentage of ownership is based on 7,557,249 shares of Common
Stock and a net exercise of warrants representing 150,000 shares of
Common Stock outstanding as of March 31, 1996, together with applicable
options for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of Common
Stock subject to options that are presently exercisable or exercisable
within 60 days of March 31, 1996 are deemed to be beneficially owned by
the person holding such options for the purpose of computing the
percentage of ownership of such person but are not treated as outstanding
for the purpose of computing the percentage of any other person. Assumes
over-allotment is not exercised.
(2) Includes 1,003,276 shares of Common Stock, a warrant to purchase 31,667
shares of Common Stock, and 183,531 shares of Preferred Stock held by
Menlo Ventures IV, L.P. and 1,003,276 shares of Common Stock, a warrant
to purchase 31,667 shares of Common Stock, and 183,531 shares of
Preferred stock held by Menlo Evergreen V, L.P. (collectively, "Menlo
Ventures").
(3) Includes 163,636 shares of Preferred Stock held by Adtel L.P., 90,909
held by Adventact L.P., 3,636 held by Advent International Investors II
L.P., 72,727 held by Adwest L.P., 52,770 held by Austin Venture Capital
Limited, 52,770 held by European Venture Network L.P., 1,364,107 held by
Global Private Equity II, L.P., and 199,445 held by Golden Gate
Development and Investment L.P. (collectively, "Advent International
Corporation").
53
<PAGE>
(4) Includes 418,999 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 31, 1996.
(5) Includes 151,520 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 31, 1996.
(6) Includes warrant held by Mr. Dulley and family members exercisable for
81,440 shares of the Company's Common Stock.
(7) Includes 81,249 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 31, 1996.
(8) Includes 74,167 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 31, 1996.
(9) Includes 30,042 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 31, 1996.
(10) Includes 2,373,614 shares owned by entities affiliated with Menlo
Ventures, of which Mr. Bredt is a general partner. Mr. Bredt disclaims
beneficial ownership of all such shares held by those entities, except to
the extent of his pecuniary interest therein arising from his general
partnership interests therein.
(11) Includes 2,000,000 shares owned by entities affiliated with Advent
International Corporation, of which Mr. Fillat is a general partner. Mr.
Fillat disclaims beneficial ownership of all such shares held by those
entities, except to the extent of his pecuniary interest therein arising
from his general partnership interests therein.
(12) Includes 837,417 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 31, 1996.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, $0.001 par value,
and 5,000,000 shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of March 31, 1996, there were 4,954,575 shares of Common Stock
outstanding held of record by approximately 237 stockholders. As of March 31,
1996, options to purchase an aggregate of 2,015,455 shares of Common Stock
were also outstanding. See "Management--Stock Plans."
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and have cumulative voting rights with
respect to the election of directors. The holders of Common Stock are entitled
to receive such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefor.
Upon liquidation or dissolution of the Company, the remainder of the assets of
the Company will be distributed ratably among the holders of Common Stock. The
Common Stock has no preemptive or other subscription rights and there are no
conversion rights or redemption or sinking fund provisions with respect to
such shares. All of the outstanding shares of Common Stock are, and the shares
to be sold in this offering will be, fully paid and nonassessable.
WARRANTS
As of March 31, 1996, there were outstanding warrants to purchase an
aggregate of 133,334 shares of Common Stock at an exercise price of $.45 per
share, which expire December 1998, 150,000 shares of Common Stock at an
exercise price of $.45 per share, which expire January 1999, an aggregate of
700,000 shares of Common Stock at an exercise price of $1.60 per share, which
expire December 2000, an aggregate of 162,500 shares of Preferred Stock at an
exercise price of $1.60 per share, which expire April 2003 (which will be
reduced to 125,000 upon the closing of this offering), and an aggregate of
30,000 shares of Preferred Stock at an exercise price of $2.75 per share,
which expire December 1998.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price
of, and the voting and other rights of, the holders of Common Stock. The
Company has no current plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
Following the closing of this offering, the holders of approximately
6,119,936 issued or issuable shares of Common Stock (the "Registrable
Securities"), of which 988,334 are issuable upon exercise of warrants, will be
entitled to certain rights with respect to the registration of such shares of
Common Stock under the Securities Act. Under an agreement among the Company
and holders of Registrable Securities, if the Company proposed to register any
of its Common Stock under the Securities Act, certain holders of Registrable
Securities are entitled to notice of such registration and to include their
Registrable Securities therein; provided, among other conditions, that the
underwriters have the right to limit the number of shares included in any such
registration.
55
<PAGE>
Beginning 180 days after the closing of this offering, the holders of at least
twenty-five percent (25%) of the Registrable Securities have the right to
require the Company, on not more than two occasions, to file a registration
statement under the Securities Act in order to register all or any part of
their Registrable Securities. The Company may, in certain circumstances, defer
such registration and the underwriters have the right, subject to certain
limitations, to limit the number of shares included in such registrations.
Further, the holders of Registrable Securities may require the Company to
register all or any portion of their Registrable Securities on Form S-3, when
such form becomes available to the Company, subject to certain conditions and
limitations.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying a change in the
control of the Company and may maintain the incumbency of the Board of
Directors and management. The authorization of undesignated Preferred Stock
makes it possible for the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of the Company. In addition, the Company's Bylaws
limit the ability of stockholders of the Company to raise matters at a meeting
of stockholders without giving advance notice.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying a change in the
control of the Company and may maintain the incumbency of the Board of
Directors and management. The authorization of undesignated Preferred Stock
makes it possible for the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of the Company. In addition, the Company's Bylaws
limit the ability of stockholders of the Company to raise matters at a meeting
of stockholders without giving advance notice.
The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. The Certificate of Incorporation and
the Bylaws provide that, except as otherwise required by law, special meetings
of the stockholders can only be called pursuant to a resolution adopted by a
majority of the Board of Directors, by the Chief Executive Officer of the
Company, or by stockholders holding shares in the aggregate entitled to cast
not less than 10% of the votes at that meeting.
The Bylaws establish an advance notice procedure for stockholder proposal to
be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board. Stockholders at an
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
Board or by a stockholder who was a stockholder of record on the record date
for the meeting, who is entitled to vote at the meeting and who has given to
the Company's Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
the Bylaws do not give the Board the power to approve or disapprove
stockholder nominations of candidates or proposals regarding other business to
be conducted at a special or annual meeting, the Bylaws may have the effect of
precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or defer a potential acquiror
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company.
The Certificate of Incorporation provides that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to participate in the
election of directors is required to amend, alter, change or repeal certain of
their provisions. This requirement of a supermajority vote to approve
amendments to the Certificate of Incorporation and Bylaws could enable a
minority of the Company's stockholders to exercise veto power over any such
amendments.
56
<PAGE>
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction
which the person became an "interested stockholder," unless (i) the
transaction is approved by the Board of Directors prior to the date the
interested stockholder obtained such status, (ii) 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 (a) persons who are directors and also officers and (b)
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 (iii) on or subsequent to such date
the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" is defined to include
mergers, asset sales and other transactions resulting in a financial benefit
to a stockholder. In general, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of a corporation's voting stock. The statute could prohibit or
delay mergers or other takeover or change in control attempts with respect to
the Company and, accordingly, may discourage attempts to acquire the Company.
TRANSFER AGENT
The transfer agent for the Common Stock is The Bank of Boston.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,557,249 shares of Common Stock (assuming net exercise of a single
outstanding warrant and no exercise of options after March 31, 1996). Of these
shares, the 4,000,000 shares sold in this Offering will be freely tradeable
without restriction under the Securities Act, unless purchased by "affiliates"
of the Company.
In addition to the 4,000,000 shares offered hereby, as of the effective date
of the Registration Statement (the "Effective Date"), 125,822 shares of Common
Stock will become eligible for sale in the public market in reliance on Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act").
Approximately 5,690,068 shares of Common Stock will become eligible for sale
in the public market, subject to compliance with Rules 144 and 701 under the
Securities Act, when certain 180-day lock-up agreements between the Company
and/or the Representatives and certain stockholders of the Company, including
officers, directors and Selling Stockholders, expire. In addition, holders of
warrants exercisable into an aggregate of 701,984 shares of Common Stock have
entered into 180-day lock-up agreements and no such shares may be sold 180
days after commencement of this offering upon exercise. Upon expiration of the
lock-up agreements and assuming the warrants are then exercised for cash, the
shares acquired upon exercise of the warrants, in the absence of registration,
may only be publicly resold pursuant to Rule 144. Furthermore, all of the
optionholders are subject to a 180-day lock-up period pursuant to their option
agreements and the holders of 100% of the shares of Common Stock subject to
options have entered into the same 180-day lock-up agreements as referenced
above. Montgomery Securities may, in its sole discretion, and at any time
without notice, release all or any portion of the securities subject to such
lock-up agreements.
The Company intends to file a registration statement under the Securities
Act covering approximately 4,379,275 shares of Common Stock issued or reserved
for issuance under the 1992 Stock Option Plan, the 1996 Employee Stock
Purchase Plan and the 1996 Director Option Plan. That registration statement
is expected to be filed within 90 days after the date of this Prospectus and
will automatically become effective upon filing. Accordingly, all the shares
registered under that registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, as that term is defined in the
Securities Act, be available for resale in the open market on such date. At
March 31, 1996, options to purchase 2,015,455 shares were issued and
outstanding under the 1992 Stock Option Plan, 1,083,295 of which were vested
and eligible for exercise as of that date.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years, will be entitled
to sell in any three month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(approximately 93,795 shares immediately after the offering assuming no
exercise of the Underwriters' over-allotment option) and (ii) the average
weekly trading volume of the Company's Common Stock in the Nasdaq National
Market during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission. Sales
pursuant to Rule 144 are subject to certain requirements relating to manner of
sale, notice and availability of current public information about the Company.
A person (or persons whose shares are aggregated) who is not deemed to have
been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at
least three years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations and requirements described above.
Holders of 6,429,552 shares of Common Stock of the Company have agreed with
the Company and/or the Representatives that until 180 days after the Effective
Date, they will not sell, offer to sell, contract to sell of otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase shares of Common Stock, or
any securities convertible or exchangeable for shares of Common Stock, owned
directly by such holders or with respect to which they have power of
disposition, without the prior written consent of the Company and/or
Montgomery Securities, as the case may be. The Company has agreed with the
Representatives not to release any holders from such agreements without
58
<PAGE>
the prior written consent of Montgomery Securities. The Company has also
agreed not to sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or any rights
to acquire Common Stock for a period of 180 days after the Effective Date
without the prior written consent of Montgomery Securities, subject to certain
limited exceptions including sales of shares under the Benefit Plans. The
lock-up agreements with the Representatives may be released at any time as to
all or any portion of the shares subject to such agreements at the sole
discretion of Montgomery Securities.
Prior to this offering, there has been no prior public market for the Common
Stock and there is no assurance a significant public market for the Common
Stock will develop or be sustained after this offering. Sales of substantial
amounts of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through the sale of its equity securities.
59
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Punk,
Ziegel & Knoell, L.P. and Volpe, Welty & Company (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company and the Selling Shareholders the
number of shares of Common Stock indicated below opposite their respective
names below at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent, and that the Underwriters are committed to
purchase all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities................................................
Punk, Ziegel & Knoell, L.P. .........................................
Volpe, Welty & Company...............................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the Offering, the
price and concessions and reallowances to dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 600,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 4,000,000 shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liability under the Securities Act.
Certain holders of the outstanding shares of Common Stock of the Company,
including all officers and directors of the Company, have agreed with the
Company and/or the Representatives that until 180 days after the Effective
Date, they will not sell, offer to sell, contract to sell or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase shares of Common Stock, or
any securities convertible or exchangeable for shares of Common Stock owned
directly by such holders or with respect to which they have power of
disposition, without the prior written consent of the Company and/or
Montgomery Securities, as the case may be. The Company has agreed with the
Representatives not to release any holder from such agreements without the
prior written consent of Montgomery Securities. The Company has also agreed
not to sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any rights to acquire
Common Stock for a period of 180 days after the Effective Date without the
prior written consent of Montgomery Securities, subject to certain limited
exceptions. The lock-up agreements may be released at any time as to all or
any portion of the shares subject to such agreements at the sole discretion of
Montgomery Securities.
60
<PAGE>
The Representatives have advised the Company that the Underwriters will not
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations among the Company and the Representatives.
Among the factors considered in such negotiations will be prevailing market
conditions, the net revenues and results of operations of the Company in
recent periods, market valuations of publicly traded companies that the
Company and the Representatives believe to be comparable to the Company,
estimates of business of the Company, the present state of the Company's
development and the current state of high technology industries and of the
economy as a whole. In this regard, in determining the anticipated offering
range for the Common Stock, the Underwriters considered, among other things,
the recent growth in the Company's business, the deleveraging of the Company's
balance sheet as a result of the offering, the market for network transport
products and system management applications and the current state of the
capital markets, particularly with respect to initial public offerings by
technology companies.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
Certain legal matters with respect to this Offering are being passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, San Francisco,
California.
EXPERTS
The consolidated balance sheets of the Company as of June 30, 1994 and 1995
and the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1995 included
in this Prospectus and the financial statement schedule included elsewhere in
the Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their reports appearing herein and
elsewhere in the Registration Statement and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The balance sheets of New Era as of February 28, 1994 and 1995 and the
consolidated statements of operations and deficit and cash flows for each of
the three years in the period ended February 28, 1995 included in this
Prospectus have been audited by Ernst & Young, independent accountants, as
stated in their report appearing herein and elsewhere in the Registration
Statement and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission")
in Washington D.C. with respect to the shares of Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules which may be inspected without
charge at, or copies of such material may be obtained at prescribed rates
from, the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company intends to furnish its stockholders annual reports containing
consolidated financial statements audited by its independent accountants, and
quarterly reports containing unaudited consolidated financial data for the
first three quarters of each fiscal year.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of June 30, 1994 and 1995 (Audited) and
March 31, 1996 (Unaudited)............................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1993,
1994 and 1995 (Audited) and for the nine months ended March 31, 1995 and
1996 (Unaudited)......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended June 30, 1993, 1994 and 1995 (Audited) and for the nine months
ended March 31, 1996 (Unaudited)......................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1993,
1994 and 1995 (Audited) and for the nine months ended March 31, 1995 and
1996 (Unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES AND NEW ERA SYSTEM
SERVICES LTD. AND SUBSIDIARIES PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Pro Forma Combined Condensed Consolidated Statement of Operations for the
year ended June 30, 1995 (Unaudited) and the nine months ended March 31,
1996 (Unaudited)......................................................... F-24
Notes to Pro Forma Combined Condensed Consolidated Statements of
Operations............................................................... F-27
NEW ERA SYSTEM SERVICES LTD. AND SUBSIDIARIES
Auditors' Report.......................................................... F-29
Consolidated Balance Sheets as of February 28, 1994 and 1995 (Audited) and
November 30, 1995 (Unaudited)............................................ F-30
Consolidated Statements of Operations and Deficit for the years ended
February 28, 1993, 1994 and 1995 (Audited) and for the nine months ended
November 30, 1994 and 1995 (Unaudited)................................... F-31
Consolidated Statements of Cash Flows for the years ended February 28,
1993, 1994 and 1995 (Audited) and for the nine months ended November 30,
1994 and 1995 (Unaudited)................................................ F-32
Notes to Consolidated Financial Statements................................ F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Interlink Computer Sciences, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Interlink
Computer Sciences, Inc. and Subsidiaries as of June 30, 1994 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Interlink
Computer Sciences, Inc. and Subsidiaries as of June 30, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 28, 1995
F-2
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, MARCH 31,
------------------ MARCH 31, 1996
1994 1995 1996 (NOTE 13)
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 5,738 $ 4,148 $ 5,910
Available-for-sale securities........ -- 2,525 --
Accounts receivable, net of allowance
for doubtful accounts of $334 in
1994, $279 in 1995 and $600 in 1996. 6,666 7,958 8,140
Inventories.......................... 1,343 683 639
Prepaid expenses and other current
assets.............................. 414 440 641
Income taxes receivable.............. -- -- 826
Deferred income taxes................ 174 865 1,254
-------- -------- --------
Total current assets............... 14,335 16,619 17,410
Property and equipment, net............ 1,173 1,451 1,444
Purchased software products............ -- -- 3,039
Goodwill............................... -- 248 186
Deferred income taxes.................. -- -- 1,854
Other assets........................... 345 362 225
-------- -------- --------
Total assets....................... $ 15,853 $ 20,000 $ 24,158
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Bank line of credit.................. $ 1,500 $ 1,300 $ 5,000
Current portion of long-term debt.... 394 286 2,741
Accounts payable..................... 1,880 2,249 1,745
Accrued liabilities.................. 5,065 6,151 6,149
Deferred maintenance and product
revenue............................. 5,284 6,816 8,095
-------- -------- --------
Total current liabilities.......... 14,123 16,802 23,730
Long-term debt, less current portion... 672 368 3,310
Deferred maintenance................... 62 189 986
Deferred income taxes.................. -- -- 911
Other liabilities...................... -- -- 271
-------- -------- --------
Total liabilities.................. 14,857 17,359 29,208
-------- -------- --------
Commitments and contingencies (Note 6).
Preferred stock, no par value:
Authorized: 2,625,000 shares
Issued and outstanding: 2,459,000
shares and no pro forma shares...... 6,310 6,310 6,310
Common stock, no par value:
Authorized: 15,000,000 shares
Issued and outstanding: 4,770,000
shares in 1994, 4,917,000 shares in
1995, and 4,955,000 shares in 1996
and 7,414,000 pro forma shares...... 14,095 14,167 14,580 $ 20,890
Cumulative translation adjustment...... (462) (536) (743) (743)
Accumulated deficit.................... (18,947) (17,300) (25,197) (25,197)
-------- -------- -------- --------
Total stockholders' equity
(deficit)......................... 996 2,641 (5,050) $ (5,050)
-------- -------- -------- ========
Total liabilities and stockholders'
equity (deficit).................. $ 15,853 $ 20,000 $ 24,158
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product....................... $11,914 $12,350 $15,818 $ 10,168 $ 13,196
Maintenance and consulting.... 9,271 9,525 11,261 8,370 10,506
------- ------- ------- -------- --------
Total revenues.............. 21,185 21,875 27,079 18,538 23,702
------- ------- ------- -------- --------
Cost of revenues:
Product....................... 2,679 2,380 3,316 2,355 2,283
Maintenance and consulting.... 1,387 1,430 3,293 2,347 3,319
------- ------- ------- -------- --------
Total cost of revenues...... 4,066 3,810 6,609 4,702 5,602
------- ------- ------- -------- --------
Gross profit.................... 17,119 18,065 20,470 13,836 18,100
Operating expenses:
Product development........... 5,042 6,276 6,245 5,092 3,781
Sales and marketing........... 6,638 8,384 10,792 7,443 8,857
General and administrative.... 3,272 2,561 3,329 2,557 2,888
Purchased research and
development and product
amortization................. -- -- -- -- 10,318
------- ------- ------- -------- --------
Total operating expenses.... 14,952 17,221 20,366 15,092 25,844
------- ------- ------- -------- --------
Operating income (loss)......... 2,167 844 104 (1,256) (7,744)
Other income.................... 1,000 -- -- -- --
Interest income................. 14 77 172 100 136
Interest expense................ (401) (301) (253) (200) (356)
------- ------- ------- -------- --------
Income (loss) before
income taxes and
extraordinary items...... 2,780 620 23 (1,356) (7,964)
Benefit from (provision for)
income taxes................... (953) (273) 1,624 -- 67
------- ------- ------- -------- --------
Income (loss) before
extraordinary items...... 1,827 347 1,647 (1,356) (7,897)
Extraordinary Items:
Utilization of net operating
loss carryforward............ 1,075 -- -- -- --
Gain on debt restructuring,
net of income taxes.......... -- 1,320 -- -- --
------- ------- ------- -------- --------
Net income (loss)............... $ 2,902 $ 1,667 $ 1,647 $ (1,356) $ (7,897)
======= ======= ======= ======== ========
Income (loss) per share:
Income (loss) before
extraordinary items.......... $ 0.37 $ 0.05 $ 0.17 $ (0.22) $ (1.26)
Extraordinary items:
Utilization of net operating
loss carryforward.......... $ 0.22 -- -- -- --
Gain on debt restructuring,
net of income taxes........ -- $ 0.17 -- -- --
------- ------- ------- -------- --------
Net income (loss) per share..... $ 0.59 $ 0.22 $ 0.17 $ (0.22) $ (1.26)
======= ======= ======= ======== ========
Shares used in per share
calculation.................... 4,945 7,616 9,628 6,206 6,250
======= ======= ======= ======== ========
Pro forma net loss per share.... $ (0.91)
========
Shares used in pro forma
calculation.................... 8,709
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE
---------------- -------------- TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT ADJUSTMENT DEFICIT TOTAL
------ -------- ------ ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1992. 5,793 $ 10,058 784 $ 2,839 $(329) $(23,516) $(10,948)
Conversion of
preferred stock to
common stock......... (5,793) (10,058) 388 10,058 -- -- --
Issuance of common
stock, net of
issuance costs of
$87.................. -- -- 3,559 1,159 -- -- 1,159
Exercise of stock
options.............. -- -- 21 7 -- -- 7
Translation
adjustment........... -- -- -- -- (35) -- (35)
Net income............ -- -- -- -- -- 2,902 2,902
------ -------- ----- ------- ----- -------- --------
Balances, June 30, 1993. -- -- 4,752 14,063 (364) (20,614) (6,915)
Issuance of Series 1
preferred stock, net
of issuance costs of
$470................. 2,459 6,294 -- -- -- -- 6,294
Exercise of stock
options.............. -- -- 18 6 -- -- 6
Issuance of preferred
and common stock
warrants............. -- 16 -- 26 -- -- 42
Translation
adjustment........... -- -- -- -- (98) -- (98)
Net income............ -- -- -- -- -- 1,667 1,667
------ -------- ----- ------- ----- -------- --------
Balances, June 30, 1994. 2,459 6,310 4,770 14,095 (462) (18,947) 996
Issuance of common
stock for acquisition
of Lennox and Partner
GmbH................. -- -- 84 46 -- -- 46
Issuance of common
stock................ -- -- 8 5 -- -- 5
Exercise of stock
options.............. -- -- 55 21 -- -- 21
Translation
adjustment........... -- -- -- -- (74) -- (74)
Net income............ -- -- -- -- -- 1,647 1,647
------ -------- ----- ------- ----- -------- --------
Balances, June 30, 1995. 2,459 6,310 4,917 14,167 (536) (17,300) 2,641
Issuance of common
stock for acquisition
of Lennox and Partner
GmbH................. -- -- 12 19 -- -- 19
Exercise of stock
options.............. -- -- 26 12 -- -- 12
Issuance of common
stock warrants....... -- -- -- 382 -- -- 382
Translation
adjustment........... -- -- -- -- (207) -- (207)
Net loss.............. -- -- -- -- -- (7,897) (7,897)
------ -------- ----- ------- ----- -------- --------
Balances, March 31, 1996
(unaudited)............ 2,459 $ 6,310 4,955 $14,580 $(743) $(25,197) $ (5,050)
====== ======== ===== ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------ ------------------
1993 1994 1995 1995 1996
------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $2,902 $ 1,667 $ 1,647 $ (1,356) $ (7,897)
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Purchased research and
development.................. -- -- -- -- 10,158
Depreciation and amortization. 1,707 916 1,032 935 832
Gain on debt restructuring.... -- (1,361) -- -- --
Loss on disposal of property
and equipment................ 240 -- 42 -- --
Provision for excess and
obsolete inventory........... 115 64 21 21 218
Provision for doubtful
accounts..................... 18 100 67 -- 200
Exchange (gain) loss.......... 211 (141) (406) (674) 104
Deferred income taxes......... -- (174) (2,011) -- (923)
Changes in operating assets
and liabilities:
Accounts receivable.......... (181) (3,546) (787) 1,987 591
Inventories.................. (411) (668) 409 538 (173)
Prepaid expenses and other
assets...................... (89) 55 58 (925) 244
Accounts payable............. 203 612 128 (333) (901)
Accrued liabilities.......... (866) 751 411 287 (1,055)
Deferred maintenance and
product revenue............. (1,997) 367 1,626 437 1,873
Other liabilities............ -- -- -- -- 271
------ ------- ------- -------- --------
Net cash provided by (used
in) operating activities... 1,852 (1,358) 2,237 917 3,542
------ ------- ------- -------- --------
Cash flows from investing
activities:
Acquisition of New Era, net of
cash acquired.................. -- -- -- -- (10,168)
Proceeds from sale of available-
for-sale securities............ -- -- -- -- 2,525
Acquisition of property and
equipment...................... (412) (618) (43) (43) (273)
Capitalization of software
development costs.............. (80) (334) (30) (30) --
Purchase of available-for-sale
securities..................... -- -- (2,475) (1,500) --
Acquisition of Lennox and
Partner GmbH................... -- -- (63) (52) --
------ ------- ------- -------- --------
Net cash used in investing
activities................. (492) (952) (2,611) (1,625) (7,916)
------ ------- ------- -------- --------
Cash flows from financing
activities:
Proceeds from term loan......... -- -- -- -- 3,000
Proceeds from bank line of
credit......................... -- 1,500 -- -- 5,000
Payments on capital lease
obligations.................... (258) (107) (339) (254) (206)
Payments on notes payable and
other.......................... (562) (3,164) (887) (215) (299)
Payments on bank line of credit. -- -- (200) -- (1,300)
Proceeds from notes payable to
shareholder.................... -- 1,000 -- -- --
Proceeds from issuance of
preferred and common stock,
net............................ 1,166 5,300 21 -- 31
------ ------- ------- -------- --------
Net cash provided by (used
in) financing activities... 346 4,529 (1,405) (469) 6,226
------ ------- ------- -------- --------
Net increase (decrease) in
cash and cash equivalents. 1,706 2,219 (1,779) (1,177) 1,852
Effect of exchange rate changes on
cash............................. (197) 110 189 296 (90)
Cash and cash equivalents,
beginning of period.............. 1,900 3,409 5,738 5,738 4,148
------ ------- ------- -------- --------
Cash and cash equivalents, end of
period........................... $3,409 $ 5,738 $ 4,148 $ 4,857 $ 5,910
====== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Interlink Computer Sciences, Inc. (the "Company") is a supplier of high
performance solutions for enterprise networked systems management. The Company
provides software and services which enable customers implementing
client/server systems to use their IBM and IBM-compatible MVS mainframes as
"enterprise servers" in distributed, heterogeneous client/server network
environments. The Company markets and sells its software products and services
primarily through its direct sales organization and to a lesser extent,
through international resellers and distributors to domestic and international
customers, including original equipment manufacturers. The Company's TCP/IP
products have generated substantially all of the Company's product and
maintenance and consulting revenues. During fiscal years 1993, 1994 and 1995
and the nine months ended March 31, 1996, sales of the TCP/IP products
accounted for approximately 66%, 85%, 84% and 83%, respectively, of the
Company's product revenues. Therefore, the Company's operating results,
particularly in the near term, are significantly dependent upon the continued
market acceptance of the TCP/IP products. The life cycles of the Company's
products are difficult to estimate due in part to the effect of future product
enhancements and competition. A decline in demand for the Company's products
as a result of competition, technological change or other factors would have a
material adverse affect on the Company's business, financial condition and
result of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after intercompany balances and transactions
have been eliminated.
FINANCIAL INSTRUMENTS
Cash equivalents are highly liquid investments with original or remaining
maturities of three months or less at the date of purchase. Cash equivalents
present insignificant risk of changes in value because of interest rate
changes. The Company maintains its cash balances with high credit quality
financial institutions and has not experienced any material losses relating to
any investment instruments.
Available-for-sale securities are carried at fair value, based on quoted
market prices, with the unrealized gains or losses, net of tax, reported in
shareholders' equity. The amortized cost of debt securities, which
approximated fair value at June 30, 1995 and consisted of a U.S. Treasury Note
with a six month maturity, is adjusted for amortization of premiums and
accretion of discounts to maturity, both of which are included in interest
income. At June 30, 1995, gross unrealized holding gains and losses were
insignificant. Realized gains and losses are recorded on the specific
identification method.
The amounts reported for cash equivalents, receivables and other financial
instruments are considered to approximate fair values based upon comparable
market information available at the respective balance sheet dates. Financial
instruments that potentially subject the Company to concentrations of credit
risks comprise, principally cash and cash equivalents, available-for-sale
securities, trade accounts receivable, bank lines of credit and long-term
debt. The Company invests its excess cash primarily in commercial paper and
treasury notes that mature within one year. The carrying value of the
Company's line of credit and long-term debt approximates fair value as the
interest rates are variable or the debt has been discounted at current
interest rates.
F-7
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
CONCENTRATIONS
At June 30, 1994 and 1995 and March 31, 1996, approximately 31%, 19%, and
52%, respectively, of the Company's cash and cash equivalents and available-
for-sale securities are invested in Europe with the remaining amounts invested
primarily in the United States and Canada.
At June 30, 1994 and 1995 and March 31, 1996, approximately 51%, 62%, and
60%, respectively, of the Company's trade accounts receivable are due from
customers in Europe with the remaining receivables due from customers
primarily in the United States and Canada. The Company performs ongoing
evaluations of its customers' financial condition and does not require
collateral. The Company maintains allowances for potential credit losses and
such losses have been within management's expectations.
Network access from the enterprise server to the network via the Company's
TCPaccess product requires a network controller, which the Company sells to
its customers. The Company's principal network controller, the 3762 Network
Controller, is supplied by one company. Sales of network controllers have
accounted for substantially all of the Company's hardware revenues to date,
and total hardware revenues have accounted for 27%, 23% and 25% of product
revenues in fiscal years 1993, 1994 and 1995, respectively, and 29% and 19% of
product revenues for the nine months ended March 31, 1995 and 1996,
respectively. In addition, the Company also relies upon this company for
network controller replacement parts. If the Company were unable to purchase
an adequate supply of such sole-sourced products on a timely basis, the
Company could be required to design a comparable product, qualify and develop
an alternative source, or redesign its products based upon different
components. Furthermore, IBM could use its position as a supplier of network
controllers to gain a competitive advantage over the Company. To date, the
Company has not experienced difficulty or significant delay in obtaining any
such sole-source products. However, there can be no assurance that the Company
will not face such difficulties or delays in the future. An inability of the
Company or its customers to obtain such sole-sourced controllers could
significantly delay shipment of products, which could have a material adverse
effect on the Company's business, financial condition and results of
operation.
GOODWILL
Goodwill is amortized on a straight line basis and is stated net of
accumulated amortization of $82,000 and $144,000 at June 30, 1995 and March
31, 1996, respectively.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Inventories are principally comprised of finished
goods at June 30, 1994 and 1995 and March 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line basis over estimated useful lives of three to five years.
Leasehold improvements and property under capital leases are amortized using a
straight-line basis over the shorter of their estimated useful lives or the
terms of the leases. Upon disposal, assets and related accumulated
depreciation are removed from the accounts and the related gain or loss is
included in operations.
During fiscal year 1993 the Company reevaluated the estimated useful life of
certain of its assets being depreciated over five years, primarily computer
equipment, and reduced the useful life of such assets to three years. As a
result, depreciation expense recorded in fiscal year 1993 was $312,000 greater
than if the five year useful lives had been used to depreciate these assets.
F-8
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
REVENUE RECOGNITION
Product Revenues
Product revenues are recognized after shipment of the product, completion of
a trial period, if any, and receipt of a signed contract, if remaining
obligations are insignificant, collection of the resulting receivable is
probable and product returns are reasonably estimatible. Provisions for
estimated product returns, warranty costs and insignificant vendor obligations
are recorded at the time products are shipped.
Maintenance and Consulting Revenues
Maintenance and consulting revenues consist of maintenance and renewal fees
for providing product updates, technical support and related services for
software products, and training and consulting services fees. The Company
unbundles a portion of its initial product license revenues related to
software maintenance revenues based upon the amount charged for such services
when they are sold separately. Unbundled software maintenance revenues and
revenues from separately sold maintenance contracts are recognized ratably
over the related service period. Consulting services revenues from contracts
are generally recognized on the percentage-of-completion method. Training fees
are recognized as the related services are performed.
PRODUCT DEVELOPMENT COSTS
Costs related to the conceptual formulation and design of software products
are expensed as product development while costs incurred subsequent to
establishing technological feasibility of software products are capitalized,
if material, until general release of the product. Generally, technological
feasibility is established when the software module performs its primary
functions described in its original specifications, contains convenience
features required for it to be usable in a production environment and is
completely documented. Amortization of capitalized software costs, which
begins when products are available for general release to customers, is
provided on a product-by-product basis at the greater of the amount computed
using the ratio of current revenues to the total current and anticipated
revenues or the straight-line basis over two years. During fiscal year 1995,
the Company wrote off capitalized software costs of $112,000 and in fiscal
years 1993, 1994 and 1995 capitalized software amortization was $237,000,
$154,000 and $259,000, respectively, and $250,000 and $23,000 for the nine
months ended March 31, 1995 and 1996, respectively.
ADVERTISING EXPENSE
Advertising costs are expensed when incurred. In fiscal years 1993, 1994 and
1995 advertising expense was $76,000, $171,000 and $256,000, respectively, and
$210,000 and $192,000 for the nine months ended March 31, 1995 and 1996,
respectively.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The
Company has calculated its provision for income taxes for fiscal year 1994 and
1995 in accordance with SFAS 109, but has not restated prior years (see Note
8). Under SFAS 109, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The Company's
provision for income taxes for fiscal year 1993 was calculated in accordance
with the Accounting Principles Board Opinion No. 11 (APB 11), "Accounting for
Income Taxes," which uses the deferred method. Under APB 11, the deferred
income taxes were recorded to reflect timing differences in reporting certain
items for financial statement and income tax purposes and measured at the tax
rate in effect during the year the differences originated. Investment tax
credits are accounted for on the flow through method.
F-9
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
The effect of the change on income taxes for fiscal year 1994 and the
cumulative effect of the change as of July 1, 1993 were not material.
FOREIGN CURRENCY TRANSLATION
The functional currency for the majority of the Company's foreign operations
is the applicable local currency. The translation from the applicable foreign
currency to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using the weighted average exchange rate during the period.
Adjustments resulting from such translation are reflected as a separate
component of stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in the results of operations.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares are included in the per share calculations where the effect
of their inclusion would be dilutive. Dilutive common equivalent shares
consist of the incremental common shares issuable upon conversion of
convertible preferred stock (using the "if converted" method) and stock
options and warrants, using the treasury stock method in fiscal 1993 and the
modified treasury stock method in all periods thereafter. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
and common equivalent shares issued by the Company during the twelve months
preceding the initial filing of the Company's initial public offering, using
the modified treasury stock method and the public offering price per share,
have been included in the calculation of net income (loss) per share for all
periods presented.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform
to current classifications.
RECENT PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" (SFAS 121), which requires the Company to
review the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 will become effective for the Company's 1997 fiscal
year. The Company does not expect SFAS 121 to have a material impact on the
Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
establishes a fair value based method of accounting for stock based
compensation plans. While the Company is studying the impact of the
pronouncement, it continues to account for employee stock options under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123 will be
effective for fiscal years beginning after December 15, 1995.
INTERIM FINANCIAL DATA (UNAUDITED)
The unaudited financial statements for the nine months ended March 31, 1995
and 1996 have been prepared by the Company on a basis consistent with the
Company's audited financial statements and, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the Company's operating results and financial
position, in accordance with generally accepted accounting principles. Results
for the nine months ended March 31, 1996 are not necessarily indicative of
future results.
F-10
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
2. ACQUISITIONS:
LENNOX AND PARTNER GMBH
During fiscal year 1995, the Company purchased all of the capital stock of
Lennox and Partner GmbH ("Lennox") in exchange for 84,000 shares of the
Company's common stock and cash of $63,000. Under the terms of the purchase
agreement, the Company is obligated to make future cash payments to the
sellers of $58,000 and may be obligated to make additional cash payments of up
to $232,000 and to issue up to 12,000 additional shares of the Company's
common stock to certain Lennox sellers, who after the acquisition became
employees of the Company, contingent upon cumulative profitability of the
subsidiary. The acquisition was accounted for as a purchase transaction and
the results of operations of Lennox were included with those of the Company
after July 1, 1994, the date the acquisition was consummated. During 1995, the
Company paid and expensed $60,000 related to the cumulative profitability
requirements and recorded goodwill of $330,000 related to the transaction and
is amortizing such amounts over four years. The results of operations of
Lennox were not material to those of the Company in 1994.
In December 1995, the cumulative profitability requirements specified in the
purchase agreement were met and the Company recorded an expense totaling
$216,000 related to both cash payments totaling $192,000 and the issuance of
15,000 shares of the Company's common stock with a fair value of $1.60 per
share.
NEW ERA SYSTEMS SERVICES LTD.
Effective December 29, 1995, the Company acquired all of the outstanding
stock of New Era Systems Services Ltd. ("New Era"), a Canadian company that
develops, markets and supports storage management and software distribution
products. In the transaction, the Company paid cash of approximately
$11,000,000 and issued fully exercisable warrants to purchase 700,000 shares
of its common stock at $1.60 per share with a fair value of $315,000 (see Note
7). In addition, in conjunction with the acquisition, the Company issued non-
interest bearing notes payable to the shareholders of New Era aggregating
approximately $1,300,000, net of discounts for imputed interest of $133,000
(see Note 5). These amounts resulted in a purchase price for New Era of
$13,000,000 including accruals for direct acquisition costs and severance
costs and certain duplicate facilities related to the planned closure of New
Era's European subsidiary, all totaling approximately $500,000. The
acquisition has been accounted for as a purchase transaction and the results
of operations of New Era have been included with those of the Company since
December 29, 1995, the date the acquisition was consummated.
The fair market value of the assets acquired from New Era, which was
determined through established valuation techniques used in the software
industry, and a summary of the consideration exchanged for these assets is as
follows (in thousands):
<TABLE>
<S> <C>
Total purchase price............................................... $13,001
=======
Assets acquired:
Tangible assets, primarily cash, accounts receivable, property
and equipment................................................... 3,117
Purchased software products...................................... 3,199
Purchased research and development............................... 10,158
Liabilities assumed................................................ (3,473)
-------
$13,001
=======
</TABLE>
The amount allocated to purchased software products, for which technological
feasibility had been established at the acquisition date, is being amortized
on a straight line basis over five years. At March 31, 1996,
F-11
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
accumulated amortization related to purchased software products was $160,000.
The amount of the purchase price allocated to purchased research and
development, which had no alternative future use and relates to products for
which technological feasibility had not been established, was expensed at the
acquisition date.
In addition, contingent consideration up to a total of $5,200,000 is payable
in cash on January 31, 1997 and 1998, upon the attainment of certain targeted
revenue levels for New Era software products and maintenance. These amounts
represent additional consideration paid for the acquisition of New Era, and up
to $2,700,000 will be recorded as purchased research and development and
expensed, if the products in research and development at the date of the
acquisition are still under research and development and up to $800,000 will
be recorded as purchased software products. Amounts paid in excess of amounts
allocated to purchased research and development and purchased software
products will be recorded as goodwill and amortized over the remaining life of
the goodwill, which is estimated at five years from the date of the
acquisition.
Summarized below are the unaudited pro forma results of operations of the
Company as though New Era had been acquired at the beginning of fiscal 1995.
Adjustments have been made for the estimated increases in amortization related
to purchased software, increases and decreases in interest expense and income,
respectively, and other appropriate pro forma adjustments.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1995 1996
------------ -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenue...................................... $ 29,954 $ 26,191
Net income (loss)............................ (450) 2,533
Net income (loss) per share.................. (0.07) 0.26
</TABLE>
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable and do not reflect any benefit from economies
which might be achieved from combined operations. The pro forma financial
information presented above is not necessarily indicative of either the
results of operations that would have occurred had the acquisition taken place
at the beginning of fiscal 1995 or of future results of operations of the
combined companies.
3. BALANCE SHEET DETAIL:
Property and equipment, net comprised (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment..................................... $ 6,037 $ 6,990 $ 7,934
Furniture and fixtures........................ 470 470 712
Leasehold improvements........................ 220 221 237
------- ------- -------
6,727 7,681 8,883
Less accumulated depreciation and
amortization................................. (5,554) (6,230) (7,439)
------- ------- -------
$ 1,173 $ 1,451 $ 1,444
======= ======= =======
</TABLE>
Depreciation expense was $1,041,000, $762,000, and $676,000 in fiscal years
1993, 1994 and 1995, respectively, and $584,000 and $614,000 for the nine
months ended March 31, 1995 and 1996, respectively.
F-12
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
Equipment acquired under capital leases included in property and equipment
above comprised (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------- MARCH 31,
1994 1995 1996
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment......................................... $ 487 $1,066 $1,066
Less accumulated amortization..................... (268) (488) (715)
----- ------ ------
$ 219 $ 578 $ 351
===== ====== ======
</TABLE>
Capitalized software, net, included in other assets, comprised (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------- MARCH 31,
1994 1995 1996
---- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Capitalized software................................ $334 $ 364 $ 364
Less accumulated amortization....................... (73) (332) (355)
---- ----- -----
$261 $ 32 $ 9
==== ===== =====
</TABLE>
4. BANK LINE CREDIT:
At June 30, 1995, the Company had available a line of credit with a bank
under which outstanding borrowings of $1,300,000 were collateralized by
substantially all the Company's assets. Borrowings under the line of credit
are limited to the lesser of (i) 80% of domestic accounts receivable plus 50%
of eligible foreign accounts receivable or (ii) $1,500,000, and bear interest
at the lender's prime rate plus 1.5% (10.5% at June 30, 1995). The agreement,
which expired on October 30, 1995, subjected the Company to covenants that
included maintaining certain financial ratios, minimum quarterly profitability
and restrictions on dividends, repurchase of stock, hypothecation of assets
and additional indebtedness.
At March 31, 1996, the Company had available a line of credit with a bank
under a loan agreement, which also provided for certain long-term borrowings
(see Note 5). In conjunction with such loan agreement, the Company issued
warrants to purchase up to 162,500 shares of its common stock (see Note 7). At
March 31, 1996, $6,000,000 million was outstanding under the line of credit.
In May 1996, however, the Company revised its loan agreement with the bank
decreasing the line of credit to $5,000,000 and increasing the long-term
borrowings from $2,000,000 to $3,000,000. The line of credit expires on
November 29, 1996 and is collateralized by substantially all the assets of the
Company. Borrowings under the line of credit are limited to the lesser of
(i) 85% of domestic accounts receivable plus 70% of eligible foreign accounts
receivable not to exceed $2,500,000 or (ii) $5,000,000 and bear interest at
the lender's prime rate plus 1.5% (9.75% at March 31, 1996). Under the terms
of the agreement, the Company is required to maintain a certain minimum quick
ratio and tangible net worth and maximum debt to tangible net worth, as well
as specified quarterly profitability and is restricted from paying dividends,
repurchasing stock, hypothecating assets or incurring additional indebtedness.
Accordingly, the amounts outstanding under the line of credit at March 31,
1996 have been reduced to $5,000,000 and the long-term debt increased to
$3,000,000. In conjunction with the revision of this loan agreement, the
Company issued a fully exercisable warrant to purchase 12,500 shares of its
common stock at $6.40 per share, which expires April 25, 2003, and modified
the terms of the warrant it issued to the bank for 162,500 shares of its
common stock at $1.60 per share to provide that the maximum number of common
shares exercisable under the warrant are reduced to 150,000 and in the event
the Company completes an initial public offering by October 1, 1996, the
shares of common stock exercisable under that warrant are further reduced to
125,000.
F-13
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
The weighted average interest rate on the Company's short-term borrowing was
8.4%, 10.0% and 9.9% for fiscal 1994 and 1995 and the nine months ended March
31, 1996, respectively.
5. LONG-TERM DEBT:
OUTSTANDING LONG-TERM DEBT
As of June 30, 1995 and March 31, 1996, the Company had long-term debt
outstanding as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
Note payable to bank.................................... -- $ 3,000
Capitalized lease obligations........................... $ 654 455
Notes payable to former New Era shareholders............ -- 1,328
Western Economic Development notes payable.............. -- 1,268
----- -------
654 6,051
Less current portion.................................... (286) (2,741)
----- -------
$ 368 $ 3,310
===== =======
</TABLE>
The note payable to bank bears interest at prime plus 2.5% (10.75% at March
31, 1996) and is payable in quarterly installments of principal beginning in
June 1996 with the final payment due in December 1998. The note payable, which
was issued to finance, in part, the New Era acquisition, is subject to the
same loan agreement described in Note 4 above for the March 31, 1996 note
payable.
The Company has leased equipment under capital lease obligations maturing
through fiscal year 2000. The lease agreements require the Company to maintain
liability and property insurance.
The notes payable to the former New Era shareholders were issued in
conjunction with the acquisition of New Era and are non-interest bearing,
unsecured and due on January 2, 1997. The notes payable are recorded net of a
discount of $100,000 at March 31, 1996, which reflects the estimated interest
to maturity at a rate of 10%, the interest rate at which other short-term
borrowings were available to the Company at the time of the acquisition.
The Western Economic Development notes payable, which were assumed in
conjunction with the Company's acquisition of New Era, are unsecured, non-
interest bearing and are due in quarterly payments through June 2005. The
notes payable are recorded net of a discount of $636,000 at March 31, 1996
based on the Company's borrowing rate of 11%, the interest rate at which long-
term borrowings were available to the Company at the time of acquisition. In
addition, accelerated principal payments are required each quarter under these
notes payable beginning in June 1996. These accelerated principal payments are
calculated as 14% of quarterly HARBOR revenues in excess of approximately
$600,000. Under the terms of these notes, the Company is required to maintain
minimum equity in its Canadian subsidiary, is restricted from paying dividends
and must continue to conduct certain product development operations in Western
Canada until the notes are fully repaid.
F-14
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
Future minimum annual payments due under the long-term debt and the capital
lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
FISCAL YEAR 1995 1996
----------- -------- -----------
(UNAUDITED)
<S> <C> <C>
1996................................................... $ 346 $ 386
1997................................................... 270 2,938
1998................................................... 101 1,315
1999................................................... 17 1,002
2000................................................... 14 1,223
----- -------
748 6,864
Less amount representing interest...................... (94) (813)
----- -------
654 6,051
Less current portion................................... (286) (2,741)
----- -------
$ 368 $ 3,310
===== =======
</TABLE>
DEBT RESTRUCTURING
During fiscal year 1994, the Company exchanged borrowings of approximately
$5,000,000 for a cash payment of $3,000,000, a warrant to purchase 150,000
shares of the Company's common stock at $0.45 per share (see Note 7) and a
note payable of $495,000 and recorded an extraordinary gain related to the
debt restructuring of $1,320,000 net of income taxes of $41,000. This gain
represented the difference between the recorded amount of the debt prior to
the restructuring less cash paid, the estimated fair value of the warrants and
the note payable including all estimated interest payments through January 1,
1997. During fiscal year 1995, the Company paid the remaining $495,000 note
payable to the bank.
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases its facilities and certain equipment under various
operating leases with terms ranging from month-to-month to five years. Under
the terms of these leases, the Company is also responsible for taxes,
insurance and utilities.
The minimum future annual rental payments as of June 30, 1995 and March 31,
1996 under leases with initial or remaining non-cancelable lease terms longer
than one year are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
FISCAL YEAR 1995 1996
----------- -------- -----------
(UNAUDITED)
<S> <C> <C>
1996................................................... $1,361 $ 447
1997................................................... 1,178 1,733
1998................................................... 636 1,112
1999................................................... 49 510
2000................................................... -- 466
Thereafter............................................. -- 233
------ ------
Total minimum lease payments........................... $3,224 $4,501
====== ======
</TABLE>
Rent expense was $1,454,000, $1,318,000 and $1,668,000 in fiscal years 1993,
1994 and 1995, and $1,307,000 and $1,244,000 and for the nine months ended
March 31, 1995 and 1996, respectively. Sublease rental income was $116,000 and
$9,000 in fiscal years 1993 and 1994, respectively. The Company's sublease
expired during fiscal year 1994.
F-15
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
CONTINGENCY
The Company and the Company's subsidiary in France are involved in a
commercial dispute with a former Italian distributor of the Company's
TCPaccess products. The former distributor alleged in a letter sent to the
Company that the Company had breached and unlawfully terminated the agreement
pursuant to which the former distributor was appointed a distributor of the
Company's products in Italy and asserted other related claims against the
Company. The letter demanded the former distributor's reinstatement as a
distributor, the execution of a written distribution agreement setting forth
the distribution arrangements between the parties, and compensation in an
unspecified amount to be paid to the former distributor for the harm that it
has suffered. The Company's Canadian subsidiary, New Era, has also used the
former distributor as a distributor of the HARBOR products in Italy pursuant
to a separate agreement and may or may not continue to do so in the future. No
legal claim has been filed nor has arbitration been invoked by the former
distributor regarding this matter. No provision for any liability that may
result upon resolution of this matter has been made in the accompanying
financial statements. Should the former distributor initiate legal proceedings
and prevail on such claims, the Company's business, financial condition and
results of operations could be materially adversely affected.
FOREIGN EXCHANGE CONTRACTS
The Company had a foreign exchange contract outstanding with a notional
amount of $158,000 at June 30, 1995. Risk equal to the notional amount of the
contract arises from the possible inability of the counter party to meet the
terms of this contract. The other party to this contract is a major financial
institution. The Company does not expect any significant losses as a result of
default by the other party. The cash requirement under this foreign exchange
contract was not significant. Gains and losses resulting from this contract
are insignificant and are recorded in general and administrative expense.
MANAGEMENT AND KEY EMPLOYEE COMPENSATION AGREEMENTS
The Company has agreements with certain members of management that provide
for the immediate acceleration of the exercisability of the options to
purchase the Company's common stock held by these individuals and for cash
bonuses if there is any reorganization, merger, or acquisition that results in
a change in the Company's ownership by at least 50%. Under these agreements,
the amount of additional compensation to be paid to each of these employees
would be determined based on a formula which considers the purchase price paid
for the Company and the amounts the preferred shareholders are entitled to
receive through liquidation preferences. All of these agreements terminate
immediately prior to the closing of an underwritten public offering of the
Company's common stock registered under the Securities Act of 1933, as
amended.
7. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
The Board of Directors has the authority to issue preferred stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation
of such series, without any further vote or action by the Company's
stockholders.
The Company's Series 1 preferred stock is initially convertible into common
stock, on a one for one basis, subject to certain antidilution adjustments.
Conversion is at the option of the holder, or is automatic upon the
F-16
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
earlier of the closing of a public offering of the Company's common stock at a
price of not less than $6.875 per share and an aggregate gross offering price
to the public of not less than $10,000,000 or upon the election of 50% of the
holders of the Series 1 preferred stock. The holders of preferred stock have
voting rights equal to the number of shares of common stock into which the
preferred stock is convertible. Further, holders of a certain majority of the
outstanding shares of the Series 1 preferred stock must approve a merger or
sale of substantially all the assets of the Company or amendments of the
Articles of Incorporation. The preferred stockholders are entitled to elect
two members of the Board of Directors.
In the event of liquidation or merger, or upon the election of 50% of the
holders of the Series 1 preferred stock, the holders of the Series 1 preferred
stock are entitled to receive an initial preference amount of $2.75 per share
and all declared but unpaid dividends. Thereafter, the property and/or cash
shall be distributed 50% among the holders of Series 1 preferred stock and 50%
to the holders of common stock until the holders of the Series 1 preferred
stock have received $6.875 per share. Remaining assets shall be distributed to
the common stockholders until each has received $6.875 per share and then
ratably among the common and preferred stockholders, with the preferred
stockholders sharing on an as converted basis.
The holders of Series 1 preferred stock are entitled to receive a non-
cumulative dividend of $0.19 per share, per annum, payable when, as and if
declared by the Board of Directors. The holders of the Series 1 preferred
stock also have certain registration rights.
INCENTIVE STOCK OPTION PLAN
The Company terminated its 1988 Stock Option Plan and replaced it with a
1992 Stock Option Plan ("1992 Plan") under which 1,950,000 shares of common
stock were reserved for issuance at June 30, 1995. During the nine months
ended March 31, 1996, the Company reserved an additional 260,000 shares of
common stock under the 1992 Plan. All stock options outstanding or available
for grant under the 1988 Stock Option Plan were canceled or terminated,
respectively. Under the 1992 Plan, incentive stock options may be granted to
employees, officers and directors and non-statutory stock options to
employees, officers, directors or consultants at prices not lower than 100%
and 85%, respectively of the fair market value of the Company's common stock
at the date of grant as determined by the Board of Directors. Furthermore, the
1992 Plan provides that options are exercisable within the times, or upon the
events determined by the Board of Directors, or by a committee of the Board
appointed to administer the 1992 Plan, and are exercisable no later than seven
years from the date of grant. Generally, options become exercisable as to 9/48
after nine months from the date of grant and ratably thereafter over three
years and three months. Options to purchase 175,500 shares of the Company's
common stock with an exercise price of $0.55 per share, however, become
exercisable on the earlier to occur of the achievement of specified
performance milestones or five years from the date of grant.
F-17
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
Option activity under the plan for the fiscal years 1993, 1994, and 1995 and
the nine months ended March 31, 1996 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS ----------------------------------
AVAILABLE EXERCISE
FOR GRANT SHARES PRICE AMOUNT
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, June 30, 1992......... 94,339 124,611 $6.00-$3.00 $ 1,664,000
Options terminated or canceled
under the 1988 plan............ (94,339) (124,611) $6.00-$3.00 (1,664,000)
Options reserved................ 1,000,000 -- -- --
Options granted................. (944,290) 944,290 $0.35 331,000
Options exercised............... -- (20,980) $0.35 (7,000)
Options canceled................ 83,220 (83,220) $0.35 (29,000)
--------- --------- -----------
Balances, June 30, 1993......... 138,930 840,090 $0.35 295,000
Options reserved................ 800,000 -- -- --
Options granted................. (696,700) 696,700 $0.35-$0.55 348,000
Options exercised............... -- (18,366) $0.35 (6,000)
Options canceled................ 131,747 (131,747) $0.35-$0.45 (47,000)
--------- --------- ----------- -----------
Balances, June 30, 1994......... 373,977 1,386,677 $0.35-$0.55 590,000
Options reserved................ 150,000 -- -- --
Options granted................. (626,965) 626,966 $0.55 345,000
Options exercised............... -- (55,596) $0.35-$0.55 (21,000)
Options canceled................ 365,592 (365,592) $0.35-$0.55 (170,000)
--------- --------- ----------- -----------
Balances, June 30, 1995......... 262,604 1,592,455 $0.35-$0.55 744,000
Options reserved................ 260,000 -- -- --
Options granted................. (554,250) 554,250 $0.55-$2.00 428,000
Options exercised............... -- (25,433) $0.35-$0.55 (12,000)
Options canceled................ 105,817 (105,817) $0.35-$0.55 (55,000)
--------- --------- ----------- -----------
Balances, March 31, 1996
(unaudited).................... 74,171 2,015,455 $0.35-$2.00 $ 1,105,000
========= ========= =========== ===========
</TABLE>
At June 30, 1995 and March 31, 1996, 646,310 and 1,083,295 outstanding
options, respectively, were exercisable.
WARRANTS
The Company issued fully exercisable warrants to purchase the following
types of stock with the terms indicated:
<TABLE>
<CAPTION>
NUMBER EXERCISE
TYPE OF STOCK OF SHARES PRICE EXERCISE PERIOD
------------- --------- -------- ---------------
<C> <C> <C> <S>
As of June 30, 1995:
through December 15,
Series 1 preferred......................... 30,000 $2.75 1998
through December 15,
Common..................................... 133,334 $0.45 1998
Common..................................... 150,000 $0.45 through January 27, 1999
As of March 31, 1996 (unaudited):
through December 15,
Series 1 preferred......................... 30,000 $2.75 1998
through December 15,
Common..................................... 133,334 $0.45 1998
Common..................................... 150,000 $0.45 through January 27, 1999
through December 29,
Common..................................... 700,000 $1.60 2000
through December 28,
Common..................................... 162,500 $1.60 2002
</TABLE>
F-18
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
The warrant for 150,000 shares of common stock expires earlier than January
27, 1999 if the Company closes an initial public offering at a specified price
per share and the gross proceeds are at least $10,000,000 or upon a merger or
reorganization. As of June 30, 1995 and March 31, 1996, the Company has
reserved 30,000 shares of its Series 1 preferred stock for exercise of these
warrants and 313,334 shares and 1,175,834 shares, respectively, of its common
stock.
8. INCOME TAXES:
Income (loss) applicable to domestic and foreign income taxes follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
--------------------
1993 1994 1995
------ ------ ----
<S> <C> <C> <C>
Domestic............................................... $3,390 $1,841 $ 73
Foreign................................................ (610) (140) (50)
------ ------ ----
$2,780 $1,981 $ 23
====== ====== ====
</TABLE>
Benefit from (provision for) income taxes comprises (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1993 1994 1995
------- ----- ------
<S> <C> <C> <C>
Current:
Federal (net of benefit of operating loss
carryforward of $737 in 1994 and $600 in 1995)... $ (73) $ (45) $ (580)
State (net of benefit of operating loss
carryforward of $64 in 1994 and $44 in 1995)..... (18) (25) --
Foreign........................................... (10) (70) 193
------- ----- ------
(101) (140) (387)
------- ----- ------
Deferred:
Federal........................................... -- -- 1,091
State............................................. -- -- 100
Foreign........................................... 223 (174) --
------- ----- ------
223 (174) 1,191
------- ----- ------
Decrease in valuation allowance..................... -- -- 820
------- ----- ------
Charge equivalent to utilization of tax
carryforwards...................................... (1,075) -- --
------- ----- ------
$ (953) $(314) $1,624
======= ===== ======
</TABLE>
Benefit from (provision for) income taxes relates to (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
--------------------
1993 1994 1995
----- ----- ------
<S> <C> <C> <C>
Operations............................................. $(953) $(273) $1,624
Gain on debt restructuring............................. -- (41) --
----- ----- ------
$(953) $(314) $1,624
===== ===== ======
</TABLE>
F-19
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
The components of the deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1994 1995
------- ------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable................ $ 134 $ 112
Allowance for excess and obsolete inventories............. 11 26
Depreciation.............................................. 440 707
Accrual for warranty, royalties and other................. 316 1,116
Net operating loss carryforwards.......................... 866 949
Tax credit carryforwards.................................. 150 198
------- ------
Total deferred tax assets............................... 1,917 3,108
Valuation allowance......................................... (1,743) (923)
------- ------
Net deferred tax assets................................. $ 174 $2,185
======= ======
</TABLE>
The valuation allowance decreased $820,000 in fiscal year 1995, primarily
due to the fact that management believes it is more likely than not that a
portion of the deferred tax asset will be realized in the next two fiscal
years primarily because of its expectation that both the Company and certain
of its subsidiaries will be profitable in fiscal years 1996 and 1997. At
December 31, 1995, the Company reduced its valuation allowance and recorded
the full amount of its net deferred tax assets, primarily because management
believes that it is more likely than not that the Company will have continued
profitability.
The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the (provision for) benefit from
income taxes reflected in the statements of operations are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1993 1994 1995
------ ----- ------
<S> <C> <C> <C>
Unites States statutory rate......................... $ (945) $(674) $ (8)
State taxes, net of federal benefit.................. (139) (20) (1)
Foreign taxes, net................................... 222 (257) 193
Utilization of operating loss carryforwards.......... 1,075 674 644
Change in valuation allowance........................ -- -- 820
Charge equivalent to utilization of tax
carryforwards....................................... (1,075) -- --
Alternative minimum tax.............................. (91) (37) --
Other................................................ -- -- (24)
------ ----- ------
$ (953) $(314) $1,624
====== ===== ======
</TABLE>
The Company has net operating loss and general business tax credit
carryforwards for federal income tax purposes which may be used to reduce
future taxable income, if any, and federal income tax liability, respectively.
The years in which these carryforwards expire and their amounts as of June 30,
1995 are as follows:
<TABLE>
<CAPTION>
EXPIRATION
DATE AMOUNTS
------------ ----------
<S> <C> <C>
U.S. federal net operating loss carryforwards....... Through 2007 $1,800,000
Foreign net operating loss carryforwards............ None 600,000
General business tax credit carryforwards........... Through 2010 175,000
California state regular tax operating loss
carryforwards...................................... Through 2000 500,000
</TABLE>
F-20
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
The Tax Reform Act of 1986 substantially changed the rules relating to net
operating loss and tax credit carryforwards in the case of an ownership change
of a corporation. The Company had such an ownership change, as defined, which
has limited the amount of net operating loss carryforwards that can be used in
any one year to approximately $135,000.
9. SEGMENT INFORMATION:
The Company is engaged in the design, programming, marketing and servicing
of software which provides solutions for enterprise networked systems
management. Its business falls into one industry segment. No one customer
accounted for more than 10% of consolidated annual revenues in fiscal 1993,
1994 and 1995 or in the nine months ended March 31, 1995 and 1996. The
distribution of revenues between the United States, Canadian and European
operations follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers:
United States................ $13,190 $13,987 $16,107 $ 11,137 $ 13,628
Canada....................... -- -- -- -- 583
Europe....................... 7,995 7,888 10,972 7,401 9,491
Transfer from U.S. to Europe. 3,884 4,243 5,221 3,266 4,798
Eliminations................. (3,884) (4,243) (5,221) (3,266) (4,798)
------- ------- ------- -------- --------
Consolidated................... $21,185 $21,875 $27,079 $ 18,538 $ 23,702
======= ======= ======= ======== ========
</TABLE>
The Company assembles its systems domestically and then sells these systems
to its European subsidiaries for distribution in the European market. Internal
selling prices are designed to allocate operating profits to the operating
entity, with sales and service profits to the sales and service entities.
Consolidated income from operations comprised (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE NINE MONTHS ENDED
30, MARCH 31,
------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ---- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States........................ $3,390 $1,841 $73 $575 $4,313
Canada............................... -- -- -- -- (10,668)
Europe............................... (610) 140 (50) (1,831) (1,389)
------ ------ --- -------- --------
$2,780 $1,981 $23 $(1,256) $(7,744)
====== ====== === ======== ========
</TABLE>
Consolidated total assets comprised (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
United States.................................... $ 9,630 $12,373 $12,562
Canada........................................... -- -- 2,946
Europe........................................... 6,223 7,627 8,650
------- ------- -------
$15,853 $20,000 $24,158
======= ======= =======
</TABLE>
Export sales were $349,000, $276,000 and $440,000 in fiscal years 1993, 1994
and 1995 and $277,000 and $140,000 for the nine months ended March 31, 1995
and 1996, respectively.
F-21
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
10. SUPPLEMENTAL CASH FLOW DISCLOSURES (IN THOUSANDS):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE ENDED
30, MARCH 31,
---------------- ------------
1993 1994 1995 1995 1996
---- ------ ---- ---- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid................................... $455 $ 329 $309 $241 $ 329
Income taxes paid............................... $ 60 $ 106 $ 14 -- $ 228
Noncash transactions from investing and
financing activities:
Property and equipment acquired from capital
lease obligations............................ $ 49 $ 267 $678 $678 --
Exchange of 363,636 shares of Series 1
preferred stock for a note payable due to a
common shareholder........................... -- $1,000 -- -- --
Issuance of preferred and common stock
warrants..................................... -- $ 42 -- -- $ 67
Issuance of common stock for acquisition of
Lennox and Partner GmbH...................... -- -- $ 46 $ 46 --
Issuance of common stock in lieu of recruiting
expenses..................................... -- -- $ 5 -- --
Reclassification of inventory as rental
equipment under property and equipment....... -- -- $230 -- --
Acquisition of New Era (see Note 2):
Assets acquired, excluding cash............. -- -- -- -- $ 2,330
Liabilities assumed......................... -- -- -- -- (3,473)
Purchased software products................. -- -- -- -- 3,199
Purchased research and development.......... -- -- -- -- 10,158
Notes payable issued to former New Era
stockholders (see Note 5).................. -- -- -- -- (1,328)
Accrued liabilities for acquisition costs... -- -- -- -- (403)
Issuance of common stock warrants........... -- -- -- -- (315)
-------
Net cash payments......................... -- -- -- -- $10,168
=======
</TABLE>
11. OTHER INCOME:
In June 1993, the Company amended a development agreement with a major U.S.
corporation under which its remaining obligations were terminated, and the
title to a certain technology was transferred to the corporation in exchange
for $1,000,000.
12. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) Profit Sharing Plan (the "Plan") qualified under
Section 401(k) of the Internal Revenue Code of 1986. All full-time U.S.
employees are eligible to participate in the Plan.
Each eligible employee may elect to contribute to the Plan up to 15% of the
employee's annual compensation. The Company, at the discretion of its board of
directors, may make matching contributions to the Plan but has not done so for
fiscal years 1993, 1994 and 1995 and the nine months ended March 31, 1995 and
1996.
13. PRO FORMA FINANCIAL STATEMENT INFORMATION:
Upon the closing of the Company's initial public offering, each outstanding
share of the Company's preferred stock will be converted automatically to
common stock. The pro forma effect of the conversion has been presented as a
separate column in the Company's balance sheet assuming the conversion had
occurred as of March 31, 1996.
F-22
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and thereafter is unaudited)
Pro forma net loss per share has been presented for the nine months ended
March 31, 1996 to depict what the net loss per share would have been had the
common shares issuable upon the conversion of the outstanding Series 1
preferred stock been outstanding during such period.
14. SUBSEQUENT EVENTS:
In June 1996, the Company adopted the 1996 Employee Stock Purchase Plan (the
"Purchase Plan") and a total of 500,000 shares of common stock has been
reserved for issuance under the Purchase Plan. Employees (including officers
and employee directors of the Company) are eligible to participate if they are
customarily employed for at least 20 hours per week and for more than five
months in any calendar year. The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions, which may not exceed 15% of
any employee's compensation. The purchase price of the common stock under the
purchase Plan will be equal to 85% of the lesser of the fair market value per
share of common stock on the start date of the purchase period or on the date
on which the option is exercised. The Purchase Plan will terminate in June
2006, unless sooner terminated by the Board of Directors.
In June 1996, the Company adopted the 1996 Director Option Plan (the
"Director Plan") under which a total of 100,000 shares of common stock are
reserved for issuance. The option grants under the Director Plan are automatic
and non-discretionary, and the exercise price of the options is 100% of the
fair market value of the common stock on the grant date. The Director Plan
provides for an initial grant of options to purchase 10,000 shares of common
stock to each non-employee director of the Company (an "Outside Director")
upon the effective date of this offering at a per share exercise price equal
to the initial public offering price. Each new non-employee director will
automatically be granted an option to purchase 10,000 shares of common stock
upon joining the Board of Directors. Subsequently, each Outside Director will
automatically be granted an additional option to purchase 2,500 shares of
common stock at the next meeting of the Board of Directors following the
annual meeting of shareholders in each year beginning with the 1997 annual
meeting of shareholders, if on such date, such Outside Director has served on
the Board of Directors for at least six months. The term of such options is
ten years.
In June 1996, the Company's Board of Directors, subject to stockholder
approval, authorized the reincorporation of the Company in Delaware. As part
of this reincorporation, the outstanding shares of the predecessor California
corporation's common stock and all classes of its preferred stock will be
converted automatically into shares of the new Delaware corporation's common
stock and its preferred stock on a one-for-one basis. As a result of the
reincorporation, the Company's authorized common stock will increase to
25,000,000 shares, with a par value of $.001 per share, and, subject to the
conversion of all outstanding preferred stock upon the completion of the
initial public offering, the Company will be authorized to issue 5,000,000
shares of undesignated preferred stock.
In June 1996, the Company increased the number of shares of common stock
reserved under the 1992 Plan by 1,700,000 shares to 3,910,000 shares (see Note
7).
In May 1996, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public.
F-23
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
AND
NEW ERA SYSTEM SERVICES LTD.
PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
On December 29, 1995, Interlink Computer Sciences, Inc. and Subsidiaries
("Interlink" or the "Company") acquired New Era Systems Services Ltd ("New
Era") and its HARBOR product line in exchange for cash and notes payable
totaling $12,400,000 and warrants to purchase 700,000 shares of its Common
Stock with additional contingent earnout payments totaling up to $5,200,000
due January 31, 1997 and 1998. HARBOR is an enterprise level software product
line providing systems management functions such as backup, restore, and
distribution for centralized network management.
The following unaudited pro forma financial statements give effect to the
acquisition of substantially all of the assets and liabilities of New Era by
Interlink as if such acquisition had taken place as of July 1, 1994.
The accompanying unaudited pro forma combined condensed consolidated
statement of operations for the year ended June 30, 1995 combines the
historical consolidated results of operations of the Company for the year
ended June 30, 1995 and the historical statement of operations of New Era for
the year ended February 28, 1995 as if the acquisition had occurred on July 1,
1994. The accompanying unaudited pro forma combined condensed consolidated
statement of operations for the nine months ended March 31, 1996 combines the
unaudited historical consolidated statement of operations of the Company for
the nine months ended March 31, 1996 and the historical statement of
operations of New Era for the six months ended November 30, 1995 as if the
acquisition had occurred on July 1, 1994. The results of operations of New Era
are only included for the six months ended November 30, 1995 as Interlink's
historical results of operations for the nine months ended March 31, 1996
include the results of New Era since the date of acquisition on December 29,
1995. The unaudited pro forma combined condensed consolidated statements of
operations give effect to the acquisition using the purchase method of
accounting based upon allocation of the purchase price of New Era, and the
adjustments described in the notes attached hereto.
The pro forma combined information is not necessarily indicative of future
operations or the actual results that would have occurred had the acquisition
been consummated at the beginning of the periods presented. The pro forma
combined information and related adjustments are based upon available
information and upon certain assumptions which the Company believes are
reasonable. The pro forma combined condensed consolidated statements of
operations should be read in conjunction with the Company's and New Era's
historical financial statements and notes thereto incorporated by reference or
contained elsewhere herein.
Certain line items are reclassified in order to remain consistent with the
Company's financial presentation. The pro forma combined information is
presented in U.S. dollars.
F-24
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
AND
NEW ERA SYSTEM SERVICES LTD.
PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
INTERLINK, NEW ERA,
YEAR ENDED YEAR ENDED PRO FORMA
JUNE 30, FEBRUARY 28, ADJUSTMENTS PRO FORMA
1995 1995 (SEE NOTE 2) COMBINED
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
Product...................... $15,818 $ 1,725 $17,543
Maintenance and consulting... 11,261 1,150 12,411
------- ------- -------
Total revenue.............. 27,079 2,875 29,954
------- ------- -------
Cost of revenues:
Product...................... 3,316 50 3,366
Maintenance and consulting... 3,293 380 3,673
------- ------- -------
Total cost of revenue...... 6,609 480 7,039
------- ------- -------
Gross profit................... 20,470 2,445 22,915
Operating expenses
Product development.......... 6,245 1,006 7,251
Sales and marketing.......... 10,792 1,875 12,667
General and administrative... 3,329 664 3,923
Amortization of intangibles.. -- -- $ 640 (B) 640
------- ------- ------- -------
Total operating expenses... 20,366 3,545 640 24,551
------- ------- ------- -------
Operating income (loss)........ 104 (1,100) (640) (1,636)
Other income (expense), net.... -- 61 -- 61
Interest income................ 172 -- (172)(D) --
Interest expense............... (253) (14) (984)(C) (1,251)
------- ------- ------- -------
Income (loss) before
benefit for income taxes. 23 (1,053) (1,796) (2,896)
Benefit from (provision for)
income taxes.................. 1,624 (18) 750 (E) 2,376
------- ------- ------- -------
Net income (loss)........ $ 1,647 $(1,071) $(1,046) $ (450)
======= ======= ======= =======
Net income (loss) per share.... $ 0.17 $ (0.07)
======= =======
Shares used in per share
calculations.................. 9,628 6,217
======= =======
</TABLE>
See the accompanying notes to Pro Forma Combined Condensed Consolidated
Statements of Operations (unaudited).
F-25
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
AND
NEW ERA SYSTEM SERVICES LTD.
PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
INTERLINK, NEW ERA,
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA
MARCH 31, NOVEMBER 30, ADJUSTMENTS PRO FORMA
1996 1995 (SEE NOTE 2) COMBINED
----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
Product.................. $13,196 $2,473 $ (731)(F) $14,938
Maintenance and
consulting.............. 10,506 1,060 (313)(F) 11,253
------- ------ ------- -------
Total revenue.......... 23,702 3,533 (1,044) 26,191
------- ------ ------- -------
Cost of revenues:
Product.................. 2,283 60 (20)(F) 2,323
Maintenance and
consulting.............. 3,319 367 (120)(F) 3,566
------- ------ ------- -------
Total cost of revenue.. 5,602 427 (140) 5,889
------- ------ ------- -------
Gross profit............... 18,100 3,106 904 20,302
Operating expenses
Product development...... 3,781 813 (389)(F) 4,205
Sales and marketing...... 8,857 829 (206)(F) 9,480
General and
administrative.......... 2,888 440 (200)(F) 3,128
Purchased research and
development............. 10,158 -- (10,158)(A) --
Amortization of
intangibles............. 160 -- 320 (B) 480
------- ------ ------- -------
Total operating
expenses.............. 25,844 2,082 (9,363) 17,293
------- ------ ------- -------
Operating income (loss).... (7,744) 1,024 9,729 3,009
Other income (expense),
net....................... -- (92) -- (92)
Interest income............ 136 -- (90)(D) 46
Interest expense........... (356) (4) (504)(C)(F) (864)
------- ------ ------- -------
Income (loss) before
benefit from
(provision for)
income taxes......... (7,964) 928 9,135 2,099
Benefit from (provision
for) income taxes......... 67 (15) 382 (E)(F) 434
------- ------ ------- -------
Net income (loss).... $(7,897) $ 913 $ 9,517 $ 2,533
======= ====== ======= =======
Net income (loss) per
share..................... $ (1.26) $ 0.26
======= =======
Shares used in per share
calculations.............. 6,250 9,770
======= =======
</TABLE>
See the accompanying notes to Pro Forma Combined Condensed Consolidated
Statements of Operations (unaudited).
F-26
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
AND
NEW ERA SYSTEM SERVICES LTD.
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
1. PURCHASE PRICE ALLOCATION:
The following outlines the current estimates for the purchase price of the
acquisition of New Era. Management believes that there will be no material
adjustments to this allocation, which is based on an independent appraisal of
the assets purchased and liabilities assumed as follows (in thousands):
<TABLE>
<S> <C>
Purchased research and development.................................. $10,158
Purchased software products......................................... 3,199
-------
13,357
Net book value of tangible assets acquired, net of liabilities
assumed............................................................ 356
-------
$13,001
=======
</TABLE>
In addition, contingent consideration up to a total of $5,200,000 is payable
in cash on January 31, 1997 and 1998, upon the attainment of certain targeted
revenue levels for New Era software products and maintenance. These amounts
represent additional consideration paid for the acquisition of New Era and up
to $2,700,000 will be recorded as purchased research and development and
expensed, if the products in research and development at the date of the
acquisition are still under research and development, and up to $800,000 will
be recorded as purchased software products. Amounts paid in excess of amounts
allocated to purchased research and development and purchased software
products will be recorded as goodwill and amortized over the remaining life of
the goodwill, which is estimated at five years from the date of the
acquisition.
2. PRO FORMA ADJUSTMENTS:
To reflect (i) the amortization and depreciation resulting from the
allocation of the New Era purchase price to the assets acquired based on their
fair value, as determined by the management of Interlink and an independent
appraiser, (ii) the changes in interest income and expense resulting from the
reduction in cash and cash equivalents and additional borrowings,
respectively, and (iii) the income tax impact of the foregoing, certain pro
forma adjustments have been made to the accompanying pro forma combined
condensed consolidated statements of operations, assuming that the purchase
took place on July 1, 1994, as follows:
(A) Elimination of a non-recurring charge of $10,158,000 for purchased
research and development. Due to the non-recurring nature of the purchased
research and development, it has been assumed to have been charged to
operations before the beginning of the pro forma periods.
(B) Records the amortization of purchased software over five years as if the
acquisition occurred on July 1, 1994 resulting in amortization of $640,000 for
the year ended June 30, 1995 and $320,000 for the nine months ended March 31,
1996. Only six months of amortization is reflected in this adjustment for the
nine months ended March 31, 1996 as Interlink's historical consolidated
statement of operations included amortization of $160,000 for three months.
(C) Records the interest expense of $984,000 for the year ended June 30,
1995 and $492,000 for the nine months ended March 31, 1996 on additional
short-term borrowings of $3,500,000 at a rate of 10.5% and additional long-
term borrowings, including non-interest-bearing borrowings assumed or incurred
in the acquisition, all totaling approximately $5,600,000. Only six months
interest is included in the adjustment for the nine months ended March 31,
1996 as Interlink's historical consolidated statement of operations includes
interest expense related to the acquisition for three months.
(D) Records the decrease in interest income resulting from the reduction of
cash available for investment of approximately $4,500,000 disbursed in the
acquisition.
F-27
<PAGE>
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
AND
NEW ERA SYSTEM SERVICES LTD.
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(E) Adjusts the historical tax benefit of the Company for the tax benefit
realized from the deductible portion of entries (B), (C), and (D) at 40% for
Interlink and 45% for New Era, the incremental tax rate for each company.
(F) Elimination of New Era's results of operations for the three months
ended May 31, 1995 from New Era's results of operations for the nine months
ended November 30, 1995 as Interlink's historical results of operations for
the nine months ended March 31, 1996 includes the results of operations of New
Era for three months from December 29, 1995, the date of acquisition, to March
31, 1996.
F-28
<PAGE>
AUDITORS' REPORT
To the Directors of
New Era Systems Services Ltd.
We have audited the consolidated balance sheets of New Era Systems Services
Ltd. as at February 28, 1994 and 1995 and the consolidated statements of
operations and deficit and cash flows for each of the years in the three year
period ended February 28, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of New Era Systems Services Ltd.
as at February 28, 1994 and 1995 and the results of its operations and the
changes in its financial position for each of the years in the three year
period ended February 28, 1995 in accordance with accounting principles
generally accepted in the United States.
Ernst & Young
Chartered Accountants
Calgary, Canada
May 1, 1995
F-29
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
------------------------ ------------
1994 1995 1995
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS [note 4]
Current:
Cash and cash equivalents............. $ 182,409 $ 276,147 $ 762,032
Accounts receivable (net of $160,000
allowance for doubtful
accounts at November 30, 1995; nil -
February 28, 1995 and 1994).......... 1,493,654 1,522,294 1,066,975
Prepaid expenses...................... 26,945 46,418 51,934
Investment tax credit receivable...... 772,921 620,784 1,142,784
Current portion of long-term receiv-
ables [note 2]....................... -- 40,026 88,645
----------- ----------- -----------
Total current assets.............. 2,475,929 2,505,669 3,112,370
Long-term receivables [note 2].......... 220,467 385,602 441,399
Investment in New Era Software Inc. .... 26,089 134,041 124,118
Fixed assets [note 3]................... 440,096 429,630 512,409
----------- ----------- -----------
Total assets...................... $ 3,162,581 $ 3,454,942 $ 4,190,296
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current:
Bank indebtedness [note 4]............ $ 160,000 $ 96,000 --
Accounts payable and accrued liabili-
ties................................. 770,340 431,959 $ 345,739
Current portion of deferred revenue
[note 5]............................. 344,625 1,658,221 859,083
Current portion of long-term debt
[note 6]............................. 45,794 51,355 157,615
----------- ----------- -----------
Total current liabilities......... 1,320,759 2,237,535 1,362,437
----------- ----------- -----------
Long-term debt [note 6]................. 1,478,715 2,129,323 2,461,991
----------- ----------- -----------
Deferred revenue [note 5]............... 78,030 77,471 76,082
----------- ----------- -----------
Commitments [note 9]
Shareholders' equity (deficiency)
Share capital [note 7].................. 2,413,342 2,599,807 2,628,125
Deficit................................. (2,128,265) (3,589,194) (2,338,339)
----------- ----------- -----------
Total shareholders' equity
(deficiency)..................... 285,077 (989,387) 289,786
----------- ----------- -----------
Total liabilities and
shareholders' equity
(deficiency)..................... $ 3,162,581 $ 3,454,942 $ 4,190,296
=========== =========== ===========
</TABLE>
See accompanying notes
F-30
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED FEBRUARY 28, NOVEMBER 30,
------------------------------------ ------------------------
1993 1994 1995 1994 1995
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue [note 5]........ $2,570,680 $ 3,857,592 $ 3,937,725 $ 2,694,495 $ 4,839,137
---------- ----------- ----------- ----------- -----------
Expenses:
Sales and marketing... 1,176,358 2,635,110 2,647,208 2,156,225 1,533,039
General and adminis-
trative.............. 571,501 588,861 758,599 514,258 586,516
Research and develop-
ment................. 1,487,450 1,459,470 1,583,174 1,166,332 1,060,731
Royalties............. 49,881 70,524 103,369 39,021 102,152
Depreciation.......... 125,032 205,310 238,148 178,553 147,465
Interest on long-term
debt................. 24,202 21,950 19,787 14,911 5,654
Restructuring of U.S.
operations........... -- 86,727 116,613 52,124 5,348
Foreign exchange
(gain) loss.......... (83,638) (86,549) 3,952 14,703 117,571
Gain on sale of soft-
ware assets.......... (110,063) -- (8,570) -- --
---------- ----------- ----------- ----------- -----------
Total expenses.... 3,240,723 4,981,403 5,462,280 4,136,127 3,558,476
---------- ----------- ----------- ----------- -----------
Income (loss) from oper-
ations................. (670,043) (1,123,811) (1,524,555) (1,441,632) 1,280,661
Equity earnings (loss)
from investment
[note 1]............... (107,237) (24,607) 87,640 52,714 (9,923)
---------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes............ (777,280) (1,148,418) (1,436,915) (1,388,918) 1,270,738
Current income taxes
(recovery) [note 8]..... (57,990) 14,405 24,014 8,173 19,883
---------- ----------- ----------- ----------- -----------
Net income (loss) for
the period.............. $ (719,290) $(1,162,823) $(1,460,929) $(1,397,091) $ 1,250,855
========== =========== =========== =========== ===========
Deficit, beginning of
period.................. $ (246,152) $ (965,442) $(2,128,265) $(2,128,265) $(3,589,194)
---------- ----------- ----------- ----------- -----------
Deficit, end of period.. $ (965,442) $(2,128,265) $(3,589,194) $(3,525,356) $(2,338,339)
========== =========== =========== =========== ===========
Earnings (loss) per
share................... $ (4.01) $ (5.35) $ (6.25) $ (5.98) $ 5.35
========== =========== =========== =========== ===========
Shares used in per share
calculation............ 179,370 217,287 233,817 233,767 233,966
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes
F-31
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED FEBRUARY 28, NOVEMBER 30,
----------------------------------- -----------------------
1993 1994 1995 1994 1995
--------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss) for
the period............ $(719,290) $(1,162,823) $(1,460,929) $(1,397,091) $1,250,855
Add (deduct) items not
requiring cash:
Depreciation.......... 125,032 205,310 238,148 178,553 147,465
Gain on sale of soft-
ware assets.......... (110,063) -- (8,570) -- --
Equity (earnings) loss
from investment...... 107,237 24,607 (87,640) (52,714) 9,923
Net change in non-cash
working capital
balances related to
operations [note 10].. 525,519 (608,902) 706,054 583,439 (1,067,678)
--------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) operating
activities......... (71,565) (1,541,808) (612,937) (687,813) 340,565
--------- ----------- ----------- ----------- ----------
Cash flows from invest-
ing activities:
Additions to fixed as-
sets.................. (298,240) (322,336) (239,003) (98,612) (230,244)
Proceeds on sale of
fixed assets.......... -- -- 19,891 -- --
Investment............. -- -- (20,312) -- --
--------- ----------- ----------- ----------- ----------
Net cash used in
investing
activities......... (298,240) (322,336) (239,424) (98,612) (230,244)
--------- ----------- ----------- ----------- ----------
Cash flows from financ-
ing activities:
Increase in notes re-
ceivable.............. (38,967) (16,500) (16,500) (12,375) (12,375)
Proceeds from long-term
debt.................. 954,119 606,651 698,283 705,870 489,932
Repayment of long-term
debt.................. (10,057) (26,204) (42,114) (66,913) (51,004)
Issue of share capital. 712,991 739,495 2,500 2,500 4,925
Issue of share options. -- -- -- -- 6,700
Net change in non-cash
working capital
balances related to
financing [note 10]... (834,231) 307,112 303,930 190,400 (62,614)
--------- ----------- ----------- ----------- ----------
Net cash provided by
financing
activities......... 783,855 1,610,554 946,099 819,482 375,564
--------- ----------- ----------- ----------- ----------
Net increase (decrease)
in cash and cash
equivalents during
period................. 414,050 (253,590) 93,738 33,057 485,885
Cash and cash
equivalents, beginning
of period.............. 21,949 435,999 182,409 182,409 276,147
--------- ----------- ----------- ----------- ----------
Cash and cash equiva-
lents, end of period... $ 435,999 $ 182,409 $ 276,147 $ 215,466 $ 762,032
========= =========== =========== =========== ==========
Supplemental disclosure
of cash flow
information:
Interest paid on long-
term debt............. $ 24,202 $ 21,950 $ 19,787 $ 14,911 $ 5,654
Income taxes paid (re-
covered).............. (57,990) 14,405 24,014 8,173 19,883
Proceeds on sale of
software.............. 157,933 -- -- -- --
Investment............. (157,933) -- -- -- --
</TABLE>
See accompanying notes
F-32
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
1.SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The Company is
incorporated under the laws of Canada and the consolidated financial
statements are presented in Canadian dollars.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all investments with a maturity of three months or
less from the date of purchase and money market funds to be cash equivalents.
REVENUE RECOGNITION
Revenue from product sales is recognized upon delivery of the software, if
collectability is probable and remaining obligations are insignificant.
Estimated returns and provisions for estimated insignificant costs are
recorded upon shipment. Maintenance and support revenues, including revenue
bundled with initial licensing fees, are recognized ratably over the
contractual period of customer support.
FIXED ASSETS
Fixed assets are stated at cost and depreciated on the straight-line basis
over estimated useful lives of the assets. These lives are generally two years
for computer equipment and software and five years for furniture and
equipment. Automobiles are amortized over the remaining term of the lease.
Upon disposal, assets and related accumulated depreciation are removed from
the accounts and the related gain or loss is included in operations.
PRODUCT DEVELOPMENT COSTS
Costs related to the conceptual formulation and design of software products
are expensed as product development while costs incurred subsequent to
establishing technological feasibility of software products are capitalized,
if material, until general release of the product. There have been no product
development costs capitalized since the Company began active business
operations.
INVESTMENT
The Company accounts for its investment in New Era Software Inc., using the
equity method. On December 1, 1994, additional shares were issued by New Era
Software Inc. diluting the Company's ownership interest from 40% to 34.2%.
F-33
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes".
Under SFAS 109, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
FOREIGN CURRENCY TRANSLATION
The Company's functional currency is Canadian dollars. Monetary assets and
liabilities denominated in foreign currencies are translated at exchange rates
in effect at the balance sheet date. Non-monetary assets and liabilities
denominated in foreign currencies are translated at rates in effect on the
dates the assets were acquired or liabilities were assumed. Revenues and
expenses are translated at rates of exchange prevailing on the transaction
dates. Gains and losses on translation are reflected in income when incurred.
INVESTMENT TAX CREDITS
Investment tax credits relating to software development are recognized at
such time as their recovery is reasonably assured and are recorded as a
reduction of research and development expenses.
INTERIM FINANCIAL DATA (UNAUDITED)
The unaudited financial statements for the nine months ended November 30,
1994 and 1995 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position and results of operations, in accordance with
accounting principles generally accepted in the United States.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
stock options using the treasury stock method.
2. LONG TERM RECEIVABLES
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
----------------- ------------
1994 1995 1995
-------- -------- ------------
<S> <C> <C> <C>
Leases receivable............................. -- $188,661 $280,702
NOTE RECEIVABLE FROM AFFILIATE:
HTS Hi-Tech Systems Ltd.
Note receivable............................. $165,000 165,000 165,000
Interest receivable......................... 55,467 71,967 84,342
-------- -------- --------
220,467 425,628 530,044
Less current portion........................ -- 40,026 88,645
-------- -------- --------
$220,467 $385,602 $441,399
======== ======== ========
</TABLE>
F-34
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
Leases receivable are sales-type leases, which relate to the sale of HARBOR
software. The above amount represents the future aggregate minimum lease
payments over the next four years.
The note receivable from HTS Hi-Tech Systems Ltd., a shareholder, has no
specified terms of repayment, bears interest at 10% per annum and has 20,000
Class A preferred shares of the Company pledged as collateral.
3. FIXED ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
--------------------------------------------- -----------------------
1994 1995 1995
--------------------- ----------------------- -----------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION COST DEPRECIATION
-------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Computer equipment...... $658,288 $384,014 $ 683,424 $501,889 $ 755,093 $535,657
Computer software....... 111,546 91,499 264,935 123,519 365,801 177,065
Furniture and fixtures.. 112,313 29,493 109,509 43,791 130,899 61,219
Automobiles............. 75,546 12,591 75,546 38,719 75,546 45,123
Trademark............... -- -- 4,134 -- 4,134 --
-------- -------- ---------- -------- ---------- --------
$957,693 $517,597 $1,137,548 $707,918 $1,331,473 $819,064
======== ======== ========== ======== ========== ========
Net book value.......... $440,096 $429,630 $512,409
================= =================== ===================
</TABLE>
4. BANK INDEBTEDNESS
The Company has a $480,000 revolving credit facility. Amounts outstanding
under the facility bear interest at bank prime plus 1%. The Company has
pledged as collateral a general security agreement against all assets.
5. DEFERRED REVENUE
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
------------------ ------------
1994 1995 1995
-------- --------- ------------
<S> <C> <C> <C>
Unearned maintenance revenue................. $422,655 $ 612,138 $935,165
Prepaid royalties............................ -- 1,123,554 --
-------- --------- --------
422,655 1,735,692 935,165
Less current portion......................... 344,625 1,658,221 859,083
-------- --------- --------
$ 78,030 $ 77,471 $ 76,082
======== ========= ========
</TABLE>
Prepaid royalties relate to amounts received in advance from Hitachi Data
Systems Corporation with respect to the marketing rights acquired for the sale
of HARBOR software in the United States.
F-35
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
--------------------- ------------
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Western Economic Diversification loan
#1...................................... $ 888,097 $ 888,097 $ 888,097
Western Economic Diversification loan
#2...................................... 530,549 1,228,832 1,714,764
Obligation under capital leases......... 105,863 63,749 16,745
---------- ---------- ----------
1,524,509 2,180,678 2,619,606
Less current portion.................... 45,794 51,355 157,615
---------- ---------- ----------
$1,478,715 $2,129,323 $2,461,991
========== ========== ==========
</TABLE>
On June 12, 1995 the Western Economic Diversification agreement regarding
loan #1 was amended, such that it is repayable in quarterly installments
commencing June 30, 1996. Interest does not accrue until 1996 and only if any
amount remains unpaid 30 days after the due date. Interest accrues at 3% above
the Bank of Canada rate. Installments may be accelerated if certain conditions
are met.
On June 12, 1995 the Western Economic Diversification agreement regarding
loan #2 was amended, such that it is repayable in quarterly installments
commencing June 30, 1996. Interest of 3% above the Bank of Canada rate does
not accrue until 1996 and only if any amount remains unpaid 30 days after the
due date. Installments may be accelerated if certain conditions are met.
The future principal repayments of the Western Diversification loans and
obligation under capital leases are as follows:
<TABLE>
<CAPTION>
WESTERN DIVERSIFICATION OBLIGATION UNDER
LOANS CAPITAL LEASE
----------------------- ----------------
<S> <C> <C>
1996 (Three months).............. $ 140,870 $16,745
1997............................. 280,000 --
1998............................. 300,000 --
1999............................. 320,000 --
2000............................. 320,000 --
Thereafter....................... 1,241,991 --
---------- -------
$2,602,861 $16,745
========== =======
</TABLE>
7. SHARE CAPITAL
AUTHORIZED
Unlimited Class A common shares, restricted as to dividend payments thereon
unless the net realizable value of assets less liabilities exceeds the
combined redemption value of Class A and Class B preferred shares
100,000 Class A, 8% cumulative preferred non-voting shares, redeemable at
the option of the company or the holder at $8.25 per share on or after
September 1, 1993
100,000 Class B, 8% cumulative preferred non-voting shares, redeemable at
the option of the company or the holder at $8.25 per share on or after
September 1, 1993
F-36
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
<TABLE>
<CAPTION>
NOVEMBER 30, 1995
---------------------
NUMBER
OF
SHARES CONSIDERATION
------- -------------
<S> <C> <C>
COMMON SHARES
Class A.............................................. 233,867 $1,989,431
Issued for cash...................................... 197 4,925
Proceeds on sale of options.......................... -- 6,700
------- ----------
234,064 $2,001,056
======= ==========
PREFERRED SHARES
Class A.............................................. 70,000 $ 577,500
Class B.............................................. 30,000 247,500
------- ----------
100,000 825,000
------- ----------
Notes receivable from employees...................... -- (197,931)
------- ----------
334,064 $2,628,125
======= ==========
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------------------------------------------------------
1993 1994 1995
--------------------- --------------------- ---------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES CONSIDERATION SHARES CONSIDERATION SHARES CONSIDERATION
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMON SHARES
Class A................. 149,934 $ 534,445 200,806 $1,247,436 233,767 $1,986,931
Issued for cash......... 50,872 712,991 32,961 739,495 100 2,500
------- ---------- ------- ---------- ------- ----------
200,806 $1,247,436 233,767 $1,986,931 233,867 $1,989,431
======= ========== ======= ========== ======= ==========
PREFERRED SHARES
Class A................. 70,000 $ 577,500 70,000 $ 577,500 70,000 $ 577,500
Class B................. 30,000 247,500 30,000 247,500 30,000 247,500
------- ---------- ------- ---------- ------- ----------
100,000 $ 825,000 100,000 $ 825,000 100,000 $ 825,000
======= ========== ======= ========== ======= ==========
Notes receivable
from employees......... -- $ (472,145) -- $ (398,589) -- $ (214,624)
------- ---------- ------- ---------- ------- ----------
308,806 $1,600,291 333,767 $2,413,342 333,867 $2,599,807
======= ========== ======= ========== ======= ==========
</TABLE>
Included in the Class A and Class B preferred shares is a contributed
surplus of $507,500 and $205,500 respectively.
The dividends on the Class A and Class B, 8% cumulative preferred non-voting
shares have not been declared or paid. As at November 30, 1995, the cumulative
amount in arrears are $219,450 (February 28, 1995--$184,800; February 28,
1994--$138,600) and $94,050 (February 28, 1995--$79,200; February 28, 1994--
$59,400) respectively.
At November 30, 1995 directors, officers and employees held options to
purchase 50,000 Class A common shares of the Company at a price of $15 per
share. The options expire on February 28, 1998.
F-37
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
Upon the issue of common shares from treasury, or under option, the proceeds
are credited to the common stock account. No charges are made against income
with respect to these transactions, as the options are issued at fair market
value.
The notes receivable from employees represent advances to employees of the
Company and one of its wholly owned subsidiaries to purchase Class A common
shares. The notes bear interest at rates between 6% and 11% per annum and are
repayable over three to ten years. The common shares purchased have been
pledged as collateral for the notes receivable.
8. INCOME TAXES
The provision for income taxes differs from the amount that would have been
expected by applying corporate income tax rates to income before income taxes.
The principal reasons for this difference are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED FEBRUARY 28, NOVEMBER 30,
---------------------------------- ----------------------
1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Domestic income (loss)
before income taxes.... $ (515,283) $ (348,817) $ (647,530) $ (536,783) $ (227,545)
Foreign income (loss)
before income taxes.... (261,997) (800,101) (789,385) (852,135) 1,498,283
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... (777,280) (1,148,918) (1,436,915) (1,388,918) 1,270,738
---------- ---------- ---------- ---------- ----------
Expected tax expense
(recovery)............. (344,646) (509,209) (637,128) (619,180) 566,495
Add (deduct) impact of:
Non-taxable portion of
royalty income....... (19,860) (12,705) (34,791) 21,862 19,860
Investment tax credit
earned............... (34,698) (31,703) (62,672) (63,436) (55,342)
Non-taxable portion of
capital gain......... (12,200) -- -- -- --
Non-deductible equity
loss (earnings)...... 47,549 10,911 (38,859) 23,373 4,399
Foreign rate
differences.......... 27,733 79,158 74,307 123,256 (52,312)
Other................. 26,836 (70,797) 97,563 61,930 69,704
---------- ---------- ---------- ---------- ----------
(309,286) (534,345) (601,580) (452,195) 552,804
Less change in valuation
allowance.............. 251,296 548,750 625,594 460,368 (532,921)
---------- ---------- ---------- ---------- ----------
$ (57,990) $ 14,405 $ 24,014 $ 8,173 $ 19,883
========== ========== ========== ========== ==========
</TABLE>
As at November 30, 1995, the Company had net operating losses carried
forward for income taxes purposes of approximately $195,348 which are
available to be carried forward to future periods. These losses expire as
follows:
<TABLE>
<CAPTION>
CANADA IRELAND TOTAL
------ -------- --------
<S> <C> <C> <C>
1999................................................ $1,021 -- $ 1,021
Indefinitely........................................ -- $194,327 194,327
------ -------- --------
$1,021 $194,327 $195,348
====== ======== ========
</TABLE>
The Company has investment tax credits of $370,000 available as a reduction
of future years' taxes payable. These credits expire in 2002 ($53,000), 2003
($32,000), 2004 ($41,000), 2005 ($79,000) and 2006 ($165,000).
F-38
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
The deferred tax asset primarily represents research and development
expenditures charged against income in the financial statements but not yet
deducted for income tax purposes. As there is substantial uncertainty as to
whether these deductions will be utilized, the Company has established a
valuation allowance to recognize this uncertainty.
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
--------------------------------- ----------------------
1993 1994 1995 1994 1995
--------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Deferred tax asset...... $ 251,296 $ 800,046 $ 1,425,640 $ 1,260,414 $ 892,719
Valuation allowance..... (251,296) (800,046) (1,425,640) (1,260,414) (892,719)
--------- --------- ----------- ----------- ---------
Net deferred tax asset.. -- -- -- -- --
========= ========= =========== =========== =========
</TABLE>
9. COMMITMENTS
Future minimum lease payments over the next five years under the Company's
office leases are as follows:
<TABLE>
<S> <C>
1996 (three months).............................................. $ 42,413
1997............................................................. 169,650
1998............................................................. 163,962
1999............................................................. 156,000
2000............................................................. 156,000
Thereafter....................................................... 13,000
--------
$701,025
========
</TABLE>
F-39
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
10. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED FEBRUARY 28, NOVEMBER 30,
---------------------------------- ----------------------
1993 1994 1995 1994 1995
--------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
(INCREASE) DECREASE IN
CURRENT ASSETS
Accounts receivable.... $ (39,577) $(1,020,678) $ (28,640) $ 206,491 $ 455,319
Prepaid expenses....... 5,826 (19,043) (19,473) (30,043) (5,516)
Investment tax credit
receivable............ (161,885) (93,858) 152,137 250,921 (522,000)
Lease receivable....... -- -- (188,661) (4,125) (92,041)
Notes receivable from
employees............. (292,437) 73,556 183,965 175,204 16,693
--------- ----------- ---------- --------- -----------
$(488,073) $(1,060,023) $ 99,328 $ 598,448 $ (147,545)
========= =========== ========== ========= ===========
INCREASE (DECREASE) IN
CURRENT LIABILITIES
Bank indebtedness...... -- $ 160,000 $ (64,000) $(160,000) $ (96,000)
Accounts payable and
accrued liabilities... $ (7,189) 419,628 (338,381) 335,755 (86,220)
Deferred maintenance
revenue............... 186,550 178,605 1,313,037 (364) (800,527)
--------- ----------- ---------- --------- -----------
179,361 758,233 910,656 175,391 (982,747)
--------- ----------- ---------- --------- -----------
$(308,712) $ (301,790) $1,009,984 $ 773,839 $(1,130,292)
========= =========== ========== ========= ===========
NET CHANGE IN NON-CASH
WORKING CAPITAL BALANCES
RELATED TO:
Operating.............. $ 525,519 $ (608,902) $ 706,054 $ 583,439 $(1,067,678)
Financing.............. (834,231) 307,112 303,930 190,400 (62,614)
--------- ----------- ---------- --------- -----------
$(308,712) $ (301,790) $1,009,984 $ 773,839 $(1,130,292)
========= =========== ========== ========= ===========
</TABLE>
11. SUBSEQUENT EVENTS
On December 28, 1995 the Company sold its 34.2% interest in New Era Software
Inc. and the royalty rights to certain software owned by New Era Software Inc.
for net cash consideration of U.S. $540,000.
On December 29, 1995, 100% of the issued and outstanding common shares of
the Company were acquired by Interlink Computer Sciences, Inc. Immediately
prior to this acquisition all of the Class A preferred shares of the Company
were redeemed for aggregate consideration of $808,500, including unpaid
dividends.
F-40
<PAGE>
NEW ERA SYSTEMS SERVICES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN CANADIAN DOLLARS)
Information for the nine months ended November 30, 1994 and information for
periods subsequent to February 28, 1995 is unaudited
12. SEGMENTED INFORMATION
The Company is involved in three distinct geographic segments.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED FEBRUARY 28, NOVEMBER 30,
------------------------------------ -----------------------
1993 1994 1995 1994 1995
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Canada................ $1,719,017 $ 2,613,710 $ 1,984,688 $ 1,519,033 $2,581,708
United States......... 851,663 856,100 1,134,611 766,090 1,370,104
Ireland............... -- 387,782 818,426 409,372 887,325
---------- ----------- ----------- ----------- ----------
Total revenues...... $2,570,680 $ 3,857,592 $ 3,937,725 $ 2,694,495 $4,839,137
========== =========== =========== =========== ==========
OPERATING INCOME:
Canada................ $ (408,046) $ (323,710) $ (735,170) $ (589,497) $ (217,622)
United States......... (261,997) (735,244) (583,604) (534,430) 1,305,417
Ireland............... -- (64,857) (205,781) (317,705) 192,866
---------- ----------- ----------- ----------- ----------
Total operating
income............. $ (670,043) $(1,123,811) $(1,524,555) $(1,441,632) $1,280,661
========== =========== =========== =========== ==========
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
------------------------------------ -----------------------
1993 1994 1995 1994 1995
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Canada................ $1,389,923 $ 1,804,852 $ 1,921,001 $ 1,564,247 $2,121,554
United States......... 783,750 966,699 897,420 662,388 1,283,489
Ireland............... -- 391,030 636,521 355,681 785,253
---------- ----------- ----------- ----------- ----------
Total assets........ $2,173,673 $ 3,162,581 $ 3,454,942 $ 2,582,316 $4,190,296
========== =========== =========== =========== ==========
</TABLE>
F-41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any Selling Stockholders or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy, any securities other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of the
Company since the date hereof or that information contained herein is correct
as of any time subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Consolidated Financial Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 31
Management................................................................ 45
Certain Transactions...................................................... 52
Principal and Selling Stockholders........................................ 53
Description of Capital Stock.............................................. 55
Shares Eligible for Future Sale........................................... 58
Underwriting.............................................................. 60
Legal Matters............................................................. 61
Experts................................................................... 61
Additional Information.................................................... 61
Index to Consolidated Financial Statements................................ F-1
</TABLE>
Until , 1996 (25 days after the date of this prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in the distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to delivering a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
PUNK, ZIEGEL & KNOELL
VOLPE, WELTY &
COMPANY
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered hereunder. All
of the amounts shown are estimates except for the SEC registration fee and the
NASD filing fee.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
SEC registration fee.............................................. $ 17,448
NASD filing fee................................................... 5,560
Nasdaq National Market listing fees............................... 17,500
Accounting fees and expenses...................................... 400,000
Blue Sky fees and expenses........................................ 15,000
Legal fees and expenses........................................... 300,000
Printing and engraving fees and expenses.......................... 125,000
Transfer Agent and Registrar fees................................. 15,000
Miscellaneous..................................................... 4,492
---------
Total........................................................... $ 900,000
=========
</TABLE>
The Selling Stockholders will bear their pro rata portion of underwriting
discounts and commissions, based on the number of shares offered by such
holders. All of the other costs and expenses of the Selling Stockholders will
be borne by the Registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and other corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1993, as amended (the "Act"). The Registrant's Certificate
of Incorporation to be filed upon the closing of the offering to which this
Registration Statement relates (Exhibit 3.3 hereto) and the Registrant's
Bylaws (Exhibit 3.4 hereto) provides for indemnification of the Registrant's
directors, officers, employees and other agents to the extent and under the
circumstances permitted by the Delaware General Corporation Law. The
Registrant also intends to enter into agreements with its directors and
executive officers that will require the Registrant among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors to the fullest extent not prohibited by
Delaware law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On various dates since March 31, 1993, Registrant sold and issued: (i) an
aggregate of 109,745 shares (net of repurchases) of its Common Stock, which
were not registered under the Securities Act, to 22 employees and consultants
pursuant to the exercise of stock options under the 1992 Plan at an aggregate
purchase price of $42,964; (ii) shares of Series 1 Preferred Stock convertible
into a total of 2,459,424 shares to a group of sophisticated investors at a
price per share of $2.75; (iii) warrants to purchase a total of 700,000 shares
of the Company's Common Stock to the shareholders of New Era with an exercise
price of $1.60 in connection with the acquisition of New Era; (iv) granted
warrants to purchase a total of 133,334 shares of the Company's Common Stock
at an exercise price of $.45 pursuant to bridge financings from investors; (v)
a warrant to
II-1
<PAGE>
purchase a total of 150,000 shares of the Company's Common Stock at an
exercise price of $.45 pursuant to a negotiation of a line of credit from an
institutional lender; and (vi) a warrant for 125,000 shares of the Company's
Common Stock at an exercise price of $1.60 and a warrant for 12,500 shares of
Common Stock at an exercise price of $6.40 pursuant to a negotiation of a line
of credit from an institutional lender.
The issuance of the securities described above was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) under the
Securities Act or Rule 701 promulgated under Section 3(b) of the Securities
Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Form of Certificate of Incorporation to be filed prior to the effective
date of the Registration Statement under which the offering is being
made.
3.3 Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering under the Registration Statement.
3.4 Bylaws of the Registrant, as amended to date.
4.1 Form of Lock-Up Agreement.
4.2* Form of Common Stock Certificate.
4.3 Registration Rights Agreement between the Registrant and certain
shareholders dated January 27, 1994, as amended.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1 1992 Stock Option Plan, as amended, and form of agreement thereto.
10.2 1996 Employee Stock Purchase Plan, and form of agreement thereto.
10.3 1996 Director Stock Option Plan, and form of agreement thereto.
10.4 Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.5** OEM/Remarketing Agreement between the Registrant and Bus-Tech, Inc.
dated February 13, 1989, as amended.
10.6 Lease Agreement between the Registrant and King & Lyons dated December
8, 1986.
10.7* Lease Agreement between New Era Systems Services, Ltd. and Newfap
Property Holdings, Ltd.
10.8** Software License and Distribution Agreement between the Registrant and
Legato Systems, Inc. dated May 10, 1996.
10.9** Revenue Sharing Agreement between the Registrant and Legato Systems,
Inc. dated May 10, 1996.
10.10 Agreement and Plan of Business Acquisition by the Registrant, New Era
Systems Services Ltd., and the Principal Shareholders of New Era
Systems Services Ltd. dated December 13, 1995, as amended.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.11 Letter Agreement between the Company and Donald R. Gammon dated June
2, 1994, as amended.
10.12 Letter Agreement between the Company and Gloria Purdy dated January
18, 1996.
10.13 Letter Agreement between the Company and Augustus J. Berkeley dated
December 9, 1994.
10.14 Letter Agreement between the Company and Barbara Booth dated January
16, 1996.
10.15 Letter Agreement between the Company and Charles W. Jepson dated
October 28, 1992.
10.16 Warrant issued from the Company to Menlo Ventures IV, L.P. dated
December 15, 1993.
10.17 Warrant issued from the Company to Menlo Evergreen V, L.P. dated
December 15, 1993.
10.18 Note and Security and Loan Agreement between the Registrant and
Imperial Bank dated April 25, 1996.
11.1 Calculation of net income (loss) per share.
21.1 List of the Company's subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P. (see page II-8).
23.2 Consent of Ernst & Young Chartered Accountants (see page II-7)
23.3* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule for Fiscal 1995.
27.2 Financial Data Schedule for nine months ended March 1996.
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts.
All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-3
<PAGE>
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Fremont, State of California, on the 5th day of June, 1996.
Interlink Computer Sciences, Inc.
By: /s/ Charles W. Jepson
----------------------------------
(Charles W. Jepson)
President, Chief Executive Officer
and Director (Principal Executive
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Charles W. Jepson and
Gloria M. Purdy, and each one of them, individually and without the other, his
or her attorney-in-fact, each with the power of substitution, for him or her
in any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments) and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles W. Jepson President, Chief Executive June 5, 1996
____________________________________ Officer and Director
(Charles W. Jepson) (Principal Executive Officer)
/s/ Gloria M. Purdy Vice President of Finance, June 5, 1996
____________________________________ Chief Financial Officer,
(Gloria M. Purdy) Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Ronald W. Braniff Director June 5, 1996
____________________________________
(Ronald W. Braniff)
/s/ Thomas H. Bredt Director June 5, 1996
____________________________________
(Thomas H. Bredt)
/s/ D. Benedict Dulley Director June 5, 1996
____________________________________
(D. Benedict Dulley)
/s/ Andrew I. Fillat Director June 5, 1996
____________________________________
(Andrew I. Fillat)
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our reports dated July 28, 1995, on our audits of the financial statements and
the financial statement schedule of Interlink Computer Sciences, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
June 4, 1996
II-6
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 1, 1996, with respect to the consolidated
financial statements of New Era Systems Services Ltd. in the Registration
Statement (Form S-1) and related prospectus of Interlink Computer Sciences,
Inc. dated June 5, 1996.
ERNST & YOUNG CHARTERED ACCOUNTANTS
Calgary, Canada
June 5, 1996
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of Interlink
Computer Sciences, Inc. and Subsidiaries as of June 30, 1994 and 1995, and for
each of three years in the period ended June 30, 1995 which financial
statements are included in the Registration Statement, we have also audited
the financial statement schedule listed in Item 16(b) herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 28, 1995
II-8
<PAGE>
SCHEDULE II
INTERLINK COMPUTER SCIENCES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND WRITE-OFF END OF
DESCRIPTION OF PERIOD EXPENSES OF ACCOUNTS PERIOD
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1993
Allowance for doubtful account.. $363 $ 18 $ 29 $352
Allowance for excess and
obsolete inventories........... 30 115 45 100
Year ended June 30, 1994
Allowance for doubtful accounts. 352 100 118 334
Allowance for excess and
obsolete inventories........... 100 64 135 29
Year ended June 30, 1995
Allowance for doubtful accounts. 334 67 122 279
Allowance for excess and
obsolete inventories........... 29 21 -- 50
</TABLE>
<PAGE>
INTERLINK COMPUTER SCIENCES, INC.
EXHIBIT INDEX
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Form of Certificate of Incorporation to be filed prior to the
effective date of the Registration Statement under which the offering
is being made.
3.3 Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering under the Registration Statement.
3.4 Bylaws of the Registrant, as amended to date.
4.1 Form of Lock-Up Agreement.
4.2* Form of Common Stock Certificate.
4.3 Registration Rights Agreement between the Registrant and certain
shareholders dated January 27, 1994, as amended.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1 1992 Stock Option Plan, as amended, and form of agreement thereto.
10.2 1996 Employee Stock Purchase Plan, and form of agreement thereto.
10.3 1996 Director Stock Option Plan, and form of agreement thereto.
10.4 Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.5** OEM/Remarketing Agreement between the Registrant and Bus-Tech, Inc.
dated February 13, 1989, as amended.
10.6 Lease Agreement between the Registrant and King & Lyons dated December
8, 1986.
10.7* Lease Agreement between New Era Systems Services, Ltd. and Newfap
Property Holdings, Ltd.
10.8** Software License and Distribution Agreement between the Registrant and
Legato Systems, Inc. dated May 10, 1996.
10.9** Revenue Sharing Agreement between the Registrant and Legato Systems,
Inc. dated May 10, 1996.
10.10 Agreement and Plan of Business Acquisition by the Registrant, New Era
Systems Services Ltd., and the Principal Shareholders of New Era
Systems Services Ltd. dated December 13, 1995, as amended.
10.11 Letter Agreement between the Company and Donald R. Gammon dated June
2, 1994, as amended.
10.12 Letter Agreement between the Company and Gloria Purdy dated January
18, 1996.
10.13 Letter Agreement between the Company and Augustus J. Berkeley dated
December 9, 1994.
10.14 Letter Agreement between the Company and Barbara Booth dated January
16, 1996.
10.15 Letter Agreement between the Company and Charles W. Jepson dated
October 28, 1992.
10.16 Warrant issued from the Company to Menlo Ventures IV, L.P. dated
December 15, 1993.
10.17 Warrant issued from the Company to Menlo Evergreen V, L.P. dated
December 15, 1993.
10.18 Note and Security and Loan Agreement between the Registrant and
Imperial Bank dated April 25, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
11.1 Calculation of net income (loss) per share.
21.1 List of the Company's subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P. (see page II-8).
23.2 Consent of Ernst & Young Chartered Accountants (see page II-7)
23.3* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule for Fiscal 1995.
27.2 Financial Data Schedule for nine months ended March 1996.
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
DRAFT
6/3/96
__________ Shares
Interlink Computer Sciences, Inc.
Common Stock
UNDERWRITING AGREEMENT
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July __, 1996
MONTGOMERY SECURITIES
PUNK, ZIEGEL & KNOELL, L.P.
VOLPE, WELTY & COMPANY
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Representatives:
SECTION 1. Introductory. Interlink Computer Sciences, Inc., a
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Delaware corporation (together with all subsidiaries and divisions of Interlink
Computer Sciences, Inc., the "Company"), proposes to issue and sell __________
shares of its authorized but unissued Common Stock, par value $___ per share
(the "Common Stock"), and certain stockholders of the Company named in Schedule
B annexed hereto (the "Selling Stockholders") propose to sell an aggregate of
__________ shares of the Company's issued and outstanding Common Stock to the
several underwriters named in Schedule A annexed hereto (the "Underwriters"),
for whom you are acting as Representatives. Said aggregate of _________ shares
are herein called the "Firm Common Shares." In addition, the Company proposes
to grant to the Underwriters an option to purchase up to _______ additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 5
hereof. The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares."
On or before the Effective Date (as hereinafter defined), Interlink
Computer Sciences Inc., a California corporation (the "California Corporation")
effected a reincorporation into the State of Delaware by entering into the
Agreement and Plan of Merger dated as of ____________, 1996 (the "Merger
Agreement") with the Company. Accordingly, the Company and the California
Corporation hereby make all representations, warranties and covenants jointly
and severally, and unless specifically separated, all representations in this
Agreement refer jointly to the Company and the California Corporation.
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You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The
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Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-_______)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder, and
has been filed with the Commission. The Company has prepared and has filed
or proposes to file prior to the effective date of such registration
statement an amendment or amendments to such registration statement, which
amendment or amendments have been or will be similarly prepared. There
have been delivered to you two signed copies of such registration statement
and amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus have been delivered to
you in such reasonable quantities as you have requested for each of the
Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, (ii) a
final prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations, or (iii) a term sheet (the "Term Sheet") as described in and
in accordance with Rules 434 and 424(b) of the Rules and Regulations. As
filed, the final prospectus, if one is used, or the Term Sheet and
Preliminary Prospectus (as hereinafter defined), if a final prospectus is
not used, shall include all Rule 430A Information (as hereinafter defined)
and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such
date and time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus
(as hereinafter defined)) as the Company shall have previously advised you
in writing would be included or made therein.
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The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended; provided, however,
that such term shall also include (i) all Rule 430A Information deemed to
be included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and (ii) a registration statement, if any, filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares.
The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective
that omits Rule 430A Information. The term "Prospectus" as used in this
Agreement shall mean either (i) the prospectus relating to the Common
Shares in the form in which it is first filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations, or (ii) if a Term Sheet is not
used and no filing pursuant to Rule 424(b) of the Rules and Regulations is
required, the form of final prospectus included in the Registration
Statement at the time such registration statement becomes effective, or
(iii) if a Term Sheet is used, the Term Sheet in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations, together with the Preliminary Prospectus included in the
Registration Statement at the time it becomes effective. The term "Rule
430A Information" means information with respect to the Common Shares and
the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the Rules and
Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements of
the Act and the Rules and Regulations and, as of its date, has not included
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the
Registration Statement becomes effective, and at all times subsequent
thereto up to and including each Closing Date hereinafter mentioned, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, will contain all material statements and information
required to be included therein by the Act and the Rules and Regulations
and will in all material respects conform to the requirements of the Act
and the Rules and Regulations, and neither the Registration Statement nor
the Prospectus, nor any amendment or
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supplement thereto, will include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, no
representation or warranty contained in this subsection 2(b) shall be
applicable to information contained in or omitted from any Preliminary
Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter,
directly or through the Representatives, specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than the subsidiaries
listed in Exhibit 22.1 to the Registration Statement. The Company and each
of its subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, with full power and authority (corporate
and other) to own and lease their properties and conduct their respective
businesses and all proposed future businesses as described in the
Prospectus; the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances;
the Company and each of its subsidiaries are in possession of and operating
in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective
businesses, all of which are valid and in full force and effect; the
Company and each of its subsidiaries are duly qualified to do business and
in good standing as foreign corporations in each jurisdiction in which the
ownership or leasing of properties or the conduct of their respective
businesses requires such qualification, except for jurisdictions in which
the failure to so qualify would not have a material adverse effect upon the
Company or the subsidiary; and no proceeding has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus; the
issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description
thereof contained in the Prospectus. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized
and validly issued and are fully
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paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Common Shares
by the Company pursuant to this Agreement. No stockholder of the Company
has any right which has not been waived to require the Company to register
the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the stockholders or the Board of Directors of the Company will
be required for the transfer and sale of the Common Shares to be sold by
the Selling Stockholders or the issuance and sale of the Common Shares to
be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding obligation of the Company in
accordance with its terms. The making and performance of this Agreement by
the Company and the consummation of the transactions herein contemplated
will not violate any provisions of the certificate of incorporation or
bylaws, or other organizational documents, of the Company or any of its
subsidiaries, and will not conflict with, result in the breach or violation
of, or constitute, either by itself or upon notice or the passage of time
or both, a default under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of its respective properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule
or
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regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its
subsidiaries or any of their respective properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the
Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(g) All corporate action on the part of the California
Corporation and the Company, and their respective Boards of Directors,
shareholders and stockholders, as the case may be, necessary for the
authorization, execution, delivery and performance of the Merger Agreement,
effecting the reincorporation of the California Corporation under the laws
of State of Delaware, has been taken. The Merger Agreement has been duly
executed by each of the California Corporation and the Company. The Merger
Agreement has been filed with the Secretary of the State of Delaware and
shall be effective on or before the First Closing Date (as hereinafter
defined). Each of the California Corporation and the Company had all
corporate power and authority to execute and deliver the Merger Agreement,
to file the Merger Agreement with the Secretary of the State of California
and the Secretary of the State of Delaware and to consummate the
reincorporation contemplated by the Merger Agreement, and the Merger
Agreement at the time of execution and filing constituted a valid and
binding obligation of each of the California Corporation and the Company,
enforceable in accordance with its terms. The merger between the
California Corporation and the Company was effected pursuant to a valid
qualification under California state securities laws.
(h) Coopers & Lybrand L.L.P., who have expressed their opinion
with respect to the financial statements and schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, and Ernst & Young Chartered
Accountants L.L.P., who have expressed their opinion with respect to the
financial statements of New Era Systems Services, Ltd., are independent
accountants as required by the Act and the Rules and Regulations.
(i) The financial statements and schedules of the Company, New
Era Systems Services, Ltd., and, subject to the qualifications expressly
set forth in the Prospectus under the caption "Pro Forma Combined Condensed
Consolidated Financial Statements," the Company on a pro forma
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consolidated basis, and, in each case, the related notes thereto, included
in the Registration Statement and the Prospectus present fairly the
financial position of the Company and New Era Systems Services, Ltd., as
the case may be, as of the respective dates of such financial statements
and schedules, and the results of operations and changes in financial
position of the Company and New Era Systems Services, Ltd., as the case may
be, for the respective periods covered thereby. Such statements, schedules
and related notes have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis as
certified by the independent accountants named in subsection 2(h). No
other financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the
Prospectus under the captions "Capitalization" and "Selected Consolidated
Financial Data" fairly present the information set forth therein on the
basis stated in the Registration Statement.
(j) Except as disclosed in the Prospectus, and except as to
defaults which individually or in the aggregate would not be material to
the Company, neither the Company nor any of its subsidiaries is in
violation or default of any provision of its certificate of incorporation
or bylaws, or other organizational documents, or is in breach of or default
with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of facts which
constitutes an event of default on the part of the Company or any such
subsidiary as defined in such documents or which, with notice or lapse of
time or both, would constitute such an event of default.
(k) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. The contracts so described
in the Prospectus are in full force and effect on the date hereof; and
neither the Company nor any of its subsidiaries, nor to the best of the
Company's knowledge, any other party is in breach of or default under any
of such contracts.
(l) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a party or of which property owned or leased by
the Company or any of its subsidiaries is or may be the subject, or related
to environmental or discrimination matters, which actions, suits or
proceedings might,
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individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its subsidiaries; and
no labor disturbance by the employees of the Company or any of its
subsidiaries exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any of its subsidiaries is a party or
subject to the provisions of any material injunction, judgment, decree or
order of any court, regulatory body, administrative agency or other
governmental body.
(m) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except (i) those, if any, reflected in such financial statements
(or elsewhere in the Prospectus), or (ii) those which are not material in
amount and do not adversely affect the use made and proposed to be made of
such property by the Company and its subsidiaries. The Company or the
applicable subsidiary holds its leased properties under valid and binding
leases, with such exceptions as are not materially significant in relation
to the business of the Company. Except as disclosed in the Prospectus, the
Company owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(n) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary course
of business or which could result in a material reduction in the future
earnings of the Company and its subsidiaries; (ii) the Company and its
subsidiaries have not sustained any material loss or interference with
their respective businesses or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance; (iii) the
Company has not paid or declared any dividends or other distributions with
respect to its capital stock and the Company and its subsidiaries are not
in default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other
than upon the sale of the Common Shares hereunder and upon the exercise of
options and warrants described in the Registration Statement) or
indebtedness material to the Company and its subsidiaries (other than in
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the ordinary course of business); and (v) there has not been any material
adverse change in the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
subsidiaries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient trademarks,
trade names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their businesses as now conducted;
the expiration of any trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals or governmental authorizations would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or its
subsidiaries; and the Company has no knowledge of any material infringement
by it or its subsidiaries of trademark, trade name rights, patent rights,
mask works, copyrights, licenses, trade secret or other similar rights of
others, and there is no claim being made against the Company or its
subsidiaries regarding trademark, trade name, patent, mask work, copyright,
license, trade secret or other infringement which could have a material
adverse effect on the condition (financial or otherwise), business, results
of operations or prospects of the Company and its subsidiaries.
(p) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries.
(q) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have paid
all taxes shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or its subsidiaries which could materially and adversely affect the
business, operations or properties of the Company and its subsidiaries.
(r) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(s) The Company has not distributed and will not distribute prior
to the First Closing Date any offering material in connection with the
offering and sale of the
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Common Shares other than the Prospectus, the Registration Statement and the
other materials permitted by the Act.
(t) Each of the Company and its subsidiaries maintains insurance
of the types and in the amounts generally deemed adequate for its business,
including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(u) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States of any jurisdiction thereof.
(v) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(w) The Common Stock has been approved for quotation as a
National Market System security on The Nasdaq Stock Market upon notice of
issuance.
(x) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
in violation of Section 517.075 of the Florida Statutes.
SECTION 3. Representations, Warranties and Covenants of the Selling
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Stockholders.
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(a) Each of the Selling Stockholders represents and warrants to,
and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing
Date hereinafter mentioned will have, good and marketable title to the
Common Shares proposed to be sold by such Selling Stockholder
hereunder on such Closing Date and full right, power and authority to
enter into this Agreement and to sell, assign, transfer and deliver
such Common Shares hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery
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of and payment for such Common Shares hereunder, the Underwriters will
acquire good and marketable title thereto, free and clear of all
liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed and delivered a
Irrevocable Power of Attorney and caused to be executed and delivered
on his behalf a Custody Agreement (hereinafter collectively referred
to as the "Stockholders Agreement") and in connection herewith such
Selling Stockholder further represents, warrants and agrees that such
Selling Stockholder has deposited in custody, under the Stockholders
Agreement, with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be sold
hereunder by such Selling Stockholder, for the purpose of further
delivery pursuant to this Agreement. Such Selling Stockholder agrees
that the Common Shares to be sold by such Selling Stockholder on
deposit with the Agent are subject to the interests of the Company and
the Underwriters, that the arrangements made for such custody are to
that extent irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated, except as provided in
this Agreement or in the Stockholders Agreement, by any act of such
Selling Stockholder, by operation of law, by the death or incapacity
of such Selling Stockholder or by the occurrence of any other event.
If the Selling Stockholder should die or become incapacitated, or if
any other event should occur, before the delivery of the Common Shares
hereunder, the documents evidencing Common Shares then on deposit with
the Agent shall be delivered by the Agent in accordance with the terms
and conditions of this Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not the Agent shall
have received notice thereof. This Agreement and the Stockholders
Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder and the form of such Stockholders Agreement
has been delivered to you.
(iii) The performance of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby
and by the Stockholders Agreement will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of
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its properties is bound, any statute, or any judgment, decree, order,
rule or regulation of any court or governmental agency or body
applicable to such Selling Stockholder or any of its properties.
(iv) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, insofar
as it has related to such Selling Stockholder, has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein not misleading in light of the circumstances under
which they were made; and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, as it relates to
such Selling Stockholder, will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(vi) Such Selling Stockholder is not aware that any of the
representations and warranties set forth in Section 2 above is untrue
or inaccurate in any material respect.
(b) Each of the Selling Stockholders agrees with the Company and
the Underwriters not to offer to sell, sell or contract to sell or
otherwise dispose of any shares of Common Stock or securities convertible
into or exchangeable for any shares of Common Stock, for a period of 180
days after the first date that any of the Common Shares are released by you
for sale to the public, without the prior written consent of Montgomery
Securities, which consent may be withheld at the sole discretion of
Montgomery Securities.
SECTION 4. Representations and Warranties of the Underwriters. The
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Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Stockholders that the information set forth (i)
on the cover page of the Prospectus with respect to price, underwriting
discounts and commissions and terms of offering and (ii) under "Underwriting" in
the Prospectus was furnished to the Company by and on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement and the
Prospectus and is correct in all material respects. The Representatives
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represent and warrant that they have been authorized by each of the other
Underwriters as the Representatives to enter into this Agreement on its behalf
and to act for it in the manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the
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basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, (i) the Company agrees to
issue and sell to the Underwriters __________ of the Firm Common Shares, and
(ii) the Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B hereto, an
aggregate of ________ of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Selling Stockholders, respectively, shall be $_________ per
share.
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to __________ the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to __________ the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after 4:30 P.M. Washington D.C. Time, the fourth)
full business day following the first date that any of the Common Shares are
released by you for sale to the public, as you shall designate by at least 48
hours' prior notice to the Company (or at such other time and date, not later
than one week after such third or fourth, as the case may be, full business day
as may be agreed upon by the Company and the Representatives) (the "First
Closing Date"); provided, however, that if the Prospectus is at any time prior
to the First Closing Date recirculated to the public, the First Closing Date
shall occur upon the later of the third or fourth, as the case may be, full
business day following the first date that any of the Common Shares are released
by you for sale
13.
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to the public (as set forth above) or the date that is 48 hours after the date
that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company and the Selling Stockholders to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Selling Stockholders against payment by
you, for the accounts of the several Underwriters, of the purchase price
therefor by certified or official bank checks payable in next day funds to the
order of the Company and of the Agent in proportion to the number of Firm Common
Shares to be sold by the Company and the Selling Stockholders, respectively.
The certificates for the Firm Common Shares shall be registered in such names
and denominations as you shall have requested at least two full business days
prior to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York, as may be designated by you. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of __________ Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company
setting forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be purchased by such Underwriter as set forth
opposite its name in Schedule A and the denominator of which is _________
(subject to such adjustments to eliminate any fractional share purchases as you
in your discretion may make). Certificates for the Optional Common Shares will
be made available for checking
14.
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and packaging on the business day preceding the Second Closing Date at a
location in New York, New York, as may be designated by you. The manner of
payment for and delivery of the Optional Common Shares shall be the same as for
the Firm Common Shares purchased from the Company as specified in the two
preceding paragraphs. At any time before lapse of the option, you may cancel
such option by giving written notice of such cancellation to the Company. If
the option is cancelled or expires unexercised in whole or in part, the Company
will deregister under the Act the number of Option Shares as to which the option
has not been exercised. Notwithstanding the foregoing, in the event that the
Registration Statement is amended or the Prospectus is supplemented between the
date hereof and any Closing Date, the Underwriters shall have the right to delay
the Closing Date to a date which will allow the Underwriters the time necessary
to distribute the Prospectus as amended or supplemented.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose
to make a public offering of their respective portions of the Common Shares as
soon after the effective date of the Registration Statement as in the judgment
of the Representatives is advisable and at the public offering price set forth
on the cover page of and on the terms set forth in the Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and
------------------------
agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective. If the Registration Statement has become or
becomes effective pursuant to Rule 430A of the Rules and Regulations, or
the filing of the Prospectus is otherwise required under Rule 424(b) of the
Rules and Regulations, the Company will file the Prospectus, properly
completed, pursuant to the applicable paragraph of Rule 424(b) of the Rules
and Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i)
15.
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of the receipt of any comments of the Commission, (ii) of any request of
the Commission for amendment of or supplement to the Registration Statement
(either before or after it becomes effective), any Preliminary Prospectus
or the Prospectus or for additional information, (iii) when the
Registration Statement shall have become effective and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. The Company will not file any amendment
or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of which
you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance with
the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue the
distribution of the Common Shares and will use its best efforts to cause
the same to become effective as promptly as possible. The Company will
fully and completely comply with the provisions of Rule 430A of the Rules
and Regulations with respect to information omitted from the Registration
Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event occurs,
as a result of which the Prospectus, including any amendments or
supplements, would include an untrue statement of a material fact, or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or if it is necessary at any
time to amend the Prospectus, including any amendments or supplements, to
comply with the Act or the Rules and Regulations, the Company will promptly
advise you thereof and will promptly prepare and file with the Commission,
at its own expense, an amendment or supplement which will correct such
statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become
effective as soon as possible; and, in case any Underwriter is required to
deliver a prospectus after such nine-month period, the Company upon
request, but at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and such Prospectus
or Prospectuses as may be necessary to
16.
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permit compliance with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the
end of the first quarter ending after one year following the effective date
of the Registration Statement (as defined in Rule 158(c) of the Rules and
Regulations, the "Effective Date"), the Company will make generally
available to its security holders an earnings statement (which need not be
audited) covering a period of 12 consecutive months beginning after the
effective date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration Statement,
the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available and in
such quantities as you and the Selling Stockholders may request, for the
purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or obtain
exemptions from the application of) the Blue Sky laws of such jurisdictions
as you designate, will comply with such laws and will continue such
qualifications, registrations and exemptions in effect so long as
reasonably required for the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is
not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request of any Representative, to
each of the other Underwriters: (i) as soon as practicable after the end
of each fiscal year, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders'
17.
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equity and cash flows for the year then ended and the opinion thereon of
the Company's independent public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement, Annual Report on
Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or
other report filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its Common
Stock.
(h) During the period of 180 days after the first date that any
of the Common Shares are released by you for sale to the public, without
the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of Montgomery Securities), the Company will
not, other than pursuant to outstanding stock options and warrants
disclosed in the Prospectus, issue, offer, pledge, sell, grant options to
purchase or otherwise dispose of, directly or indirectly, any of the
Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security, other than
pursuant to its 1996 Employee Stock Purchase Plan. During the period of
180 days after the first date that any of the Common Shares are released by
you for sale to the public, without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), the Company will not release any security holder
from any contractual commitment to the Company not to, directly or
indirectly, offer to sell, pledge, sell or contract to sell or otherwise
dispose of any shares of its Common Stock or any right to acquire such
shares or securities convertible into or exchangeable for any shares of
Common Stock.
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its statements
under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register
its Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with such
Blue Sky laws and will continue such qualifications, registrations and
exemptions in effect for a period of five years after the date hereof.
(k) The Company will use its best efforts to maintain the Common
Stock as a National Market System security on The Nasdaq Stock Market.
18.
<PAGE>
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Stockholders agree to pay, in such proportions as they may agree upon among
themselves, all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws, (vii) the filing fee
of the National Association of Securities Dealers, Inc., and (viii) all other
fees, costs and expenses referred to in Item 13 of the Registration Statement.
The Underwriters may deem the Company to be the primary obligor with respect to
all costs, fees and expenses to be paid by the Company and by the Selling
Stockholders. Except as provided in this Section 7, Section 9 and Section 11
hereof, the Underwriters shall pay all of their own expenses, including the fees
and disbursements of their counsel (excluding those relating to qualification,
registration or exemption under the Blue Sky laws and the Blue Sky memorandum
referred to above). This Section 7 shall not affect any agreements relating to
the payment of expenses between the Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by reimbursement) all
fees and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders, (ii) any fees and expenses of the Agent, and (iii) all expenses
and taxes incident to the sale and delivery of
19.
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the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. (or, in the case of a registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the Common
Shares, not later than 10:00 P.M.), Washington, D.C. Time, on the date of
this Agreement, or at such later time as shall have been consented to by
you; if the filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b) of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) of the Rules and Regulations; and prior to such
Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge
of the Company, the Selling Stockholders or you, shall be contemplated by
the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement, or otherwise, shall
have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock, other than
pursuant to the exercise of outstanding options and warrants disclosed in
the Prospectus, of the Company or any of its subsidiaries or any material
change in the indebtedness (other than in the ordinary course of business)
of the Company or any of its subsidiaries, (ii) except as set forth or
contemplated by the Registration Statement or the Prospectus, no material
verbal or written agreement or other transaction shall have been entered
into by the Company or any of its subsidiaries, which is not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company and its subsidiaries, (iii) no loss
or damage (whether or not insured) to the
20.
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property of the Company or any of its subsidiaries shall have been
sustained which materially and adversely affects the condition (financial
or otherwise), business, results of operations or prospects of the Company
and its subsidiaries, (iv) no legal or governmental action, suit or
proceeding affecting the Company or any of its subsidiaries which is
material to the Company or any of its subsidiaries or which affects or may
affect the transactions contemplated by this Agreement shall have been
instituted or threatened and (v) there shall not have been any material
change in the condition (financial or otherwise), business, management,
results of operations or prospects of the Company or any of its
subsidiaries which makes it impractical or inadvisable in the judgment of
the Representatives to proceed with the public offering or purchase the
Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of
the Underwriters, on each Closing Date, in form and substance satisfactory
to you, except as otherwise expressly provided below:
(i) An opinion of Wilson, Sonsini, Goodrich & Rosati,
counsel for the Company and the Selling Stockholders, addressed to the
Underwriters and dated the First Closing Date, or the Second Closing
Date (in the latter case with respect to the Company only), as the
case may be, to the effect that:
(1) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions
where the ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and its subsidiaries, and
has full corporate power and authority to own its properties and
conduct its business and all future proposed business as
described in the Registration Statement;
(2) The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption
"Capitalization" in the Prospectus and conforms as to legal
matters in all material respects to the description thereof
contained in the Registration Statement and the Prospectus under
the caption "Description of Capital Stock"; all necessary and
proper corporate
21.
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proceedings have been taken in order to authorize validly such
authorized Common Stock; all outstanding shares of Common Stock
(including the Firm Common Shares and any Optional Common Shares)
have been duly and validly issued, are fully paid and
nonassessable, have been issued in compliance with federal and
state securities laws, were not issued in violation of or subject
to any preemptive rights or other rights to subscribe for or
purchase any securities and conform to the description thereof
contained in the Prospectus; without limiting the foregoing,
there are no preemptive or other rights to subscribe for or
purchase any of the Common Shares to be sold by the Company
hereunder;
(3) All of the issued and outstanding shares of capital
stock of the Company's subsidiaries have been duly and validly
authorized and issued, are fully paid and nonassessable and are
owned beneficially by the Company free and clear of all liens,
encumbrances, equities, claims, security interests, voting trusts
or other defects of title whatsoever;
(4) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Delaware
law, and when duly countersigned by the Company's transfer agent
and registrar, and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with
the provisions of this Agreement, the Common Shares represented
thereby will be duly authorized and validly issued, fully paid
and nonassessable, will not have been issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase securities and will conform in all respects to the
description thereof contained in the Prospectus;
(5) The execution and delivery of the Merger Agreement,
effecting the reincorporation of the California Corporation under
the laws of the State of Delaware, were duly authorized by all
necessary corporate action on the part of each of the California
Corporation and the Company and were duly authorized by all
necessary action on the part of the stockholders of each of the
California Corporation and the Company;
(6) Each of the California Corporation and the Company
had all corporate power and authority to execute and deliver the
Merger
22.
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Agreement, to file the Merger Agreement with the Secretary of
State of California and the Secretary of State of Delaware and to
consummate the reincorporation contemplated by the Merger
Agreement; the Merger Agreement at the time of execution and
filing constituted a valid and binding obligation of each of the
California Corporation and the Company, enforceable in accordance
with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors' rights generally or by
general equitable principles; the merger between the California
Corporation and the Company (the "Merger") was effected under the
laws of the State of California and the State of Delaware;
(7) Except as disclosed in or specifically
contemplated by the Prospectus, to the best of such counsel's
knowledge, there are no outstanding options, warrants or other
rights calling for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of the Company
or any security convertible into or exchangeable for capital
stock of the Company;
(8) (a) The Registration Statement has become
effective under the Act, and, to the best of such counsel's
knowledge, no stop order proceeding suspending the
effectiveness of the Registration Statement or preventing the use
of the Prospectus has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated by
the Commission; any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and within the time
period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial
statements and schedules included therein as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the Rules
and Regulations;
(c) To the best of such counsel's knowledge, there are
no franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration
23.
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Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not disclosed or filed, as
required;
(d) To the best of such counsel's knowledge, there are
no legal or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described
in the Prospectus which are not described as required; and
(9) The Company has full right, power and authority to
enter into this Agreement and to sell and deliver the Common
Shares to be sold by it to the several Underwriters; this
Agreement has been duly and validly authorized by all necessary
corporate action by the Company, has been duly and validly
executed and delivered by and on behalf of the Company, and is a
valid and binding agreement of the Company in accordance with its
terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally
and except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act as to which no
opinion need be expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license or permit
of or with any court, regulatory, administrative or other
governmental body or agency is required for the execution and
delivery of this Agreement by the Company or the consummation of
the transactions contemplated by this Agreement, except such as
have been obtained and are in full force and effect under the Act
and such as may be required under applicable Blue Sky laws in
connection with the purchase and distribution of the Common
Shares by the Underwriters and the clearance of such offering
with the NASD;
(10) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated will
not conflict with, result in the breach of, or constitute, either
by itself or upon notice or the passage of time or both, a
default under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument known
to such counsel to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or
any of its or their property may be bound or affected which is
material to the Company and its subsidiaries,
24.
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or violate any of the provisions of the certificate of
incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries or violate any statute,
judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company or any of
its subsidiaries or any of its or their property;
(11) Neither the Company nor any subsidiary is in
violation of its certificate of incorporation or bylaws, or other
organizational documents, or to the best of such counsel's
knowledge, in breach of or default with respect to any provision
of any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company or any such subsidiary is a party or
by which it or any of its properties may be bound or affected,
except where such default would not materially adversely affect
the Company and its subsidiaries; and, to the best of such
counsel's knowledge, the Company and its subsidiaries are in
compliance with all laws, rules, regulations, judgments, decrees,
orders and statutes of any court or jurisdiction to which they
are subject, except where noncompliance would not materially
adversely affect the Company and its subsidiaries;
(12) To the best of such counsel's knowledge, no
holders of securities of the Company have rights which have not
been waived to the registration of shares of Common Stock or
other securities, because of the filing of the Registration
Statement by the Company or the offering contemplated hereby;
(13) To the best of such counsel's knowledge, this
Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by or on behalf of each of the
Selling Stockholders; the Agent has been duly and validly
authorized to act as the custodian of the Common Shares to be
sold by each such Selling Stockholder; and the performance of
this Agreement and the Stockholders Agreement and the
consummation of the transactions herein contemplated by the
Selling Stockholders will not result in a breach of, or
constitute a default under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which any
of the Selling
25.
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Stockholders is a party or by which any of the Selling
Stockholders or any of their properties may be bound, or violate
any statute, judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having
jurisdiction over any of the Selling Stockholders or any of their
properties; and to the best of such counsel's knowledge, no
approval, authorization, order or consent of any court,
regulatory body, administrative agency or other governmental body
is required for the execution and delivery of this Agreement or
the Stockholders Agreement or the consummation by the Selling
Stockholders of the transactions contemplated by this Agreement,
except such as have been obtained and are in full force and
effect under the Act and such as may be required under the rules
of the NASD and applicable Blue Sky laws;
(14) To the best of such counsel's knowledge, the
Selling Stockholders have full right, power and authority to
enter into this Agreement and the Stockholders Agreement and to
sell, transfer and deliver the Common Shares to be sold on such
Closing Date by such Selling Stockholders hereunder and good and
marketable title to such Common Shares so sold, free and clear of
all liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts, or other defects of title whatsoever,
has been transferred to the Underwriters (whom counsel may assume
to be bona fide purchasers) who have purchased such Common Shares
hereunder; and
(15) To the best of such counsel's knowledge, this
Agreement and the Stockholders Agreement are valid and binding
agreements of each of the Selling Stockholders in accordance with
their terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally
and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed.
(16) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common Shares to the
Underwriters hereunder.
In rendering such opinion, such counsel may rely as to the
matters set forth in paragraphs (14), (15) and
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(16), on opinions of other counsel retained by the Selling Stockholders, as
to matters of local law, on opinions of local counsel, and as to matters of
fact, on certificates of the Selling Stockholders and of officers of the
Company and of governmental officials, in which case their opinion is to
state that they are so doing and that the Underwriters are justified in
relying on such opinions or certificates and copies of said opinions or
certificates are to be attached to the opinion. Such counsel shall also
include a statement to the effect that nothing has come to such counsel's
attention that would lead such counsel to believe that either at the
effective date of the Registration Statement or at the applicable Closing
Date the Registration Statement or the Prospectus, or any such amendment or
supplement, contains any 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.
(ii) Such opinion or opinions of Brobeck, Phleger & Harrison
LLP, counsel for the Underwriters dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other related matters as you may reasonably require,
and the Company and the Selling Stockholders shall have furnished to
such counsel such documents and shall have exhibited to them such
papers and records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or certificates of
officers of the Company and governmental officials.
(iii) A certificate of the Company executed by the Chairman
of the Board or President and the chief financial or accounting
officer of the Company, dated the First Closing Date or the Second
Closing Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company
set forth in Section 2 of this Agreement are true and correct as
of the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied on or prior to such
Closing Date;
(2) The Commission has not issued any order preventing
or suspending the use of the
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Prospectus or any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no stop order
suspending the effectiveness of the Registration Statement has
been issued; and to the best of the knowledge of the respective
signers, no proceedings for that purpose have been instituted or
are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate
has carefully examined the Registration Statement and the
Prospectus; in his opinion and to the best of his knowledge, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contain all statements required to be stated
therein regarding the Company and its subsidiaries; and neither
the Registration Statement nor the Prospectus nor any amendment
or supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, there
has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), business, properties, results of operations,
management or prospects of the Company and its subsidiaries; and
no legal or governmental action, suit or proceeding is pending or
threatened against the Company or any of its subsidiaries which
is material to the Company and its subsidiaries, whether or not
arising from transactions in the ordinary course of business, or
which may adversely affect the transactions contemplated by this
Agreement; since such dates and except as so disclosed, neither
the Company nor any of its subsidiaries has entered into any
verbal or written agreement or other transaction which is not in
the ordinary course of business or which could result in a
material reduction in the
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future earnings of the Company or incurred any material liability
or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term
debt or funded debt or repurchased or otherwise acquired any of
the Company's capital stock; and the Company has not declared or
paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of record on a
date prior to the First Closing Date or Second Closing Date; and
(6) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus and
except as disclosed in or contemplated by the Prospectus, the
Company and its subsidiaries have not sustained a material loss
or damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(iv) On the First Closing Date a certificate, dated such
Closing Date and addressed to you, signed by or on behalf of each of
the Selling Stockholders to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true and
correct, as if made at and as of the First Closing Date and such
Selling Stockholder has complied with all the agreements and satisfied
all the conditions on his part to be performed or satisfied prior to
the First Closing Date.
(v) On the date before this Agreement is executed and also
on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from Coopers
& Lybrand L.L.P., independent accountants, the first one to be dated
the day before the date of this Agreement, the second one to be dated
the First Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and substance
satisfactory to you.
(vi) On the date before this Agreement is executed and also
on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from Ernst &
Young Chartered Accountants L.L.P., independent accountants, the first
one to be dated the day before the date of this Agreement, the second
one to be dated the First Closing Date and the third one (in the event
of a Second Closing) to be dated the Second Closing Date, in form and
substance satisfactory to you.
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(vii) On or before the First Closing Date, letters from
each of the Selling Stockholders, each holder of one percent or more
of the Company's Common Stock and each director and officer of the
Company, in form and substance satisfactory to you, confirming that
for a period of 180 days after the first date that any of the Common
Shares are released by you for sale to the public, such person will
not directly or indirectly offer to sell, pledge, sell or contract to
sell or otherwise dispose of any shares of Common Stock or any right
to acquire such shares or securities convertible into or exchangeable
for any shares of Common Stock without the prior written consent of
Montgomery Securities, which consent may be withheld at the sole
discretion of Montgomery Securities.
(viii) On or before the First Closing Date, letters from
the holders of [98%] of the Company's outstanding capital stock, from
the holders of 100% of the outstanding options to purchase Common
Stock of the Company, and from the holders of 100% of the outstanding
warrants to purchase Common Stock of the Company, in form and
substance satisfactory to you, confirming that for a period of 180
days after the first date that any of the Common Shares are released
by you for sale to the public, such person will not directly or
indirectly offer to sell, pledge, sell or contract to sell or
otherwise dispose of any shares of Common Stock or any right to
acquire such shares or securities convertible into or exchangeable for
any shares of Common Stock without the prior written consent of
Montgomery Securities and/or the Company, which consent, in the case
of Montgomery Securities, may be withheld at the sole discretion of
Montgomery Securities.
(ix) On or before the First Closing Date, (i) certificates
evidencing the effectiveness of the merger between the California
Corporation and the Company (the "Merger") from each of the Secretary
of the State of California and the Secretary of the State of Delaware,
(ii) satisfaction that no dissenters rights exist as a result of the
Merger, and (iii) satisfaction that the Company has succeeded the
California Corporation in all material respects to the title of all
the assets and privity to all the rights previously owned or held by
the California Corporation, through operation of law.
(x) Evidence that the Common Stock has been approved for
quotation as a National Market System security on The Nasdaq Stock
Market upon notice of issuance.
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All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Brobeck, Phleger & Harrison LLP, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability on
the part of any Underwriter, the Company or the Selling Stockholders except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding
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any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 8, or if the sale to the Underwriters of the Common Shares
at the First Closing is not consummated because of any refusal, inability or
failure on the part of the Company or the Selling Stockholders to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, telegraph charges and telephone charges relating directly to
the offering contemplated by the Prospectus. Any such termination shall be
without liability of any party to any other party except that the provisions of
this Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You, the
---------------------------------------
Company and the Selling Stockholders will use your, its and their best efforts
to cause the Registration Statement to become effective, to prevent the issuance
of any stop order suspending the effectiveness of the Registration Statement
and, if such stop order be issued, to obtain as soon as possible the lifting
thereof.
SECTION 11. Indemnification.
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(a) The Company and each of the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act
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against any losses, claims, damages, liabilities or expenses, joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company or the
Selling Stockholders contained herein or any failure of the Company or the
Selling Stockholders to perform their respective obligations hereunder or
under law; and will reimburse each Underwriter and each such controlling
person for any legal and other expenses as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that
neither the Company nor the Selling Stockholders will be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof. The Company and the
Selling Stockholders may agree, as among themselves and without limiting
the rights of the Underwriters under this Agreement, as to their respective
amounts of such liability for which they each shall be responsible. In
addition to its other obligations under this Section 11(a), the Company and
the Selling Stockholders agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, or any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders herein or failure to
perform its obligations hereunder, all as described in this Section 11(a),
it will reimburse each Underwriter on a quarterly basis for all reasonable
legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to
the propriety
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and enforceability of the Company's or the Selling Stockholders' obligation
to reimburse each Underwriter for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly
return it to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate
for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate").
Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Company or the
Selling Stockholders may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholders and each person, if any,
who controls the Company or any Selling Stockholder within the meaning of
the Act, against any losses, claims, damages, liabilities or expenses to
which the Company, or any such director, officer, Selling Stockholder or
controlling person may become subject, under the Act, the Exchange Act, or
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with
the information furnished to the Company pursuant to Section 4 hereof; and
will reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, Selling
Stockholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. In addition to its
33.
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other obligations under this Section 11(b), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
described in this Section 11(b) which relates to information furnished to
the Company pursuant to Section 4 hereof, it will reimburse the Company
(and, to the extent applicable, each officer, director, controlling person
or Selling Stockholder) on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Underwriters' obligation to reimburse the Company
(and, to the extent applicable, each officer, director, controlling person
or Selling Stockholder) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is
so held to have been improper, the Company (and, to the extent applicable,
each officer, director, controlling person or Selling Stockholder) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within 30 days of
a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 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, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party for contribution or otherwise than under the indemnity agreement
contained in this Section or to the extent it is not prejudiced as a
proximate result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends
to seek indemnity from an indemnifying party, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying
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party and the indemnified party in conducting the defense of any such
action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, the Selling
Stockholders and the Underwriters from the offering of the Common Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Company, the Selling Stockholders and the Underwriters shall be deemed to
be in the same
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proportion, in the case of the Company and the Selling Stockholders as the
total price paid to the Company and to the Selling Stockholders,
respectively, for the Common Shares sold by them to the Underwriters (net
of underwriting commissions but before deducting expenses), and in the case
of the Underwriters as the underwriting commissions received by them bears
to the total of such amounts paid to the Company and to the Selling
Stockholders and received by the Underwriters as underwriting commissions.
The relative fault of the Company, the Selling Stockholders and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or
the alleged inaccurate representation and/or warranty relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in subparagraph (c) of
this Section 11, any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or
claim. The provisions set forth in subparagraph (c) of this Section 11
with respect to notice of commencement of any action shall apply if a claim
for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any
action for which notice has been given under subparagraph (c) for purposes
of indemnification. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the
equitable considerations referred to in this subparagraph (d).
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with
the Common Shares underwritten by it and distributed to the public. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in
proportion to their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements
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set forth in Sections 11(a) and 11(b) hereof, including the amounts of any
requested reimbursement payments and the method of determining such
amounts, shall be settled by arbitration conducted under the provisions of
the Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the
NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in
such demand or notice, then the party responding to said demand or notice
is authorized to do so. Such an arbitration would be limited to the
operation of the interim reimbursement provisions contained in Sections
11(a) and 11(b) hereof and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses which is created by
the provisions of such Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders except for the expenses to be paid by the
Company and the Selling Stockholders pursuant to Section 7 hereof and except to
the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company
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shall have the right to postpone the First or Second Closing Date, as the case
may be, for not more than five business days in order that the necessary changes
in the Registration Statement, Prospectus and any other documents, as well as
any other arrangements, may be effected. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
SECTION 13. Effective Date. This Agreement shall become effective
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immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California Time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California Time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to
you and the Selling Stockholders or by you by notice to the Company and the
Selling Stockholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling Stockholders
to any Underwriter (except for the expenses to be paid or reimbursed by the
Company and the Selling Stockholders pursuant to Sections 7 and 9 hereof
and except to the extent provided in Section 11 hereof) or of any
Underwriter to the Company or the Selling Stockholders (except to the
extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the
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over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such Exchange or in the over the
counter market by the NASD, or a general banking moratorium shall have been
established by federal, New York or California authorities, (ii) if an
outbreak of major hostilities or other national or international calamity
or any substantial change in political, financial or economic conditions
shall have occurred or shall have accelerated or escalated to such an
extent, as, in the judgment of the Representatives, to affect adversely the
marketability of the Common Shares, (iii) if any adverse event shall have
occurred or shall exist which makes untrue or incorrect in any material
respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration
Statement or Prospectus but should be reflected therein in order to make
the statements or information contained therein not misleading in any
material respect, or (iv) if there shall be any action, suit or proceeding
pending or threatened, or there shall have been any development or
prospective development involving particularly the business or properties
or securities of the Company or any of its subsidiaries or the transactions
contemplated by this Agreement, which, in the reasonable judgment of the
Representatives, may materially and adversely affect the Company's business
or earnings and makes it impracticable or inadvisable to offer or sell the
Common Shares. Any termination pursuant to this subsection (b) shall be
without liability on the part of any Underwriter to the Company or the
Selling Stockholders or on the part of the Company or the Selling
Stockholders to any Underwriter (except for expenses to be paid or
reimbursed by the Company and the Selling Stockholders pursuant to Sections
7 and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver.
-------------------------------------------------------
If one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one
or more of the Selling Stockholders to sell and deliver as referred to in this
Section, either you or the Company shall have the right to postpone the Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement,
39.
<PAGE>
Prospectus and any other documents, as well as any other arrangements, may be
effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representa tions, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in
-------
writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: David Baylor, with a copy to Thomas A. Bevilacqua,
Esq. at Brobeck, Phleger & Harrison LLP; and if sent to the Company or the
Selling Stockholders shall be mailed, delivered or telegraphed and confirmed to
the Company at 47370 Fremont Boulevard, Fremont, California 94538 with a copy to
Thomas C. DeFilipps, Esq. at Wilson, Sonsini, Goodrich & Rosati. The Company,
the Selling Stockholders or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of
----------
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 19. Representation of Underwriters. You will act as
------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken jointly or
by Montgomery Securities, as Representatives, will be binding upon all the
Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be
40.
<PAGE>
deemed to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that such Attorney-in-fact
has been duly appointed as Attorney-in-fact by such Selling Stockholder pursuant
to a validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action. Any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all the Selling Stockholders.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
41.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
INTERLINK COMPUTER SCIENCES, INC.
By: _____________________________
President
SELLING STOCKHOLDERS
By: _____________________________
(Attorney-in-fact)
By: _____________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
PUNK, ZIEGEL & KNOELL, L.P.
VOLPE, WELTY & COMPANY
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:___________________________
Managing Director
42.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities
Punk, Ziegel & Knoell, L.P.
Volpe, Welty & Company
--------
TOTAL
========
</TABLE>
A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholders
- --------------------------- ------------------
<S> <C>
----------
TOTAL
==========
</TABLE>
B-1
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
INTERLINK COMPUTER SCIENCES, INC.
Thomas Bredt and Gloria Purdy certify that:
1. They are the Chairman of the Board and Secretary, respectively, of
INTERLINK COMPUTER SCIENCES, INC. (the "Company").
2. The Articles of Incorporation of the Company are amended and restated
to read in their entirety as follows:
"I.
The name of the Company is INTERLINK COMPUTER SCIENCES, INC.
II.
The purpose of the Company is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The Company is authorized to issue two classes of stock, designated "Common
Stock" and "Preferred Stock". The total number of shares which the Company is
authorized to issue is 17,625,000. The number of shares of Common Stock which
the Company is authorized to issue is 15,000,000. The number of shares of
Preferred Stock which the Company is authorized to issue is 2,625,000, all of
which is designated as Series 1 Preferred Stock.
The Series 1 Preferred Stock shall have the rights, preferences, privileges
and restrictions set forth below.
Section 1. General Definitions. For purposes of these Restated Articles
-------------------
of Incorporation, the following definitions shall apply:
(a) "Preferred" or "Series 1 Preferred" shall refer to the Series 1
-----------------------------------
Preferred Stock.
(b) "Common" shall mean the Company's Common Stock.
--------
<PAGE>
(c) "Subsidiary" shall mean any corporation at least 50% of whose
------------
outstanding voting shares shall at the time be owned by the Company or by one or
more of such subsidiaries.
(d) "Board" shall mean the Board of Directors of the Company.
-------
Section 2. Dividend Provisions. The holders of shares of the Series 1
-------------------
Preferred shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the Company) on the Common
Stock at the rate of $0.19 per share of Series 1 Preferred, per annum, payable
when, as and if declared by the Board of Directors. After payment of such
dividends, any additional dividends declared shall be distributed among the
holders of Common Stock and Series 1 Preferred ratably on a share-for-share
basis (with all Preferred participating in such distribution based upon the
number of shares of Common into which each share of Preferred is then
convertible). The right to dividends shall not be cumulative, and no right
shall accrue to holders of any shares by reason of the fact that dividends on
such shares are not declared or paid in any prior year.
Section 3. Liquidation, Merger, Consolidation.
----------------------------------
(a) At any time, in the event of any of the following occurrences (a
"Transaction"):
(i) any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) which will
result in the Company's shareholders immediately prior to such transaction not
holding (by virtue of such shares or securities issued solely with respect
thereto) at least 50% of the voting power of the surviving or continuing entity;
(ii) a sale of all or substantially all of the assets of the
Company, unless the Company's shareholders immediately prior to such sale will,
as a result of such sale, hold (by virtue of securities issued as consideration
for the Company's sale) at least 50% of the voting power of the purchasing
entity; or
(iii) any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary;
then the Company shall take appropriate steps in connection with such
Transaction to ensure that the assets of the Company available for distribution
or such other property issued in connection with such Transaction shall be
distributed at the closing of the Transaction in the order and priority that
follows:
(A) the holders of the Series 1 Preferred shall receive, for
each share of such stock then held, property or cash in an amount equal to the
sum of (A) $2.75 per share of Series 1 Preferred (appropriately adjusted for
stock splits, reverse stock splits and the like) plus (B) all declared but
unpaid dividends on each such share; then
-2-
<PAGE>
(B) property and/or cash shall next be distributed (1) 50%
among the holders of Series 1 Preferred and (2) 50% among the holders of the
Common until the holders of the Series 1 Preferred have received, for each share
of Series 1 Preferred held, property or cash in an amount which, when combined
with the property and/or cash received pursuant to paragraph (A) above, equals
$6.875 (appropriately adjusted for any stock splits, reverse stock splits and
the like); then
(C) property and/or cash shall next be distributed among the
holders of the Common until the holders of the Common have received, for each
share of Common held, property or cash in an amount which, when combined with
the property and/or cash received pursuant to paragraph (B) above, equals $6.875
(appropriately adjusted for stock splits, reverse stock splits and the like);
then
(D) all remaining assets available for distribution shall be
distributed among the holders of the Common and the Series 1 Preferred on a
share-for-share basis, with the holders of the Series 1 Preferred sharing on an
as converted basis.
(b) Any securities to be delivered to the shareholders pursuant to
subsection 3(a) above shall be valued as follows:
(i) If traded on a securities exchange or the National Market
System of the National Association of Securities Dealers, Inc., the value shall
be deemed to be the average of the closing prices of the securities on such
exchange over the 30 day period ending three (3) days prior to the closing;
(ii) If actively traded over the counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30 day period ending three (3) days prior to the closing;
and
(iii) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the Board and the holders
of a majority of the then outstanding shares of Series 1 Preferred or, if they
are unable to agree, by an independent appraiser mutually acceptable to the
Board and to such holders.
Section 4. Conversion. The holders of the Preferred shall have conversion
----------
rights as follows:
(a) Right to Convert. Each share of Series 1 Preferred shall be
----------------
convertible, at the option of the holder thereof, at any time, into such number
of fully paid and nonassessable shares of Common as is determined by dividing
$2.75 by the then applicable Series 1 Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The price at which
shares of Common shall be deliverable upon conversion (the "Series 1 Conversion
Price") shall initially be $2.75 per share of Common. Such initial Series 1
Conversion Price shall be subject to adjustment as hereinafter provided.
-3-
<PAGE>
(b) Automatic Conversion. Each share of Preferred shall
--------------------
automatically be converted into Common at the then applicable conversion rate
upon the earlier of (i) immediately prior to 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 for the account of the Company to the public at a price per share
(determined without regard to underwriter commissions and expenses) of not less
than $6.875 (appropriately adjusted for stock splits, reverse stock splits and
the like) and an aggregate gross offering price of not less than $10,000,000 or
(ii) the election by holders of at least 50% of the outstanding Preferred to so
convert. In the event of such an offering as described in subsection (i) above,
the person(s) entitled to receive the Common issuable upon such conversion of
the Preferred shall not be deemed to have converted such Preferred until
immediately prior to the closing of such underwritten public offering.
(c) Mechanics of Conversion. No fractional shares of Common shall be
-----------------------
issued upon conversion of the Preferred. In lieu of any fractional share to
which a holder would otherwise be entitled, the Company shall pay cash equal to
such fraction multiplied by the then fair market value of a share of Common.
Before any holder of the Preferred shall be entitled to convert the same into
full shares of Common, he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Preferred; provided, however, that in the event of an automatic
conversion pursuant to Section 4(b), the outstanding shares of 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 Company or its transfer agent, and provided further that the
Company 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 Preferred are either delivered to the Company or its
transfer agent as provided above, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. The Company
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of the Preferred, a certificate or certificates for the number of
shares of Common to which he 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 a fractional share of Common, and any declared but unpaid
dividends on the converted Preferred. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred to be converted, and the person or persons
entitled to receive the shares of Common issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common on such date.
(d) Adjustment of Conversion Rate.
-----------------------------
(i) Adjustments for Dilutive Issuances.
----------------------------------
(A) Special Definitions. For purposes of this Section
-------------------
4(d), the following definitions shall apply:
-4-
<PAGE>
(1) 'Options' shall mean rights, options or warrants
-------
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) 'Original Issue Date' shall mean January 26, 1994.
-------------------
(3) 'Convertible Securities' shall mean any evidences
----------------------
of indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(4) 'Additional Shares of Common Stock' shall mean all
---------------------------------
shares of Common Stock issued (or, pursuant to Section 4(d)(i)(C), deemed to be
issued) by the Company after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(aa) upon conversion of the Preferred;
(bb) to officers, directors and employees of, and
consultants to, the Company and/or its Subsidiaries pursuant to any stock,
option or bonus plan, agreement or arrangement approved by the Board; or
(cc) shares of the Company's Common or Preferred
or options or warrants exercisable for such Common or Preferred issued to banks,
savings and loan associations, equipment lessors or other similar institutions
in connection with debt financing provided to the Company and/or any Subsidiary;
or
(dd) as a dividend or distribution on the
Preferred or pursuant to any event for which adjustment is made pursuant to
subparagraph (d)(ii), (iii) or (iv) hereof.
(5) 'Issue Price' with respect to any issuance of
-----------
Additional Shares of Common Stock shall mean the price per share obtained by
dividing the total consideration received by the Company in respect of such
Additional Shares of Common Stock, computed in accordance with Section
4(d)(i)(E) hereof, by the aggregate number of shares of such Additional Shares
of Common Stock issued, computed in accordance with Section 4(d)(i)(C) hereof.
(B) No Adjustment of Conversion Price. No adjustment in
---------------------------------
the Conversion Price of a particular share of Preferred shall be made hereunder
in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Company is less than the Conversion Price in effect on the
date of, and immediately prior to such issue, for such share of Preferred.
(C) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
(1) Options and Convertible Securities. Except as
----------------------------------
otherwise provided in Section 4(d)(i)(B), in the event the Company at any time
or from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for
-5-
<PAGE>
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue of Options or Convertible Securities or, in case such a
record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Section 4(d)(i)(E) hereof) of such Additional Shares of Common Stock would be
less than the Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(aa) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(bb) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for the
issue of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Company upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(cc) no readjustment pursuant to clause (bb) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have
-6-
<PAGE>
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
(dd) in the case of any Options which expire by
their terms not more than 30 days after the date of issue thereof, no adjustment
of the Conversion Price shall be made until the expiration or exercise of all
such Options.
(D) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. In the event the Company shall after the
- ---------------------------------
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
4(d)(i)(C)) without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event such Conversion Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; and provided further that, for the purposes of this Section 4(d)(i)(D),
all shares of Common Stock issuable upon conversion of outstanding Options and
Convertible Securities shall be deemed to be outstanding, and immediately after
any Additional Shares of Common Stock are deemed issued pursuant to Section
4(d)(i)(C), such Additional Shares of Common Stock shall be deemed to be
outstanding.
(E) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(aa) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Company excluding amounts paid
or payable for accrued interest or accrued dividends;
(bb) insofar as it consists of services or
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
(cc) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (aa) and (bb) above,
as determined in good faith by the Board.
-7-
<PAGE>
(2) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Company for Additional Shares of Common
Stock deemed to have been issued pursuant to Section 4(d)(i)(C), relating to
Options and Convertible Securities, shall be determined by dividing
(aa) the total amount, if any, received or
receivable by the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise in full of such Options
or the conversion or exchange in full of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise in full of such Options
for Convertible Securities and the conversion or exchange in full of such
Convertible Securities, by
(bb) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise in full of such Options or the conversion or exchange in full
of such Convertible Securities.
(ii) Adjustments for Subdivisions, Combinations or Consolidations
------------------------------------------------------------
of Common Stock. In the event the outstanding shares of Common Stock shall be
- ---------------
subdivided (by stock split, stock dividend or otherwise), into a greater number
of shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased (to the nearest whole cent). In the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased (to the nearest whole cent).
(iii) Adjustments for Other Distributions. In the event the
-----------------------------------
Company 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 Company 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 Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company which they would
have received had their shares of 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 the Preferred.
(iv) Adjustments for Reclassification, Exchange and Substitution.
-----------------------------------------------------------
If the Common Stock issuable upon conversion of the 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, combination or consolidation of shares provided for above),
the
-8-
<PAGE>
Conversion Price then in effect shall, concurrently with the effectiveness of
such reorganization or reclassification, be proportionately adjusted such that
the 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 shares of Preferred immediately before that
change.
(e) No Impairment. The Company will not, by amendment of its
-------------
Articles 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 Company 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 applicable conversion rights of the holders
of the Preferred, as set forth in this Section 4, against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price or pursuant to this Section
4, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such series of Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Conversion Price for such series of Preferred at the time in effect,
and (iii) the number of shares of Common and the amount, if any, of other
property which at the time would be received upon the conversion of such series
of Preferred.
(g) Notices of Record Date. In the event of any taking by the
----------------------
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any security or right convertible
into or entitling the holder thereof to receive additional shares of Common, or
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each holder of Preferred, at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution, security
or right, and the amount and character of such dividend, distribution, security
or right.
(h) Issue Taxes. The Company shall pay any and all issue taxes and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common on conversion of shares of Preferred pursuant hereto; provided, however,
that the Company shall not be obligated to pay any transfer taxes resulting from
any transfer requested by any holder in connection with any such conversion.
(i) Notices. Any notice required by the provisions of this
-------
Paragraph 4 to be given to the holders of shares of Preferred shall be deemed
given if deposited in the United States
-9-
<PAGE>
mail, postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Company.
(j) The Company shall at all times keep a sufficient number of shares
of Common authorized to allow the conversion of Preferred as set forth in this
Section 4.
Section 5. Voting Rights.
-------------
(a) Except as otherwise required by law, by Section 5(b) or by
Section 6, the holder of each share of Common Stock issued and outstanding shall
have one vote and the holder of each share of the Series 1 Preferred shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Series 1 Preferred could be converted at the record
date for determination of the shareholders 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 shareholders is solicited, such votes to be counted together
with all other shares of stock of the Company having general voting power and
not separately as a class. Holders of Common Stock and Series 1 Preferred shall
be entitled to notice of any shareholders' meeting in accordance with the Bylaws
of the Company. Fractional votes by the holders of Series 1 Preferred shall not,
however, be permitted and any fractional voting rights shall (after aggregating
all shares into which shares of Series 1 Preferred held by each holder could be
converted) be rounded to the nearest whole number.
(b) Election/Removal of Directors.
-----------------------------
(i) Series 1 Preferred Stock. So long as at least 1,181,818
------------------------
shares of Series 1 Preferred are outstanding (adjusted for any stock split,
consolidation or the like), the holders of the Series 1 Preferred shall be
entitled, voting as a separate class, to elect two (2) directors to the Board at
each annual meeting of shareholders, and (to the exclusion of the vote of
holders of the Common) to remove from office any or all of them and to fill any
vacancy or vacancies caused by the resignation, death or removal of any or all
of them.
(ii) Common Stock. So long as at least 1,818,818 shares of
------------
Series 1 Preferred are outstanding (adjusted for any stock split, consolidation
or the like), the holders of Common Stock shall be entitled, voting as a
separate class, to elect two (2) directors to the Board at each annual meeting
of shareholders, and (to the exclusion of the vote of holders of Series 1
Preferred) to remove such directors from office and to fill any vacancy or
vacancies caused by the resignation, death or removal of such director or
directors.
(iii) Voting As A Single Class.
------------------------
(A) So long as at least 1,818,818 shares of Series 1
Preferred are outstanding (adjusted for any stock split, consolidation or the
like, the holders of the Series 1 Preferred and Common Stock, voting together as
a single class (with the Series 1 Preferred voting as described in Section 5(a)
hereof) shall be entitled to elect the remaining directors to the Board at
-10-
<PAGE>
each annual meeting of shareholders and to remove such directors from office and
to fill any vacancy or vacancies caused by the resignation, death or removal of
such director or directors.
(B) At such time as the number of shares of Series 1
Preferred outstanding shall fall below 1,818,818 (adjusted for any stock splits,
consolidations or the like), the holders of Common Stock and Series 1 Preferred
shall vote together as one class in the election and removal of directors, with
the Series 1 Preferred voting as described in Section 5(a) hereof.
Section 6. Covenants. In addition to any other rights provided by law, so
---------
long as at least 1,181,818 shares of the Series 1 Preferred (appropriately
adjusted for any stock split, consolidation or the like) shall be outstanding,
the Company shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the outstanding shares of Series 1
Preferred:
(a) amend or repeal any provision of, or add any provision to, the
Company's Articles of Incorporation or by-laws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series 1 Preferred;
(b) authorize any additional shares of Series 1 Preferred Stock;
(c) authorize or issue shares of any class of stock having any
preference or priority superior to or on a parity with the preferences or
priorities of the Series 1 Preferred, or reclassify any Common into shares
having any preference or priority superior to or on a parity with the
preferences or priorities of the Series 1 Preferred; or
(d) declare or pay, or set aside for payment, any dividends on the
Common (other than dividends payable solely in shares of Common Stock);
(e) effect any sale, transfer or other conveyance of all or
substantially all of the assets of the Company or any consolidation, merger or
other transaction pursuant to which the holders of the Company's capital stock
immediately prior to such transaction own less than a majority of the voting
capital stock of the surviving or continuing entity by virtue of their ownership
of Company capital stock;
(f) amend the Company's by-laws to increase the number of authorized
directors above five (5); or
(g) increase above 2,000,000 the number of shares of Common Stock
reserved for issuance pursuant to any stock, option or bonus plan intended for
the benefit officers, directors and employees of or consultants to the Company
and/or its subsidiaries.
Section 7. Residual Rights. All rights accruing to the outstanding shares
---------------
of the Company not expressly provided for to the contrary herein shall be vested
in the Common.
-11-
<PAGE>
Section 8. Status of Converted Stock. In the event any shares of
-------------------------
Preferred shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and eliminated from the shares which the Company is
authorized to issue.
Section 9. Consent for Certain Repurchases of Common Stock Deemed to be
------------------------------------------------------------
Distributions. Each holder of Preferred shall be deemed to have consented, for
- -------------
purposes of Section 502, 503 and 506 of the California Corporations Code, to
distributions made by the Company in connection with the repurchase of shares of
Common issued to or held by employees or consultants upon termination of their
employment or services or pursuant to agreements providing for the right of said
repurchase between the Company and such persons.
IV.
Section 1. Limitation of Directors' Liability. The liability of the
----------------------------------
directors of the Company for monetary damages shall be eliminated to the fullest
extent permissible under California law.
Section 2. Indemnification of Corporate Agents. The Company is authorized
-----------------------------------
to provide indemnification of agents (as defined in Section 317 of the
California Corporations Code) through bylaw provisions, agreements with agents,
vote of shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the Company and its shareholders.
Section 3. Repeal or Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of the Company relating
to acts or omissions occurring prior to such repeal or modification."
3. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the required vote of Shareholders in accordance with
Sections 902 and 903 of the Company's Code. At the time of approval of this
Restated Certificate of Incorporation, the total number of outstanding shares of
the Company was 4,751,998 shares of Common Stock. The number of shares voting
in favor of the Amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding Common Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: January 21, 1994.
--------------------------------
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<PAGE>
Thomas Bredt
--------------------------------
Gloria Purdy
-13-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
INTERLINK COMPUTER SCIENCES, INC.
FIRST: The name of this corporation is Interlink Computer Sciences, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is 17,625,000
shares. 15,000,000 shares shall be Common Stock, par value $.001 per share, and
2,625,000 shares shall be Preferred Stock, par value $.001 per share, of which
all is designated Series 1 Preferred Stock.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. Subject
to Section 5 herein, the Board of Directors is also authorized, except as to
matters fixed as to Preferred Stock in this Article Fourth, to determine and
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock and to increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that series.
Subject to Section 5 herein, in case the number of shares of any series shall be
so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series. The rights, preferences, privileges and
restrictions granted to or imposed upon the Common Stock and Preferred Stock are
as follows:
1. General Definitions. For purposes of these Restated Articles of
-------------------
Incorporation, the following definitions shall apply:
(a) "Preferred" or "Series 1 Preferred" shall refer to the Series 1
-----------------------------------
Preferred Stock.
(b) "Common" shall mean the Company's Common Stock.
--------
<PAGE>
(c) "Subsidiary" shall mean any corporation at least 50% of whose
------------
outstanding voting shares shall at the time be owned by the Company or by one or
more of such subsidiaries.
(d) "Board" shall mean the Board of Directors of the Company.
-------
2. Dividend Provisions. The holders of shares of the Series 1 Preferred
-------------------
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Company) on the Common Stock at the
rate of $0.19 per share of Series 1 Preferred, per annum, payable when, as and
if declared by the Board of Directors. After payment of such dividends, any
additional dividends declared shall be distributed among the holders of Common
Stock and Series 1 Preferred ratably on a share-for-share basis (with all
Preferred participating in such distribution based upon the number of shares of
Common into which each share of Preferred is then convertible). The right to
dividends shall not be cumulative, and no right shall accrue to holders of any
shares by reason of the fact that dividends on such shares are not declared or
paid in any prior year.
3. Liquidation, Merger, Consolidation.
----------------------------------
(a) At any time, in the event of any of the following occurrences (a
"Transaction"):
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
which will result in the Company's shareholders immediately prior to such
transaction not holding (by virtue of such shares or securities issued solely
with respect thereto) at least 50% of the voting power of the surviving or
continuing entity;
(ii) a sale of all or substantially all of the assets of the
Company, unless the Company's shareholders immediately prior to such sale will,
as a result of such sale, hold (by virtue of securities issued as consideration
for the Company's sale) at least 50% of the voting power of the purchasing
entity; or
(iii) any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary;
then the Company shall take appropriate steps in connection with such
Transaction to ensure that the assets of the Company available for distribution
or such other property issued in connection with such Transaction shall be
distributed at the closing of the Transaction in the order and priority that
follows:
(A) the holders of the Series 1 Preferred shall receive,
for each share of such stock then held, property or cash in an amount equal to
the sum of (A) $2.75 per share of
-2-
<PAGE>
Series 1 Preferred (appropriately adjusted for stock splits, reverse stock
splits and the like) plus (B) all declared but unpaid dividends on each such
share; then
(B) property and/or cash shall next be distributed (1) 50%
among the holders of Series 1 Preferred and (2) 50% among the holders of the
Common until the holders of the Series 1 Preferred have received, for each share
of Series 1 Preferred held, property or cash in an amount which, when combined
with the property and/or cash received pursuant to paragraph (A) above, equals
$6.875 (appropriately adjusted for any stock splits, reverse stock splits and
the like); then
(C) property and/or cash shall next be distributed among
the holders of the Common until the holders of the Common have received, for
each share of Common held, property or cash in an amount which, when combined
with the property and/or cash received pursuant to paragraph (B) above, equals
$6.875 (appropriately adjusted for stock splits, reverse stock splits and the
like); then
(D) all remaining assets available for distribution shall
be distributed among the holders of the Common and the Series 1 Preferred on a
share-for-share basis, with the holders of the Series 1 Preferred sharing on an
as converted basis.
(b) Any securities to be delivered to the shareholders pursuant to
subsection 3(a) above shall be valued as follows:
(i) If traded on a securities exchange or the National Market
System of the National Association of Securities Dealers, Inc., the value shall
be deemed to be the average of the closing prices of the securities on such
exchange over the 30 day period ending three (3) days prior to the closing;
(ii) If actively traded over the counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30 day period ending three (3) days prior to the closing;
and
(iii) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the Board and the holders
of a majority of the then outstanding shares of Series 1 Preferred or, if they
are unable to agree, by an independent appraiser mutually acceptable to the
Board and to such holders.
4. Conversion. The holders of the Preferred shall have conversion rights
----------
as follows:
(a) Right to Convert. Each share of Series 1 Preferred shall be
----------------
convertible, at the option of the holder thereof, at any time, into such number
of fully paid and nonassessable shares of Common as is determined by dividing
$2.75 by the then applicable Series 1 Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The price at which
shares
-3-
<PAGE>
of Common shall be deliverable upon conversion (the "Series 1 Conversion Price")
shall initially be $2.75 per share of Common. Such initial Series 1 Conversion
Price shall be subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Preferred shall
--------------------
automatically be converted into Common at the then applicable conversion rate
upon the earlier of (i) immediately prior to the closing of a firm commitment
underwritten Qualified Public Offering (as defined below) pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common for the account of the Company to the
public at a price per share (determined without regard to underwriter
commissions and expenses) of not less than $6.875 (appropriately adjusted for
stock splits, reverse stock splits and the like) and an aggregate gross offering
price of not less than $10,000,000 or (ii) the election by holders of at least
50% of the outstanding Preferred to so convert. In the event of such an offering
as described in subsection (i) above, the person(s) entitled to receive the
Common issuable upon such conversion of the Preferred shall not be deemed to
have converted such Preferred until immediately prior to the closing of such
underwritten Qualified Public Offering (as defined below).
(c) Mechanics of Conversion. No fractional shares of Common shall be
-----------------------
issued upon conversion of the Preferred. In lieu of any fractional share to
which a holder would otherwise be entitled, the Company shall pay cash equal to
such fraction multiplied by the then fair market value of a share of Common.
Before any holder of the Preferred shall be entitled to convert the same into
full shares of Common, he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Preferred; provided, however, that in the event of an automatic
conversion pursuant to Section 4(b), the outstanding shares of 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 Company or its transfer agent, and provided further that the
Company 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 Preferred are either delivered to the Company or its
transfer agent as provided above, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. The Company
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of the Preferred, a certificate or certificates for the number of
shares of Common to which he 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 a fractional share of Common, and any declared but unpaid
dividends on the converted Preferred. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred to be converted, and the person or persons
entitled to receive the shares of Common issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common on such date.
(d) Adjustment of Conversion Rate.
-----------------------------
-4-
<PAGE>
(i) Adjustments for Dilutive Issuances.
----------------------------------
(A) Special Definitions. For purposes of this Section
-------------------
4(d), the following definitions shall apply:
(1) 'Options' shall mean rights, options or warrants
-------
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) 'Original Issue Date' shall mean January 26, 1994.
-------------------
(3) 'Convertible Securities' shall mean any evidences
----------------------
of indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(4) 'Additional Shares of Common Stock' shall mean
---------------------------------
all shares of Common Stock issued (or, pursuant to Section 4(d)(i)(C), deemed to
be issued) by the Company after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(aa) upon conversion of the Preferred;
(bb) to officers, directors and employees of, and
consultants to, the Company and/or its Subsidiaries pursuant to any stock,
option or bonus plan, agreement or arrangement approved by the Board; or
(cc) shares of the Company's Common or Preferred
or options or warrants exercisable for such Common or Preferred issued to banks,
savings and loan associations, equipment lessors or other similar institutions
in connection with debt financing provided to the Company and/or any Subsidiary;
or
(dd) as a dividend or distribution on the
Preferred or pursuant to any event for which adjustment is made pursuant to
subparagraph (d)(ii), (iii) or (iv) hereof.
(5) 'Issue Price' with respect to any issuance of
-----------
Additional Shares of Common Stock shall mean the price per share obtained by
dividing the total consideration received by the Company in respect of such
Additional Shares of Common Stock, computed in accordance with Section
4(d)(i)(E) hereof, by the aggregate number of shares of such Additional Shares
of Common Stock issued, computed in accordance with Section 4(d)(i)(C) hereof.
(B) No Adjustment of Conversion Price. No adjustment in
---------------------------------
the Conversion Price of a particular share of Preferred shall be made hereunder
in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Company is less than the Conversion Price in effect on the
date of, and immediately prior to such issue, for such share of Preferred.
-5-
<PAGE>
(C) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
(1) Options and Convertible Securities. Except as
----------------------------------
otherwise provided in Section 4(d)(i)(B), in the event the Company at any time
or from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue of Options or Convertible Securities or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 4(d)(i)(E) hereof)
of such Additional Shares of Common Stock would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(aa) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(bb) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for the
issue of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Company upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration
-6-
<PAGE>
deemed to have been received by the Company upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(cc) no readjustment pursuant to clause (bb) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(dd) in the case of any Options which expire by
their terms not more than 30 days after the date of issue thereof, no adjustment
of the Conversion Price shall be made until the expiration or exercise of all
such Options.
(D) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. In the event the Company shall after the
- ---------------------------------
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
4(d)(i)(C)) without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event such Conversion Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; and provided further that, for the purposes of this Section 4(d)(i)(D),
all shares of Common Stock issuable upon conversion of outstanding Options and
Convertible Securities shall be deemed to be outstanding, and immediately after
any Additional Shares of Common Stock are deemed issued pursuant to Section
4(d)(i)(C), such Additional Shares of Common Stock shall be deemed to be
outstanding.
(E) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(aa) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Company excluding amounts paid
or payable for accrued interest or accrued dividends;
-7-
<PAGE>
(bb) insofar as it consists of services or
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
(cc) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (aa) and (bb) above,
as determined in good faith by the Board.
(2) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Company for Additional Shares of Common
Stock deemed to have been issued pursuant to Section 4(d)(i)(C), relating to
Options and Convertible Securities, shall be determined by dividing
(aa) the total amount, if any, received or
receivable by the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise in full of such Options
or the conversion or exchange in full of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise in full of such Options
for Convertible Securities and the conversion or exchange in full of such
Convertible Securities, by
(bb) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise in full of such Options or the conversion or exchange in full
of such Convertible Securities.
(ii) Adjustments for Subdivisions, Combinations or Consolidations
------------------------------------------------------------
of Common Stock. In the event the outstanding shares of Common Stock shall be
- ---------------
subdivided (by stock split, stock dividend or otherwise), into a greater number
of shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased (to the nearest whole cent). In the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased (to the nearest whole cent).
(iii) Adjustments for Other Distributions. In the event the
-----------------------------------
Company 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 Company 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 Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities
-8-
<PAGE>
of the Company which they would have received had their shares of 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 the Preferred.
(iv) Adjustments for Reclassification, Exchange and Substitution.
-----------------------------------------------------------
If the Common Stock issuable upon conversion of the 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, combination or consolidation of shares provided for above),
the Conversion Price then in effect shall, concurrently with the effectiveness
of such reorganization or reclassification, be proportionately adjusted such
that the 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 shares of Preferred immediately before that
change.
(e) No Impairment. The Company will not, by amendment of its
-------------
Articles 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 Company 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 applicable conversion rights of the holders
of the Preferred, as set forth in this Section 4, against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price or pursuant to this Section
4, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such series of Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Conversion Price for such series of Preferred at the time in effect,
and (iii) the number of shares of Common and the amount, if any, of other
property which at the time would be received upon the conversion of such series
of Preferred.
(g) Notices of Record Date. In the event of any taking by the
----------------------
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any security or right convertible
into or entitling the holder thereof to receive additional shares of Common, or
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other
-9-
<PAGE>
securities or property, or to receive any other right, the Company shall mail to
each holder of Preferred, at least 20 days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right, and the amount and
character of such dividend, distribution, security or right.
(h) Issue Taxes. The Company shall pay any and all issue taxes and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common on conversion of shares of Preferred pursuant hereto; provided, however,
that the Company shall not be obligated to pay any transfer taxes resulting from
any transfer requested by any holder in connection with any such conversion.
(i) Notices. Any notice required by the provisions of this
-------
Paragraph 4 to be given to the holders of shares of Preferred shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company.
(j) The Company shall at all times keep a sufficient number of shares
of Common authorized to allow the conversion of Preferred as set forth in this
Section 4.
5. Voting Rights.
-------------
(a) Except as otherwise required by law, by Section 5(b) or by
Section 6, the holder of each share of Common Stock issued and outstanding shall
have one vote and the holder of each share of the Series 1 Preferred shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Series 1 Preferred could be converted at the record
date for determination of the shareholders 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 shareholders is solicited, such votes to be counted together
with all other shares of stock of the Company having general voting power and
not separately as a class. Holders of Common Stock and Series 1 Preferred shall
be entitled to notice of any shareholders' meeting in accordance with the Bylaws
of the Company. Fractional votes by the holders of Series 1 Preferred shall not,
however, be permitted and any fractional voting rights shall (after aggregating
all shares into which shares of Series 1 Preferred held by each holder could be
converted) be rounded to the nearest whole number.
(b) Election/Removal of Directors.
-----------------------------
(i) Series 1 Preferred Stock. So long as at least 1,181,818
------------------------
shares of Series 1 Preferred are outstanding (adjusted for any stock split,
consolidation or the like), the holders of the Series 1 Preferred shall be
entitled, voting as a separate class, to elect two (2) directors to the Board at
each annual meeting of shareholders, and (to the exclusion of the vote of
holders of the Common) to remove from office any or all of them and to fill any
vacancy or vacancies caused by the resignation, death or removal of any or all
of them.
-10-
<PAGE>
(ii) Common Stock. So long as at least 1,818,818 shares of
------------
Series 1 Preferred are outstanding (adjusted for any stock split, consolidation
or the like), the holders of Common Stock shall be entitled, voting as a
separate class, to elect two (2) directors to the Board at each annual meeting
of shareholders, and (to the exclusion of the vote of holders of Series 1
Preferred) to remove such directors from office and to fill any vacancy or
vacancies caused by the resignation, death or removal of such director or
directors.
(iii) Voting As A Single Class.
------------------------
(A) So long as at least 1,818,818 shares of Series 1
Preferred are outstanding (adjusted for any stock split, consolidation or the
like, the holders of the Series 1 Preferred and Common Stock, voting together as
a single class (with the Series 1 Preferred voting as described in Section 5(a)
hereof) shall be entitled to elect the remaining directors to the Board at each
annual meeting of shareholders and to remove such directors from office and to
fill any vacancy or vacancies caused by the resignation, death or removal of
such director or directors.
(B) At such time as the number of shares of Series 1
Preferred outstanding shall fall below 1,818,818 (adjusted for any stock splits,
consolidations or the like), the holders of Common Stock and Series 1 Preferred
shall vote together as one class in the election and removal of directors, with
the Series 1 Preferred voting as described in Section 5(a) hereof.
6. Covenants. In addition to any other rights provided by law, so long
---------
as at least 1,181,818 shares of the Series 1 Preferred (appropriately adjusted
for any stock split, consolidation or the like) shall be outstanding, the
Company shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the outstanding shares of Series 1
Preferred:
(a) amend or repeal any provision of, or add any provision to, the
Company's Articles of Incorporation or by-laws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series 1 Preferred;
(b) authorize any additional shares of Series 1 Preferred Stock;
(c) authorize or issue shares of any class of stock having any
preference or priority superior to or on a parity with the preferences or
priorities of the Series 1 Preferred, or reclassify any Common into shares
having any preference or priority superior to or on a parity with the
preferences or priorities of the Series 1 Preferred; or
(d) declare or pay, or set aside for payment, any dividends on the
Common (other than dividends payable solely in shares of Common Stock);
-11-
<PAGE>
(e) effect any sale, transfer or other conveyance of all or
substantially all of the assets of the Company or any consolidation, merger or
other transaction pursuant to which the holders of the Company's capital stock
immediately prior to such transaction own less than a majority of the voting
capital stock of the surviving or continuing entity by virtue of their ownership
of Company capital stock;
(f) amend the Company's by-laws to increase the number of authorized
directors above five (5); or
(g) increase above 2,000,000 the number of shares of Common Stock
reserved for issuance pursuant to any stock, option or bonus plan intended for
the benefit officers, directors and employees of or consultants to the Company
and/or its subsidiaries.
7. Residual Rights. All rights accruing to the outstanding shares of
---------------
the Company not expressly provided for to the contrary herein shall be vested in
the Common.
8. Status of Converted Stock. In the event any shares of Preferred shall
-------------------------
be converted pursuant to Section 4 hereof, the shares so converted shall be
canceled and eliminated from the shares which the Company is authorized to
issue.
9. Consent for Certain Repurchases of Common Stock Deemed to be
------------------------------------------------------------
Distributions. Each holder of Preferred shall be deemed to have consented, for
- -------------
purposes of Section 502, 503 and 506 of the California Corporations Code, to
distributions made by the Company in connection with the repurchase of shares of
Common issued to or held by employees or consultants upon termination of their
employment or services or pursuant to agreements providing for the right of said
repurchase between the Company and such persons.
FIFTH:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be as set forth in the
corporation's Bylaws.
2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the corporation.
3. The directors of the corporation need not be elected by written ballot
unless a stockholder demands election by written ballot at the meeting and
before voting begins, or unless the Bylaws so provide.
4. Advance notice of stockholder nomination for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
-12-
<PAGE>
5. Vacancies created by the resignation of one or more members of the
Board of Directors and newly created directorships, created in accordance with
the Bylaws of this corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
SIXTH: Following the effectiveness of the registration of any class of
securities of the corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the stockholders
of the corporation except at an annual or special meeting of the stockholders
called in accordance with the Bylaws and no action shall be taken by the
stockholders by written consent.
SEVENTH:
1. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach fiduciary duty as a director.
2. The corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the corporation or any predecessor of the corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
corporation or any predecessor to the corporation.
3. Neither any amendment nor repeal of this Article SEVENTH, nor the
adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article SEVENTH, shall eliminate or reduce the effect of
this Article SEVENTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SEVENTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the corporation may be
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
-13-
<PAGE>
TENTH: The name and mailing address of the incorporator are:
Thomas C. DeFilipps
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is the act and deed of such incorporator and that
the facts stated therein are true.
__________________________________
Thomas C. DeFilipps, Incorporator
-14-
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERLINK COMPUTER SCIENCES, INC.
Interlink Computer Sciences, Inc., a corporation organized and existing
under laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Interlink Computer Sciences, Inc.
Interlink Computer Sciences, Inc. was originally incorporated under the same
name, and the original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the state of Delaware on June __, 1996.
2. Pursuant to Sections 228, 242 and 245 of the General Corporation Laws
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated to read in its entirety as follows:
FIRST: The name of this corporation is Interlink Computer Sciences, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is 25,000,000
shares. 20,000,000 shares shall be Common Stock, par value $.001 per share, and
5,000,000 shares shall be Preferred Stock, par value $.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. The
Board of Directors is also authorized to determine and alter the powers, rights,
preferences and privileges and the qualifications, limitations and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and
within the limitations or restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the
<PAGE>
number of shares constituting any series, to increase or decrease (but not below
the number of shares of such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series, to determine the
designation of any series, and to fix the number of shares of any series. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
FIFTH:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be as set forth in the
corporation's Bylaws.
2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the corporation.
3. The directors of the corporation need not be elected by written ballot
unless a stockholder demands election by written ballot at the meeting and
before voting begins, or unless the Bylaws so provide.
4. Advance notice of stockholder nomination for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
5. Vacancies created by the resignation of one or more members of the
Board of Directors and newly created directorships, created in accordance with
the Bylaws of this corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
SIXTH: Following the effectiveness of the registration of any class of
securities of the corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the stockholders
of the corporation except at an annual or special meeting of the stockholders
called in accordance with the Bylaws and no action shall be taken by the
stockholders by written consent.
SEVENTH:
1. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach fiduciary duty as a director.
2. The corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative
-2-
<PAGE>
or investigative, by reason of the fact that he, his testator or intestate is or
was a director, officer or employee of the corporation or any predecessor of the
corporation or serves or served at any other enterprise as a director, officer
or employee at the request of the corporation or any predecessor to the
corporation.
3. Neither any amendment nor repeal of this Article SEVENTH, nor the
adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article SEVENTH, shall eliminate or reduce the effect of
this Article SEVENTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SEVENTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the corporation may be
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed this ___ day of June, 1996.
INTERLINK COMPUTER SCIENCES, INC.
By: _______________________________
Charles W. Jepson
President and Chief Executive Officer
ATTEST:
- -----------------------------------
Gloria Purdy, Secretary
-3-
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT OF BYLAWS OF
INTERLINK COMPUTER SCIENCES, INC.
James Heffernan, the Secretary of Interlink Computer Sciences, Inc., a
California corporation (the "Company"), hereby certifies that at a meeting on
December 7, 1995, the Company's board of directors amended the second sentence
of Article III, Section 3.2 of the By-Laws of this corporation to read as
follows:
"The exact number of directors shall be five (5) until changed, within
the limits specified above, by a bylaw amending this section 3.2 duly
adopted by the board of directors or by the shareholders."
/s/ James Heffernan
--------------------------------
James Heffernan, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
INTERLINK COMPUTER SCIENCES, INC.
The undersigned, being the Secretary of Interlink Computer Sciences,
Inc., hereby certifies that Section 3.2 of Article III of the Bylaws of this
corporation was amended effective January 27, 1994, by the Board of Directors to
provide that the exact number of directors shall be four (4) until changed,
within the limits specified in the Bylaws.
Dated: January 27, 1994
/s/ Gloria Purdy
-------------------------------------
Gloria Purdy, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
INTERLINK COMPUTER SCIENCES, INC.
The undersigned, being the Secretary of Interlink Computer Sciences, Inc.
hereby certifies that the second sentence of Article III, Section 3.2 of the
Bylaws of this corporation was amended effective March 7, 1990 by the Board of
Directors to provide in its entirety as follows:
ARTICLE III
3.2 NUMBER OF DIRECTORS.
-------------------
The exact number of directors shall be five (5) until changed, within the
limits specified above, by a bylaw amending this Section 3.2, duly adopted by
the board of directors or by the shareholders.
Date: April 5, 1990
/s/ Richard Godfrey
--------------------------------------
Richard Godfrey, Secretary
<PAGE>
BYLAWS
OF
ICS TECHNOLOGY, INC.
<PAGE>
BYLAWS OF
ICS TECHNOLOGY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- CORPORATE OFFICES.................................. 1
1.1 Principal Office...................................... 1
1.2 Other Offices......................................... 1
ARTICLE II -- MEETINGS OF SHAREHOLDERS.......................... 1
2.1 Place of Meetings..................................... 1
2.2 Annual Meeting........................................ 1
2.3 Special Meeting....................................... 2
2.4 Notice of Shareholders' Meetings...................... 2
2.5 Manner of Giving Notice; Affidavit of
Notice.............................................. 3
2.6 Quorum................................................ 3
2.7 Adjourned Meeting; Notice............................. 4
2.8 Voting................................................ 4
2.9 Validation of Meetings; Waiver of Notice;
Consent............................................. 5
2.10 Shareholder Action by Written Consent Without
a Meeting........................................... 6
2.11 Record Date for Shareholder Notice; Voting;
Giving Consents..................................... 7
2.12 Proxies............................................... 7
2.13 Inspectors of Election................................ 8
ARTICLE III -- DIRECTORS
3.1 Powers................................................ 9
3.2 Number of Directors................................... 9
3.3 Election and Term of Office of Directors.............. 9
3.4 Resignation and Vacancies............................. 10
3.5 Place of Meetings; Meetings by Telephone.............. 10
3.6 Regular Meetings...................................... 11
3.7 Special Meetings; Notice............................. 11
3.8 Quorum................................................ 11
3.9 Waiver of Notice...................................... 12
3.10 Adjournment........................................... 12
3.11 Notice of Adjournment................................. 12
3.12 Board Action by Written Consent Without a
Meeting............................................. 12
3.13 Fees and Compensation of Directors.................... 12
3.14 Approval of Loans to Officers......................... 13
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV -- COMMITTEES....................................... 13
4.1 Committees of Directors.............................. 13
4.2 Meetings and Action of Committees.................... 13
ARTICLE V -- OFFICERS.......................................... 14
5.1 Officers............................................. 14
5.2 Election of Officers................................. 15
5.3 Subordinate Officers................................. 15
5.4 Removal and Resignation of Officers.................. 15
5.5 Vacancies in Offices................................. 15
5.6 Chairman of the Board................................ 15
5.7 President............................................ 16
5.8 Vice Presidents...................................... 16
5.9 Secretary............................................ 16
5.10 Chief Financial Officer.............................. 17
ARTICLE VI -- INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS..................... 17
6.1 Indemnification of Directors and Officers............ 17
6.2 Indemnification of Others............................ 18
ARTICLE VII -- RECORDS AND REPORTS............................. 18
7.1 Maintenance and Inspection of Share
Register........................................... 18
7.2 Maintenance and Inspection of Bylaws................. 19
7.3 Maintenance and Inspection of Other
Corporate Records.................................. 19
7.4 Inspection by Directors.............................. 20
7.5 Annual Report to Shareholders; Waiver................ 20
7.6 Financial Statements................................. 20
7.7 Representation of Shares of Other
Corporations....................................... 21
ARTICLE VIII -- GENERAL MATTERS
8.1 Record Date for Purposes Other Than Notice
and Voting......................................... 21
8.2 Checks; Drafts; Evidences of Indebtedness............ 22
8.3 Corporate Contracts and Instruments:
How Executed....................................... 22
8.4 Certificates for Shares.............................. 22
8.5 Lost Certificates.................................... 23
8.6 Construction; Definitions............................ 23
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX -- AMENDMENTS 23
9.1 Amendment by Shareholders............................ 23
9.2 Amendment by Directors............................... 23
</TABLE>
-iii-
<PAGE>
BYLAWS
------
OF
ICS TECHNOLOGY, INC.
-------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state
and the corporation has one or more business offices in such state, then the
board of directors shall fix and designate a principal business office in the
State of California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate offices
at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at a
time designated by the board of directors. In the absence of such designation,
the annual meeting of shareholders shall be held on the third Thursday of April
in each year at 10:00 However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the board
of directors, or by the chairman of the board, or by the president, or by one or
more shareholders holding shares in the aggregate entitled to cast not less than
ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the board
of directors or the president or the chairman of the board, then the request
shall be in writing, specifying the time of such meeting and the general nature
of the business proposed to be transacted, and shall be delivered personally or
sent by registered mail or by telegraphic or other facsimile transmission to the
chairman of the board, the president, any vice president or the secretary of the
corporation. The officer receiving the request shall cause notice to be
promptly given to the shareholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held
at the time requested by the person or persons calling the meeting, so long as
that time is not less than thirty-five (35) nor more than sixty (60) days after
the receipt of the request. If the notice is not given within twenty (20) days
after receipt of the request, then the person or persons requesting the meeting
may give the notice. Nothing contained in this paragraph of this Section 2.3
shall be construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action BY~THE shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Cor
-2-
<PAGE>
porations Code of California (the "CODE"), (ii) an amendment of the articles
of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of
the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary
dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of the Code, then the
notice shall also state the general nature of that proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the shares
entitled to vote thereat constitutes a quorum for the
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transaction of business at all meetings of shareholders The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed ar if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided, however,
that any election for directors must be by ballot if demanded by any shareholder
at the meeting and before voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails
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to specify the number of shares which the shareholder is voting affirmatively,
it will be conclusively presumed that the shareholder's approving vote is with
respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a shareholder
shall be entitled to cumulate votes (i.e., cast for any candidate a number of
votes greater than the number of votes which such shareholder normally is
entitled to cast) if the candidates' names have been placed in nomination prior
to commencement of the voting and the shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes -equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after the meeting, each
person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. The waiver of notice or consent or approval
need not specify either the business to be transacted or the purpose of any
annual or special meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
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Attendance by a person at a meeting shall also constitute a waiver of notice
of and presence at that meeting, except when the person objects at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened. Attendance at a meeting is not a waiver of any
right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective only
if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director,OR may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing receive by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been solicited
in writing and if the unanimous written consent of all such shareholders has not
been received, then the secretary shall give prompt notice of the corporate
action approved by the shareholders without a meeting. Such notice shall be
given to those shareholders entitled to vote who have not consented in writing
and shall be given in the manner specified in Section 2.5 of these bylaws. In
the case of approval of (i) a contract or transaction in which a director has a
direct or indirect financial interest, pursuant to Section 310 of the Code, (ii)
indemnification of a corporate "agent," pursuant to Section 317 of the Code,
(iii) a reorganization of the corporation, pursuant to Section 1201 of the Code,
and (iv) a distribution in dissolution other than in accordance' with the rights
of outstanding preferred shares, pursuant to Section
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2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any meeting
or to vote thereat or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in such event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, (i) when no prior action by the
board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action by the board has been taken, shall be at the
close of business on the day on which the board adopts the resolution relating
to that action, or the sixtieth (60th) day before the date of such other action,
whichever is later.
The record date for any other purpose shall be as provided in Article VIII of
these bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed
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the proxy revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (ii) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector ~R inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
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(g) do any other acts that may be proper to conduct the election or vote with
fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the articles of
incorporation and these bylaws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than four (4) nor
more than seven (7). The exact number of directors shall be four (4) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office
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is effective at a future time, the board of directors may elect a successor to
take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist (i)
in the event of the death, resignation or removal of any director, (ii) if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony,
(iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within or
outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
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3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if the
times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may be
called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally
or by telephone to each director or sent by first-class mail or telegram,
charges prepaid, addressed to each director at that director's address as it is
shown on the records of the corporation. If the notice is mailed, it shall be
deposited (Pounds)N the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum for
the transaction of business, except to adjourn as provided in Section 3.10 of
these bylaws. Every act or decision done or made by a majority of the directors
present at a duly held meeting at which a quorum is present shall be regarded as
the act of the board of directors, subject to the provisions of Section 310 of
the Code (as to approval of contracts or transactions in which a director has a
direct or indirect material financial interest), Section 311 of the Code (as to
appointment of committees), Section 317(e) of the Code (as to indemnification
of directors), the articles of incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
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3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a waiver
of notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or (ii) who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
such directors. All such waivers, consents, and approvals shall be filed with
the corporate records or made part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
board of directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum, may
adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than twenty-four (24) hours. If the
meeting is adjourned for more than twenty-four (24) hours, then notice of the
time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may be
taken without a meeting, provided that all members of the board individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if, any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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3.14 APPROVAL OF LOANS TO OFFICERS*
------------------------------
The corporation may, upon the approval of the board of directors alone, make
loans of money or property to, or guarantee the obligations of, any officer of
the corporation or its parent or subsidiary, whether or not a director, or adopt
an employee benefit plan or plans authorizing such loans or guaranties provided
that (i) the board of directors determines that such a loan or guaranty or plan
may reasonably be expected to benefit the corporation, (ii) the corporation has
outstanding shares held of record by 100 or more persons (determined as provided
in Section 605 of the Code) on the date of approval by the board of directors,
and (iii) the approval of the board of directors is by a vote sufficient without
counting the vote of any interested director or directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving on the board or
any committee;
- ----------------
*This section is effective only if it has been approved by the shareholders in
accordance with Sections 315(b) and 153 of the Code.
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(d) the amendment or repeal of these bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors which
by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a rate or
in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors or the
members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken in
accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a chief
financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
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5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment .
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to appoint,
such other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority, and perform such duties
as are provided in these bylaws or as the board of directors may from time to
time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting[g of the board or, except
in case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may from time to time be assigned to him by the board
of directors or as may be prescribed by these bylaws. If there is no president,
then the chairman of the board shall also be the chief executive officer of the
cor-
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poration and shall have the powers and duties prescribed in Section
5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any, in
order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
SUB3ECT to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of the
shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The chief financial officer shall deposit all money and other valuables in the
name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
--------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Section 6.1,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
-17-
<PAGE>
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" of the corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was an employee or agent
of a corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at the
office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
-18-
<PAGE>
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or by
an agent or attorney of the shareholder or holder of a voting trust certificate
making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust certificate,
at any reasonable time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. The inspection may be made in person or by an agent or
attorney and shall include the right to copy and make extracts. Such rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
-19-
<PAGE>
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to inspect
all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as the
shares of the corporation are held by fewer than one hundred (100) holders of
record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not
-20-
<PAGE>
already prepared, and shall deliver personally or mail that statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders its
annual report for the last fiscal year, the statements referred to in the first
paragraph of this Section 7.6 shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this section
shall be accompanied by the report, if any, of any independent accountants
engaged by the corporation or by the certificate of an authorized officer of the
corporation that the financial statements were prepared without audit from the
books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
-----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
-21-
<PAGE>
If the board of directors does not so fix a record date, then the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified& by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued to
each shareholder when any of such shares are fully paid. The board of directors
may authorize the issuance of certificates for shares partly paid provided that
these certificates shall state the total amount of the consideration to be paid
for them and the amount actually paid. All certificates shall be signed in the
name of the corporation by the chairman of the board or the vice chairman of the
board or the president or a vice president and by the chief financial officer or
an assistant treasurer or the secretary or an assistant secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
-22-
<PAGE>
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares shall
be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person"includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of these
bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
-23-
<PAGE>
EXHIBIT 4.1
LOCK-UP AGREEMENT
-----------------
May 3, 1996
-----------
MONTGOMERY SECURITIES
PUNK, ZIEGEL & KNOELL, L.P.
VOLPE, WELTY & COMPANY
c/o Montgomery Securities
600 Montgomery Street
San Francisco, CA 94111
Ladies and Gentlemen:
The undersigned understands that Montgomery Securities, Punk, Ziegel &
Knoell, L.P., and Volpe, Welty & Company (the "Representatives") as
representatives of the several underwriters, propose to enter into an
Underwriting Agreement with Interlink Computer Sciences, Inc., a California
corporation (the "Company"), and certain shareholders of the Company providing
for the public offering of shares of Common Stock of the Company (the "Common
Stock") pursuant to a Registration Statement on Form S-1 (the "Registration
Statement") expected to be filed with the Securities and Exchange Commission.
In consideration of the agreement by the several underwriters to offer
and sell the Common Stock pursuant to the public offering, and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned agrees that he, she or it will not, for a period
from the date of filing of the Registration Statement through the date 180 days
following the date of the final Prospectus relating to the public offering of
the Common Stock, sell (including, without limitation, any short sale), offer to
sell, contract to sell, pledge or otherwise dispose of any of the Common Stock,
or any options or warrants to purchase any of the Common Stock, or any
securities convertible into or exchangeable for any of the Common Stock, owned
directly by the undersigned or with respect to which the undersigned has the
power of disposition, in any such case whether now owned or hereafter acquired,
other than (i) pursuant to the Underwriting Agreement, (ii) as a bona fide gift
or gifts, provided that the undersigned provides prior written notice of such
gift or gifts to the Representatives and the donee or donees thereof agree to be
bound by the restrictions set forth herein or (iii) with the prior written
consent of Montgomery Securities, which consent may be withheld at the sole
discretion of Montgomery Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of any of the Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
The undersigned understands that the Company, the Representatives and
the several underwriters will proceed toward the proposed offering in reliance
upon this Lock-Up Agreement.
Very truly yours,
-------------------------------
(Print Name of Shareholder)
-------------------------------
(Signature)
-------------------------------
(Title, if applicable)
<PAGE>
Exhibit 4.3
INTERLINK COMPUTER SCIENCES, INC.
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT DATED JANUARY 27,1994
This Amendment is made effective as of April 25, 1996 and amends the
Registration Rights Agreement dated January 27, 1994, as amended on December 27,
1995, (the "Agreement") by and among the Company and the holders of Restricted
Securities (as defined in the AGREEMENT).
1. Section 5.4 of the Agreement is hereby amended in its entirety to read as
follows:
"Allocation of Shares in Registrations.
-------------------------------------
(a) For the purposes of this Section 5.4, "Initial Public Offering" is
defined as the first public registration of the Company's Common Stock on Form
S-1, or similar form, filed and made effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"). Exclusively
for the purposes of the Initial Public Offering, the Holders will allow the
Company, in consultation with the underwriters, to include as Registrable
Securities those shares held by holders of securities who are not currently
officers or directors of the Company and who are not subject to a lock-up period
substantially similar to Section 5.7 of the Agreement (the "Additional
Holders"). For the purposes of this Section 5.4, the securities held by the
Additional Holders will be included in the definition of Registrable Securities.
(b) Notwithstanding any other provision of this Agreement, if the managing
underwriter advises the Company and/or the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the underwriter may exclude some or all Registrable
Securities from such registration and underwriting as to the Initial Public
Offering, and as to subsequent registrations, the underwriters may exclude
Registrable Securities proposed to be registered, but only so long as the
Registrable Securities comprise at least 30% of the offering. In the event that
the number of shares of Registrable Securities to be included in a registration
shall be limited pursuant to the foregoing, the Company shall so advise all
Holders and Additional Holders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders and Additional Holders in proportion, as nearly as
practicable, to the respective amounts of Restricted Securities then held by
Holders and Additional Holders requesting to have shares included in the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration.
(c) Notwithstanding any other provision of this Section 5.4, to facilitate
the allocation of shares in accordance with the above provisions, the Company
and/or the underwriters may allow each Holder and Additional Holder to include
in the Initial Public Offering up to the greater of (i) 1,000 shares or (ii) the
proportionate amount calculated in Section 5.4(b) above. Any Holders or
Additional Holders who hold fewer than 1,000 Common or Preferred Shares will be
required to sell their entire holding if they wish to participate in the Initial
Public Offering."
<PAGE>
2. Miscellaneous. This Amendment will be effective upon execution by a
-------------
majority in interest of the Holders of Restricted Securities (as defined in the
Agreement). The other provisions of the Agreement shall continue in full force
and effect pursuant to its terms. This Amendment shall constitute the consent of
the undersigned under Section 5.11 and Section 7 of the Agreement to the extent
that this Amendment provides additional registration rights or adversely affects
the Holders' existing registration rights. This Amendment shall be governed by
the laws of the state of California, without regard to their conflicts of laws
provisions. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one instrument,
The foregoing AMENDMENT TO REGISTRATION RIGHTS AGREEMENT is hereby executed
as of the date first above written.
"COMPANY" INTERLINK COMPUTER SCIENCES, INC.
By:
------------------------------------
Title:
---------------------------------
"SHAREHOLDERS" IMPERIAL BANK
BY:
------------------------------------
Title:
---------------------------------
Address: 2460 Sand Hill Road
Suite 102
Menlo Park, CA 94025
MENLO EVERGREEN V, L.P.
MENLO VENTURES V, L.P.
By: MV Management IV, L.P.
their General Partner
By:
------------------------------------
Thomas Bredt
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT DATED JANUARY 27,
1994]
-2-
<PAGE>
ADTEL LIMITED PARTNERSHIP
ADVENTACT LIMITED PARTNERSHIP
ADWEST LIMITED PARTNERSHIP
GLOBAL PRIVATE EQUITY II
LIMITED PARTNERSHIP
GOLDEN GATE DEVELOPMENT AND
INVESTMENT LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
Advent International
Corporation, General Partner
Andrew I. Fillat, Vice President*
AUSTIN VENTURE CAPITAL LIMITED
TVM EUROPEAN VENTURE NETWORK
LIMITED PARTNERSHIP
By: Andrew I. Fillat,
Attorney-in-fact*
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
By: Advent International
Corporation, General Partner
By: Andrew I. Fillat, Vice President*
* For all of the above:
-------------------------------------
Andrew I. Fillat
Address: 101 Federal Street
Boston, MA 02110
[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT DATED JANUARY 27,
1994]
-3-
<PAGE>
INTERLINK COMPUTER SCIENCES, INC.
AMENDMENT TO SHAREHOLDERS' AGREEMENT
AND REGISTRATION RIGHTS AGREEMENT
This Amendment is made effective as of December 27, 1995 and amends the
Shareholders' Agreement dated January 27, 1994 by and among Interlink Computer
Sciences, Inc. (the "Company") and the shareholders of the Company listed on
Exhibit A thereto, as amended (the "Shareholders' Agreement"), and the
- ---------
Registration Rights Agreement dated January 27, 1994 by and among the Company
and the shareholders of the Company listed on Exhibit A thereto, as amended (the
---------
"Registration Rights Agreement").
AGREEMENT
---------
1. Shareholders' Agreement. The right of first refusal provisions of the
-----------------------
Shareholders' Agreement are hereby amended to specify that the definition of
"New Securities" in Section 3. 1 does not include either (i) the warrants (and
the 162,500 shares of Series 1 Preferred Stock underlying such warrants) to be
issued to Imperial Bank in connection with the credit facility provided by
Imperial Bank on or about December 28, 1995, for the purpose of the acquisition
of all of the outstanding capital stock of New Era Systems Services, Inc. (the
"New Era Acquisition"), or (ii) the warrants (and the 700,000 shares of Common
Stock underlying such warrants) to be issued to certain securityholders of New
Era in connection with the New Era Acquisition.
2. Registration Rights Agreement. The Registration Rights Agreement is
-----------------------------
hereby amended to include in the definition of "Registrable Securities" the
700,000 shares of Common Stock issuable upon exercise of the warrants issued in
connection with the New Era Acquisition and the 162,500 shares of Common Stock
issuable upon conversion of the Series 1 Preferred Stock underlying the warrants
issued to Imperial Bank in connection with the New Era Acquisition. Pursuant to
Section 5.11 of the Registration Rights Agreement, the undersigned consent to
the grant of such additional registration rights.
3. Miscellaneous. This Amendment has been executed by a majority in
-------------
interest of the Series 1 Preferred held by the shareholders of the Company
listed on Exhibit A to the Shareholders' Agreement and by a majority in interest
---------
of the holders of Restricted Securities (as defined in the Registration Rights
Agreement). The other provisions of the Shareholders' Agreement and the
Registration Rights Agreement shall continue in full force and effect pursuant
to the terms of such agreements. This Amendment shall be governed by the laws of
the state of California, without regard to their conflicts of laws provisions.
This Amendment may be executed in one or more counterparts, each of which shall
be deemed an original, and all of which together shall constitute one
instrument.
<PAGE>
This Amendment to the Shareholders' Agreement and the Registration
Rights Agreement is executed effective as of the date first written above.
INTERLINK COMPUTER SCIENCES, INC. ADTEL LIMITED PARTNERSHIP
ADVENTACT LIMITED PARTNERSHIP
By: ADWEST LIMITED PARTNERSHIP
------------------------------- GLOBAL PRIVATE EQUITY II
LIMITED PARTNERSHIP
Title: GOLDEN GATE DEVELOPMENT AND
---------------------------- INVESTMENT LIMITED
PARTNERSHIP
MENLO VENTURES IV, L.P. By: Advent International Limited
Partnership, General Partner
By:
------------------------------- By: Advent International Corporation,
MV Management IV, L.P. General Partner
Its General Partner By: Andrew I. Fillat,Vice President*
AUSTIN VENTURE CAPITAL LIMITED
By: TVM EUROPEAN VENTURE NETWORK
------------------------------- LIMITED PARTNERSHIP
General Partner
By: Andrew I. Fillat, Attorney-in-fact*
MENLO EVERGREEN V, L.P.
ADVENT INTERNATIONAL INVESTORS II
By: LIMITED PARTNERSHIP
-------------------------------
MV Management IV, L.P. By: Advent International Corporation,
Its General Partner General Partner
By: Andrew I. Fillat, Vice President*
By: *For all of the above:
-------------------------------
General Partner
---------------------------------
Andrew I. Fillat
Address: 101 Federal Street
Boston, MA 02110
-2-
<PAGE>
- -------------------------------------------------------------------------------
INTERLINK COMPUTER SCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT
January 27, 1994
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.......................................................... 1
2. Restrictions on Transferability...................................... 3
3. Restrictive Legend . ................................................ 3
4. Notice of Proposed Transfers......................................... 3
5. Registration Rights.................................................. 4
5.1 Requested Registration......................................... 4
5.2 Piggy-Back Registration........................................ 6
5.3 Registration on Form S-3....................................... 6
5.4 Allocation of Shares in Registrations.......................... 7
5.5 Expenses of Registration....................................... 7
5.6 Registration Procedures........................................ 8
5.7 Lockup Agreement............................................... 9
5.8 Indemnification................................................ 9
5.9 Rule 144 Reporting............................................. 11
5.10 Transfer of Registration Rights................................ 12
5.11 Limitations on Subsequent Registration Rights.................. 12
5.12 Termination of Rights.......................................... 12
6. Information by Company............................................... 13
6.1 Annual and Quarterly Financial Information...................... 13
6.2 Monthly Financial Information................................... 13
6.3 Confidentiality Agreement....................................... 13
6.4 Termination..................................................... 14
7. Amendment............................................................ 14
8. Counterparts......................................................... 14
9. Governing Law........................................................ 14
10. Entire Agreement..................................................... 14
11. Notices, Etc......................................................... 14
12. Prior Agreement; Waiver.............................................. 15
</TABLE>
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 27th day of January,
1994 by and among INTERLINK COMPUTER SCIENCES, INC., a California corporation
(the "Company"), and the shareholders of the Company listed on Exhibit A
attached hereto (the "Shareholders").
RECITALS:
WHEREAS, the Company and certain Shareholders are party to that certain
Amended and Restated Shareholders' Agreement dated October 20, 1992 (the "Prior
Agreement") providing such Shareholders with, among other things, registration
rights; and
WHEREAS, the Company has agreed to sell shares of its Series 1 Preferred
Stock to certain purchasers (the "Purchasers") and desires to provide those
Purchasers with, among other things, registration rights as provided herein; and
WHEREAS, the parties desire to amend and restate the Prior Agreement to set
forth all obligations, rights and terms with respect to the above stated matters
in one document.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Shares" shall mean those shares of the Company's Common Stock
-------------
indicated on Exhibit A hereto as being held by a Shareholder .
"Conversion Stock" means shares of the Company's Common Stock issued
----------------
or issuable pursuant to conversion of the Company's Series 1 Preferred Stock.
"Debtholder Shares" means any Common Stock issued or issuable to any
bank, savings and loan association, equipment lessor or other institution or
entity which provides debt financing to the Company now holding or hereafter
issued warrants to purchase shares of the Company's equity securities provided
that (a) at the time a warrant is issued to such entity the Board of Directors
grants such entity rights hereunder and (b) such entity agrees to be bound by
the provisions hereof, which agreement shall be evidenced by such entity's
<PAGE>
execution hereof (and, upon execution hereof, such entity shall be deemed to be
included within the definition of "Shareholder" for all purposes hereunder).
"Holders shall mean the holders of Registrable Securities or any
-------
securities of the Company convertible into Registrable Securities, or any
transferee of such Holder under Section 13.
"Initiating Holders" shall mean any Shareholders or transferees of
------------------
Shareholders under Section 5.9 hereof who in the aggregate are Holders of not
less than 25% of the then outstanding Registrable Securities.
"Preferred Shares" shall mean those shares of the Company's Series 1
----------------
Preferred Stock indicated on Exhibit A hereto as being held by a Shareholder and
additional shares of Series 1 Preferred issued in respect of such shares upon
any stock split, stock dividend or the like.
"Registrable Securities" means (i) the Common Shares, (ii) the
----------------------
Conversion Stock; (iii) the Debtholder Shares; and (iv) any Common Stock of the
Company issued or issuable in respect of any stock described in clauses (i),
(ii) or (iii) above; excluding in all cases, however, any Registrable Securities
sold by a Holder including a sale pursuant to a registration statement under
this Agreement, a transaction pursuant to Rule 144 promulgated under the
Securities Act or any other transaction in which registration rights are not
transferred pursuant to Section 5.9 hereof.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Section 5 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
the fees and disbursements of one counsel to the selling Holders and the expense
of any special audits incident to or required by any such registration, but
excluding Selling Expenses (as defined below),
"Restricted Securities" shall mean (i) the Registrable Securities and
---------------------
(ii) the Preferred Shares.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations
-2-
<PAGE>
of the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
2. Restrictions on Transferability. The Restricted Securities shall not
-------------------------------
be transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each holder of Restricted Securities will cause any proposed
transferee of such securities to agree to take and hold such securities subject
to the provisions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing Restricted
-------------------
Securities shall (unless otherwise permitted by the provisions of Section 4
below) be stamped or otherwise imprinted with a legend in the following form (in
addition to any legend required under applicable state securities laws)
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT.
4. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 4. Prior to any proposed
transfer of any Restricted Securities, unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to the Company of such holder's intention
to effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail and shall, if the
Company so requests, be accompanied by either (i) a written opinion of legal
counsel who shall be reasonably satisfactory to the Company addressed to the
Company and reasonably satisfactory in form and substance to the Company's
counsel to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
-3-
<PAGE>
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company; provided, however, that no opinion or no action
letter need be obtained with respect to a transfer without consideration to
(A) any affiliated entity of a holder of Restricted Securities, (B) a partner
active or retired, of a holder of Restricted Securities, (C) the estate of any
such partner or a trust established for the benefit of the descendants or any
relatives or spouse of such partner, (D) to a parent corporation or wholly-owned
subsidiary of a holder of Restricted Securities or to a wholly-owned subsidiary
of such parent, or (E) to the spouse of a holder of Restricted Securities;
provided, in any such case, that the transferee agrees in writing to be subject
to the terms hereof. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
5. Registration Rights.
-------------------
5.1 Requested Registration.
----------------------
(a) In case the Company shall receive from Initiating Holders a
written request that the Company effect any registration, qualification or
compliance with respect to some or all of the Registrable Securities held by
them and, provided such registration will involve the sale of Common Stock to
the public at an offering price of at least $6.875 per share (subject to
appropriate adjustment for stock splits, dividends, combinations and the like)
and an aggregate offering price to the public of at least $10,000,000, the
Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best lawful efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities law and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities or Commonholders' Registrable Securities of any Holders joining in
such request as are specified in a written request received
-4-
<PAGE>
by the Company within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance
pursuant to this Section 5.1:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to six months following the Company's first
registration under the Securities Act;
(C) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
three (3) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration
of securities in a Rule 145 transaction or with respect to an employee benefit
plan), providing that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective
(and provided, further, that the Company cannot pursuant to this Section 5.1
(a)(ii)(C) delay implementation of a demand for registration more than once in
any 24-month period);
(D) After the Company has effected two such registrations
pursuant to this subsection 5.1, and such registrations have been declared or
ordered effective; or
(E) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best lawful efforts to
register, qualify or comply under this Section 5.1 shall be deferred once (with
respect to any demand for registration hereunder) for a period not to exceed
ninety (90) days from the date of receipt of written request from the Initiating
Holders, provided that the Company may, by furnishing another certificate
pursuant to this Section 5.1(a)(ii)(E), delay implementation of a demand for
registration for successive periods of up to ninety (90) days each.
Subject to the foregoing clauses (A) through (E), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Initiating Holders.
-5-
<PAGE>
(b) Underwriting. In the event that a registration pursuant to
------------
Section 5.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's participation
in the underwriting arrangements required by this Section 5.1, and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested shall be limited to the extent provided in Section 5.4 hereof.
The Company, together with all Holders and other holders
proposing to distribute their securities through such underwriting, shall enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by a majority in interest of the Initiating
Holders, but subject to the Company's reasonable approval. If any Holder of
Registrable Securities (or other holder distributing its securities through the
underwriting) disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration, and such
Registrable Securities shall not be transferred in a public distribution prior
to 180 days after the effective date of such registration, or such other shorter
period of time as the underwriters may require.
(c) The Company shall not register securities for sale for its
own account in any registration requested pursuant to this Section 5.1 unless
permitted to do so by the written consent of Holders who hold a majority of the
Registrable Securities as to which registration has been requested or unless the
underwriter shall indicate in writing to the Initiating Holders that the
inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may not
cause any other registration of securities for sale for its own account (other
than a registration effected solely to implement an employee benefit plan or
stock option plan or a transaction contemplated by Rule 145 of the Commission)
to be initiated after a registration requested pursuant to Section 5.1 and to
become effective less than 9O days after the effective date of any registration
requested pursuant to Section 5.1.
5.2 Piggy-Back Registration. If at any time the Company shall
-----------------------
determine to register any of its securities other than (i) a registration
relating solely to employee benefit plans, (ii) a registration relating solely
to a Commission Rule 145 transaction or
-6-
<PAGE>
(iii) a registration in which the only Common Stock being registered is Common
Stock issuable upon conversion of convertible debt securities that are also
being registered, then:
(a) the Company will promptly give to each Holder written notice
thereof; and
(b) will, subject to Section 5.4, include in such registration
(and any related qualification under state securities laws) and in any
underwriting involved therein all the Registrable Securities specified in a
written request or requests made within 15 days after receipt of such written
notice from the Company by any Holder.
5.3 Registration on Form S-3. If a Holder or Holders request that
------------------------
the Company file a registration statement on Form S-3 (or any successor thereto)
for a public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which would exceed $1,000,000, and
the Company is a registrant entitled to use Form S-3 to register such shares for
such an offering, the Company shall use its best efforts to cause such shares to
be registered for the offering on such form (or any successor thereto) . In the
event of a request pursuant to this Section 5.3, the Company shall follow the
procedures, and the rights and obligations of the parties shall be subject to
the limitations, set forth in Section 5.1 as if such Section applied to
registrations on Form S-3; disregarding, however, the transaction size
requirements of Section 5.1(a).
5.4 Allocation of Shares in Registrations. Notwithstanding any other
-------------------------------------
provision of this Agreement, if the managing underwriter advises the Company
and/or the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the underwriter may
exclude some or all Registrable Securities from such registration and
underwriting as to the first registered public offering of the Company's Common
Stock, and as to subsequent registrations, the underwriters may exclude
Registrable Securities proposed to be registered, but only so long as the
Registrable Securities comprise at least 30% of the offering. In the event that
the number of shares of Registrable Securities to be included in a registration
shall be limited pursuant to the foregoing, the Company shall so advise all
Holders, and the number of shares of Registrable Securities that may be included
in the registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Restricted
Securities then held by Holders requesting to have shares included in the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included
-7-
<PAGE>
in such registration. To facilitate the allocation of shares in accordance
with the above provisions, the Company or the underwriters may round the number
of shares allocated to any Holder to the nearest 100 shares.
5.5 Expenses of Registration.
------------------------
(a) All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 5.1 or 5.2
shall be borne by the Company. Unless otherwise stated, all Selling Expenses
relating to securities registered by the Holders shall be borne by the holders
of such securities pro rata on the basis of the number of shares so registered.
(b) With respect to the first two registrations effected
pursuant to Section 5.3, all Registration Expenses incurred shall be borne by
the Company and all Selling Expenses relating to securities registered by the
Holders in such registrations shall be borne by the holders of such securities
pro rata on the basis of the number of shares so registered. With respect to any
additional registrations effected pursuant to Section 5.3, all Registration and
Selling Expenses shall be borne by the Holder or Holders participating in the
registration on Form S-3 pro rata according to the number of Registrable
Securities so registered.
5.6 Registration Procedures.
-----------------------
(a) In the case of each registration, qualification or
compliance effected by the Company pursuant to this Agreement, the Company will
keep each Holder advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense
the Company will:
(i) Keep such registration, qualification or compliance
effective for a period of 120 days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs;
(ii) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably request;
(iii) 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
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<PAGE>
respect to the disposition of all securities covered by such registration
statement; and
(iv) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(b) In the event of any registration pursuant to Sections 5.1 or
5.2 hereof, the Company will exercise its best efforts to register and qualify
the securities covered by the registration statement under such other securities
laws of such jurisdictions (not exceeding 20 unless otherwise agreed to by the
Company) as shall be reasonably appropriate for the distribution of such
securities; provided, however, that (i) the Company shall not be required to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and (ii) notwithstanding anything in this Section
8(b) to the contrary, 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 Holders,
such expenses shall be payable pro rata by selling Holders.
(c) Information by Holder. The holder or holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such party and the distribution proposed by such holder or
holders as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
5.7 Lockup Agreement. In consideration for the Company agreeing to
----------------
its obligations under this Agreement, each Holder hereby agrees in connection
with the first registration of the Company's securities not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Registrable Securities (other than those included in the registration)
without the prior written consent of the Company or underwriters managing the
offering, as the case may be, for such period of time from the effective date of
such registration as the underwriters may specify; provided, however, that such
Holder shall be relieved of its obligations under this Section 5.7 unless all
executive officers and directors of the Company enter into similar agreements.
Each Holder hereby agrees that, upon the request of the Company or the
underwriters, it will confirm in writing the provisions of this Section 5.7.
-9-
<PAGE>
5.8 Indemnification
---------------
(a) The Company will indemnify each Holder, each of its officers
and directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof) , including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the 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 will reimburse each such Holder,
each of its officers and directors and such Holder's legal counsel and
independent accountants, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission in a
registration statement or prospectus, made in reliance upon and in conformity
with written information furnished to the Company by a Holder or underwriter
specifically for use therein; provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the amended prospectus filed with
the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter or any Holder, if
there is no underwriter, if the untrue statement (or alleged untrue statement)
or omission (or alleged omission) was corrected in the Final Prospectus and a
copy of the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
-10-
<PAGE>
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, legal counsel, independent accountants, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use therein; provided,
however, that the obligations of such Holders hereunder shall be limited to an
amount equal to the proceeds to each such Holder of Registrable Securities sold
as contemplated herein and provided further that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the Final Prospectus, such indemnity
agreement shall not inure to the benefit of the Company, any underwriter or any
Holder, if there is no underwriter, if the untrue statement) or omission (or
alleged omission) was corrected in the Final Prospectus and a copy of the Final
Prospectus was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(c) Each party entitled to indemnification under this Section
5.8 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
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<PAGE>
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
5.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission that may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements);
(c) Furnish to holders of Restricted Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after 9O days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act
and the Securities Exchange Act of 1934 (at any time after it has become subject
to such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such securities without
registration.
5.10 Transfer of Registration Rights. The rights and obligations
-------------------------------
granted to Holders under this Agreement may be assigned to a transferee or
assignee (other than a competitor of the Company)
-12-
<PAGE>
who acquires at least 100,000 Common Shares (or all such shares originally
purchased from the Company by Holder, if less than 100,000) that have not been
sold to the public (other than an acquisition pursuant to an open market
purchase), provided that the Company is given written notice of such assignment
prior to such assignment and that the transferee is not a person deemed to be a
competitor of the Company by the Board of Directors. Notwithstanding the above,
the rights and obligations granted Holders under this Agreement may be freely
assigned to any affiliated entity or any constituent partner of a Holder, where
such Holder is a partnership, or to any parent or subsidiary corporation where
such Holder is a corporation.
5.11 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the holders of a majority of the Registrable Securities then held by
Holders, enter into any agreement with any holder or prospective holder of any
securities of the Company that would allow such holder or prospective holder to
include such securities in any registration filed under Section 5 hereof, unless
under the terms of such agreement, such holder or prospective holder may include
such securities in any such registration only to the extent that the inclusion
of its securities will not diminish the amount of Registrable Securities that
are includable pursuant to this Agreement.
5.12 Termination of Rights. The rights granted pursuant to this
---------------------
Section 5 to have shares included in a registration shall terminate as to any
Holder at such time as such Holder may sell under Rule 144 in any single three
month period all Registrable Securities then held by such Holder and, at such
time, the shares held by any such person shall no longer be deemed to be
"Registrable Securities."
6. Information by Company. The Company hereby covenants and agrees as
----------------------
follows:
6.1 Annual and Quarterly Financial Information. The Company will
------------------------------------------
furnish the following reports to each Holder for so long as such Holder is a
holder of shares of the Restricted Securities:
(a) As soon as practicable after the end of each fiscal year,
and in any event within 9O days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year,
consolidated statements of income, consolidated statements of cash flows and
consolidated statements of shareholders' equity of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
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<PAGE>
audited by independent public accountants of national standing selected by the
Company.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company and in
any event within 45 days thereafter, a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such quarterly period,
consolidated statements of income, consolidated statements of cash flows and
consolidated statements of shareholders' equity of the Company and its
subsidiaries for such period and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles (except that no
notes thereto need be included), all in reasonable detail, subject to changes
resulting from year-end audit adjustments.
6.2 Monthly Financial Information. The Company will furnish the
-----------------------------
following reports to each Holder who holds at least 225,000 shares of Restricted
Securities (appropriately adjusted for any stock split, reverse stock split
recapitalization and the like) as soon as practicable after the end of each
month, and in any event within 30 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such month, and
statements of cash flows and consolidated statements of income for each month
and for the current fiscal year to date, together with a comparison of such
statements to the Company's operating plan then in effect and approved by its
Board of Directors. Notwithstanding the above, the Company is under no
obligation to prepare and deliver any of the financial documents referred to in
this Section 6.2 that are not otherwise prepared for the Company's own internal
use.
6.3 Confidentiality Agreement. Each Holder and any successor or
-------------------------
assign of such Holder who receives from the Company or its agents, directly or
indirectly, any information that the Company has not made generally available to
the public, pursuant to the preparation and execution of this Agreement or
disclosure in connection therewith or pursuant to the provisions of this Section
6, acknowledges and agrees that such information is confidential, and further
agrees that it will not disseminate such information to any person other than
its accountant, investment advisor, attorney and its constituent partners or
affiliated entities.
6.4 Termination. All rights under this Section 6 shall terminate at
-----------
such time as the Company becomes subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as amended
7. Amendment. This Agreement and any term hereof may be amended, waived,
---------
discharged or terminated by a written instrument
-14-
<PAGE>
signed (in one or more counterparts) by the Company and by holders of a majority
in interest of the Restricted Securities; provided, however, that in the event
such amendment or waiver adversely affects the rights and/or obligations of
holders of Preferred Shares (or the Common Shares issuable upon conversion of
the Preferred Shares) in a different manner than it affects the other Holders,
such amendment or waiver shall also require the written consent of a majority to
the holders of the then outstanding Preferred Shares (and/or the holders of a
majority of the Common Shares issued upon conversion of the Preferred Shares).
Any amendment or waiver effected in accordance with this Section 7 shall be
binding upon each Holder whether or not such Holder consented in writing to the
amendment or waiver.
8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
9. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California.
10. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding the subject matter
hereof. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
11. Notices Etc. All notices and other communications required or
-----------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or three days after deposit
with the United States mail, by registered or certified mail, postage prepaid,
addressed (a) if to a Holder, at such Holder's address as set forth on Exhibit
A, or at such other address as such Holder shall have furnished to the Company
in writing in accordance with this Section 12, or (b) if to the Company, at its
principal office; provided, however, that if any such notice or other
communication requires a response to be made or other action to be taken by the
recipient within 15 calendar days from the date thereof, the Company shall send
the notice, at its election, by a service that guarantees delivery within two
days, by telegram or by mailgram, any of which shall be deemed effectively given
two days after delivery of such notice to such service.
12. Prior Agreement; Waiver. This Agreement supersedes and replaces the
-----------------------
Prior Agreement in its entirety, and such Prior Agreement shall be of no further
force or effect upon execution of this Agreement by the Company and by holders
of a majority is interest of
-15-
<PAGE>
the Registrable Securities (as that term was defined under the Prior Agreement).
-16-
<PAGE>
The foregoing REGISTRATION RIGHTS AGREEMENT is hereby executed as of the date
first above written.
"COMPANY" INTERLINK COMPUTER SCIENCES, INC.
By:
--------------------------------
"SHAREHOLDERS"
-----------------------------------
(Print Name of Shareholder)
By:
--------------------------------
(Signature)
Title:
-------------------------------
(Title of Signatory,
if applicable)
-17-
<PAGE>
EXHIBIT 10.1
INTERLINK COMPUTER SCIENCES, INC.
1992 STOCK PLAN
(as amended ____________________, 1996)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under this Plan may be incentive stock options (as
defined under Section 422 of the Code or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code. Stock purchase rights and
long-term performance awards may also be granted under this Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Company" means Interlink Computer Sciences, Inc., a California
-------
corporation.
(f) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services. The term Consultant shall not include directors
who are not compensated for their services or are paid only a director's fee by
the Company.
(g) "Continuous Status as an Employee or Consultant" means the
----------------------------------------------
absence of any interruption or termination of the employment or consulting
relationship by the Company or any Subsidiary. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of: (i) any leave
of absence approved by the Board, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (ii) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or its successor.
<PAGE>
(h) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(j) "Fair Market Value" means, as of any date, the value of Stock
-----------------
determined as follows:
(i) If the Stock is listed on any established stock exchange or
a national market system including without limitation the Nasdaq National Market
or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange or the exchange with the
greatest volume of trading in Stock for the last market trading day prior to the
day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Stock on the last market
trading day prior to the day of determination; or
(iii) In the absence of an established market for the Stock, the
Fair Market Value thereof shall be determined in good faith by the
Administrator.
(k) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(l) "Long-Term Performance Award" means an award under Section 12
---------------------------
below. A Long-Term Performance Award shall permit the recipient to receive a
cash or stock bonus (as determined by the Administrator) upon satisfaction of
such performance factors as are set out in the recipient's individual grant.
Long-Term Performance Awards shall be based upon the achievement of Company,
Subsidiary and/or individual performance factors or upon such other criteria as
the Administrator may deem appropriate.
(m) "Long-Term Performance Award Agreement" means a written agreement
-------------------------------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Long-Term Performance Award grant. The Long-Term Performance Award
Agreement is subject tot he terms and conditions of the Plan.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" means the Stock subject to an Option.
--------------
-2-
<PAGE>
(q) "Optionee" means an Employee or Consultant who receives an Option
--------
or Right.
(r) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1992 Stock Plan.
----
(t) "Restricted Stock" means shares of Stock acquired pursuant to a
----------------
grant of Stock Purchase Rights under Section 11 below.
(u) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right.
(v) "Right" means a Long-Term Performance Award or a Stock Purchase
-----
Right granted pursuant to the Plan.
(w) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(x) "Section 16(b)" means Section 16(b) of the Exchange Act of 1934,
-------------
as amended.
(y) "Share" means a share of the Stock, as adjusted in accordance
-----
with Section 15 of the Plan.
(z) "Stock" means the Common Stock of the Company;
-----
(aa) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan.
(bb) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 15 of
-------------------------
the Plan, the maximum aggregate number of shares of Stock which may be optioned
and sold under the Plan is 3,910,000. The shares may be authorized, but
unissued, or reacquired Stock.
If an Option or Right should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. Shares of Restricted Stock that are
repurchased by the Company at their original purchase price shall also become
available for future grants under the Plan.
-3-
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options and Rights to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in sub stitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to directors, non-
director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options and Rights to Employees or
- ---------
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of employee stock plans, if
any, of California corporate and securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Stock, in
accordance with Section 2(j) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and Rights may from time to time be granted hereunder;
-4-
<PAGE>
(iii) to determine whether and to what extent Options and Rights
are granted hereunder;
(iv) to determine the number of shares of Stock to be covered by
each award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or waiver of
forfeiture restrictions regarding any Option or Right and/or the shares of Stock
relating thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion);
(vii) to reduce the exercise price of any Option or Right;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws.
(ix) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of Options or Rights.
5. Eligibility. Nonstatutory Stock Options, Stock Purchase Rights, and
-----------
Long-Term Performance Awards may be granted to Employees and Consultants.
Incentive Stock Options may be granted only to Employees. An Employee or
Consultant who has been granted an Option or Right may, if he or she is
otherwise eligible, be granted an additional Options or Rights.
6. Limitations.
-----------
(a) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(b) For purposes of Section 6(a), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
-5-
<PAGE>
(c) Neither the Plan nor any Option or Right shall confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
(d) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 15.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 15), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 21 of the Plan. It shall
continue in effect until June 1, 2002 unless sooner terminated under Section 17
of the Plan.
8. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement. In the case of an Incentive Stock Option, the term shall
be no more than ten (10) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement. In the case of an Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power
-6-
<PAGE>
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other shares of the Company's capital stock
which (x) in the case of shares of the Company's capital stock acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (y) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, (5) delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (6) a
reduction in the amount of any Company liability to the Optionee, including any
liability attributable to the Optionee's participation in any Company-sponsored
deferred compensation program or arrangement; or (7) any combination of the
foregoing methods of payment.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including perfor mance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised, and the Optionee
deemed to be a shareholder of the shares being purchased upon exercise, when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board, consist
of any consideration and method of payment allowable under Section 9(b) of the
Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
----------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement to the extent that he or she is entitled to exercise it on the date of
-7-
<PAGE>
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. In the case of an Incentive Stock
Option, such period of time for exercise shall not exceed three (3) months from
the date of termination. If, on the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, the Optionee's
Continuous Status as an Employee or Consultant shall not automatically terminate
solely as a result of such change in status. In such event, an Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option
three months and one day following such change of status.
(c) Disability of Optionee. Upon termination of an Optionee's
----------------------
Continuous Status as an Employee or Consultant as a result of the Optionee's
total and permanent disability (as defined in Section 22(c)(3) of the Code, the
Optionee may exercise his or her Option at any time within twelve (12) months
from the date of termination, but only to the extent that the Optionee is
entitled to exercise it on the date of termination (and in no event later than
the expiration of the term of the Option as set forth in the Option Agreement).
If, on the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. Upon the death of an Optionee, the Option
-----------------
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a person who
acquires the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee would have been entitled to exercise the Option on
the date of death. If, at the time of death, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If the Optionee's
estate or the person who acquires the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. Stock Purchase Rights.
---------------------
-8-
<PAGE>
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time within
which the offeree must accept such offer, which shall in no event exceed six (6)
months from the date upon which the Administrator made the determination to
grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and
----------
Shares purchased by Insiders in connection with Stock Purchase Rights, shall be
subject to any restrictions applicable thereto in compliance with Rule 16b-3. An
Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Admin istrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(e) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. Long-Term Performance Awards.
----------------------------
(a) Administration. Long-Term Performance Awards are cash or stock
--------------
bonus awards that may be granted either alone or in addition to other awards
granted under the Plan. Such awards may be granted for no cash consideration.
The Administrator shall determine the nature, length and starting date of any
performance period (the "Performance Period") for each Long-Term Performance
Award, and shall determine the performance or employment factors, if any, to be
used in the determination of Long-Term Performance Awards and the extent to
which such Long-Term Performance Awards are valued or have been earned. Long-
Term Performance Awards may vary from participant to participant and between
groups of participants and shall be based upon the achievement of Company,
Subsidiary, Parent and/or individual performance factors or upon such
-9-
<PAGE>
other criteria as the Administrator may deem appropriate. Performance Periods
may overlap and participants may participate simultaneously with respect to
Long-Term Performance Awards that are subject to different Performance Periods
and different performance factors and criteria. Long-Term Performance Awards
shall be confirmed by, and be subject to the terms of, Long-Term Performance
Award agreements. The terms of such awards need not be the same with respect to
each participant.
At the beginning of each Performance Period, the Administrator may
determine for each Long-Term Performance Award subject to such Performance
Period the range of dollar values or number of shares of Common Stock to be
awarded to the participant at the end of the Performance Period if and to the
extent that the relevant measures of performance for such Long-Term Performance
Award are met. Such dollar values or number of shares of Common Stock may be
fixed or may vary in accordance with such performance or other criteria as may
be determined by the Administrator.
(b) Adjustment of Awards. The Administrator may adjust the
--------------------
performance factors applicable to the Long-Term Performance Awards take into
account changes in legal, accounting and tax rules and to make such adjustments
as the Administrator deems necessary or appropriate to reflect the inclusion or
exclusion of the impact of extraordinary or unusual items, events or
circumstances in order to avoid windfalls or hardships.
13. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
-10-
<PAGE>
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
14. Non-Transferability of Options and Rights. Options and Rights may not
-----------------------------------------
be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
15. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Right, the
Optionee shall have the right
-11-
<PAGE>
to exercise the Option or Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be exercisable. If an Option or Right
is exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option or
Right shall be fully exercisable for a period of fifteen (15) days from the date
of such notice, and the Option or Right shall terminate upon the expiration of
such period. For the purposes of this paragraph, the Option or Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Right, for each Share of Optioned
Stock subject to the Option or Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
16. Date of Grant. The date of grant of an Option or Right shall, for all
-------------
purposes, be the date on which the Administrator makes the determination
granting such Option or Right, or such other date as is determined by the Board.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Right is so granted within a reasonable time after the date of
such grant.
17. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
18. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations
-12-
<PAGE>
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
19. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
20. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
21. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
-13-
<PAGE>
EXHIBIT 10.2
INTERLINK COMPUTER SCIENCES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock Purchase
Plan of Interlink Computer Sciences, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Interlink Computer Sciences, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) For the purposes of the Enrollment Date under the first
Offering Period under the Plan, the Fair Market Value of the Common Stock shall
be the price to public as set forth in the final prospectus included within the
Registration Statement on form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Common Stock
(4) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board.
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after November 1 and May
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later. The first Offering Period shall be the period
commencing with the first Trading Day on or after the date on which the
Company's registration statement on Form S-1 is declared effective by the
Securities and Exchange Commission and terminating on the last Trading Day on or
before November 1, 1998. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the
-2-
<PAGE>
first Purchase Period of any Offering Period shall commence on the Enrollment
Date and end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof. The first Offering Period shall begin on the
effective date of the initial public offering of the Company's Common Stock that
is filed with the Securities and Exchange Commission and shall end on the last
Trading Day on or before November 1, 1998. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
-4-
<PAGE>
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier with drawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at
-5-
<PAGE>
any time by giving written notice to the Company in the form of Exhibit B to
this Plan. All of the participant's payroll deductions credited to his or her
account shall be paid to such participant promptly after receipt of notice of
withdrawal and such participant's option for the Offering Period shall be
automatically terminated, and no further payroll deductions for the purchase of
shares shall be made for such Offering Period. If a participant withdraws from
an Offering Period, payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, he or she shall be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option shall be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
(c) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be five hundred thousand
(500,000) shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 18 hereof. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds the
number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
-6-
<PAGE>
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the
-------------------
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such partici pant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
-7-
<PAGE>
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, as well as the price per share and
the number of shares of Common Stock covered by each option under the Plan which
has not yet been exercised, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, any Purchase Periods then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised
-8-
<PAGE>
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
-9-
<PAGE>
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
INTERLINK COMPUTER SCIENCES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the Interlink Computer Sciences, Inc. 1996 Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only): _________
__________________________________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in
<PAGE>
an amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within 30 days
--------------------------------------------------------------
after the date of any disposition of my shares and I will make adequate
-----------------------------------------------------------------------
provision for Federal, state or other tax withholding obligations, if any,
--------------------------------------------------------------------------
which arise upon the disposition of the Common Stock. The Company may, but
----------------------------------------------------
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time of
such disposition, and that such income will be taxed as ordinary income
only to the extent of an amount equal to the lesser of (1) the excess of
the fair market value of the shares at the time of such disposition over
the purchase price which I paid for the shares, or (2) 15% of the fair
market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be taxed
as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
______________________________________________________________
(First) (Middle) (Last)
__________________________________ ___________________________________
Relationship
___________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: __________________________________________
Employee's Address:
__________________________________________
__________________________________________
__________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_______________________ __________________________________________
Signature of Employee
__________________________________________
Spouse's Signature (If beneficiary other than
spouse)
-3-
<PAGE>
EXHIBIT B
---------
INTERLINK COMPUTER SCIENCES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Interlink
Computer Sciences 1996 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically termi nated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE>
EXHIBIT 10.3
INTERLINK COMPUTER SCIENCES, INC.
1996 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Interlink Computer Sciences, Inc., a California
-------
corporation.
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date
<PAGE>
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means a Director who holds an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 100,000 Shares of Common Stock (the "Pool"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. The provisions set forth in this Section
--------------------
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules
-2-
<PAGE>
thereunder. All grants of Options to Outside Directors under this Plan shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this Plan, as
determined in accordance with Section 6 hereof, or (B) the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 2,500 Shares (a "Subsequent Option") on the date of his or
her re-election to the Board each year, if as of such date, he or she shall have
served on the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option. In the event
that the date of grant of the First Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 1/48th of the Shares subject to the First Option each
month after its date of grant, provided that the Optionee continues to serve as
a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall be
as follows:
-3-
<PAGE>
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option. In the
event that the date of grant of the Subsequent Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 100% of the Shares subject to the Subsequent
Option on the fourth anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of
-4-
<PAGE>
the Shares as to which said Option shall be exercised, (iv) delivery of a
properly executed exercise notice together with such other documentation as the
Company and the broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must comply
----------
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions, and
other transactions by Outside Directors that otherwise could be matched with
Plan transactions, for the maximum exemption from Section 16 of the Exchange
Act.
(c) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
-5-
<PAGE>
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(d) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such ter mination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(e) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and
-6-
<PAGE>
no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. Except as set forth in Section 4,
-------------------------
the Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee
-7-
<PAGE>
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act (or any other applicable law or regulation), the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
-8-
<PAGE>
EXHIBIT 10.4
INTERLINK COMPUTER SCIENCES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_______________, 1996 by and between Interlink Computer Sciences, Inc., a
Delaware corporation (the "Company"), and ___________________________________,
("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the sig nificant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement to provide indemnification and
advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) or group acting in concert, other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two
<PAGE>
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, (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 (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Interlink Computer Sciences, Inc., any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger to which
Interlink Computer Sciences, Inc. (or any of its wholly owned subsidiaries) is a
party which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution
-2-
<PAGE>
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of
---------------------------
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges
-3-
<PAGE>
paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
--------------------------------------------------------------
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceed ing. Absent such litigation, any
determination by any Reviewing Party shall be conclusive and binding on the
Company and Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has
-----------------------------------------------
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its
-4-
<PAGE>
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the employment of separate
counsel by one or more Indemnitees has been previously authorized by the Company
in writing, or (ii) an Indemnitee shall have provided to the Company a written
statement that such Indemnitee has reasonably concluded that there may be a
conflict of interest between such Indemnitee and the other Indemnitees with
respect to the matters arising under this Agreement.
(e) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense
-------------------
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition
-5-
<PAGE>
precedent to Indemnitee's right to be indemnified or Indemnitee's right to
receive Expense Advances under this Agreement, give the Company notice in
writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that
- ----------
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by this Agreement or applicable law. In addition, neither the failure
of any Reviewing Party to have made a determination as to whether Indemnitee has
met any particular standard of conduct or had any particular belief, nor an
actual determination by any Reviewing Party that Indemnitee has not met such
standard of conduct or did not have such belief, prior to the commencement of
legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under this Agreement under applicable law,
shall be a defense to Indemnitee's claim or create a presumption that Indemnitee
has not met any particular standard of conduct or did not have any particular
belief. In connection with any determination by any Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder
under applicable law, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company,
-6-
<PAGE>
(B) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from
-7-
<PAGE>
indemnifying its directors, officers, employees, agents or fiduciaries under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense
----------------------------
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for Expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation
-8-
<PAGE>
of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any
similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
---------------------------------------------------------------------
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ulti mately successful in such action, unless as a part of such action a
court having jurisdiction over such action makes a final judicial determination
(as to which all rights of appeal therefrom have been exhausted or lapsed) that
each of the material assertions made by Indemnitee as a basis for such action
was not made in good faith or was frivolous; provided, however, that until such
final judicial determination is made, Indemnitee shall be entitled under Section
3 to receive payment of Expense Advances hereunder with respect to such action.
In the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action a court having jurisdiction over such
action makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
14. 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, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from
-9-
<PAGE>
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.
15. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
in the State of Delaware without regard to principles of conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall
-10-
<PAGE>
constitute a waiver of any other provisions hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
INTERLINK COMPUTER SCIENCES, INC.
By: ________________________________________
Print Name: ____________________________________
Title: ________________________________________
Address:
AGREED TO AND ACCEPTED
INDEMNITEE:
_______________________________________
(signature)
Print Name:____________________________
-11-
<PAGE>
Address:_______________________________
-12-
<PAGE>
EXHIBIT 10.5
[LETTERHEAD OF BTI BUS TECH, INC.]
OEM/REMARKETING AGREEMENT
-------------------------
ARTICLE I - RECITAL
-------
This agreement is made as of February 13 1989, by and between Bus-
Tech, Inc., a Massachusetts corporation, having its place of business at 131
Middlesex Turnpike, Burlington, Massachusetts 01803 (hereinafter BTI), and ICS
Technology, Inc. (hereinafter Interlink), a California corporation, having its
principal place of business at 47370 Fremont Blvd., Fremont, California 94538.
Whereas, Interlink intends to purchase from BTI Product described in
Attachment A and BTI desires to manufacture and sell such Product to Interlink;
Now, therefore, in consideration of the premises and the covenants of
the parties set forth herein, it is agreed as follows:
ARTICLE II - DEFINITIONS
-----------
"Product" as used herein shall be as described in the specifications,
Attachment A.
ARTICLE III - PURCHASE AND SALE
-----------------
BTI agrees to sell and deliver Product in accordance with the terms
and conditions of this Agreement.
Interlink certifies that the Product purchased under this Agreement
is for the purpose of resale or lease to customer's in the regular course of
Interlink's business. Interlink warrants that it holds a valid Tax Exemption
certificate for such resale from the appropriate government authority, and its
assigned Tax Exemption number is SR-CHA-21-765733.
ARTICLE IV - PURCHASE ORDERS (P.O.)
----------------------
Purchase orders issued to BTI by Interlink for Product shall serve to
identify quantities to be delivered, the time(s) of delivery, and shipping
instructions. The terms and conditions of such Purchase Orders do not form a
part of this Agreement and are not proposals for additions to or amendment of
this contract.
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
ARTICLE V - TERM
----
The Term of the Agreement shall commence on the date first set forth
on the face of this Agreement and continue for an initial term of five (5)
years. Thereafter, unless sooner terminated in accordance with Article VI, or
unless terminated by either party by providing the other with one-hundred (100)
days prior written notice, this Agreement will be renewed automatically for
successive one (1) year terms commencing on the expiration of the original or an
extended term.
ARTICLE VI - CANCELLATION
------------
This Agreement and any Purchase Order placed pursuant to this
Agreement, may be cancelled in whole or in part at the option of the party
having such right by providing written notice to the other upon the happening of
any one of the following events:
1. In the event that either party is adjudicated bankrupt, or if a
receiver or trustee is appointed for such party or for a substantial portion of
its assets, or if any assignment for the benefit of its creditors is made.
2. In the event that either party shall have failed substantially to
perform any material covenant, obligation, representation or warranty by it made
or to be performed hereunder, or shall have violated any material covenant,
obligation, agreement, or representation or warranty herein contained, provided,
however, that no cancellation may be effected hereunder unless and until the
injured party shall have delivered to the other party written notice informing
the other party of the alleged default, and such default is not cured within
sixty (60) days after receipt of such notice.
ARTICLE VII - PRICING AND PAYMENT
-------------------
Prices for Product shall be as provided in Attachment B. Shipment of
Product(s) purchased under this Agreement shall be F.O.B. Burlington,
Massachusetts.
Payments from Interlink to BTI under this Agreement shall be due and
payable within [*] days from the date of invoice.
[*Confidential Treatment Requested]
<PAGE>
ARTICLE VIII - LIMITATIONS OF LIABILITY
------------------------
Neither party shall be liable for incidental, indirect, special, or
consequential damages of any kind as a result of a breach of this Agreement.
BTI's entire liability to Interlink for damages concerning performance
or nonperformance by BTI or in any way related to the subject matter of this
Agreement, regardless of whether the claim for such damages is based in contract
or in tort, shall not exceed the amount of the purchase price for the Product(s)
that caused the damage or is the subject matter of or is directly related to the
cause of the action.
ARTICLE IX - WARRANTY
--------
BTI warrants, that for a period of [*] days from the date of delivery
of each Product, that Product shall be free of defects in material and
workmanship. BTI's obligation under this warranty shall be limited to repair or
replacement, at BTI's option, of any Product which has been returned by
purchaser within [*] days of receipt of the Product by purchaser and upon which
examination by BTI verifies a defect.
BTI MAKES NO WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OTHER THAN THE EXPRESS
WARRANTIES CONTAINED IN THIS AGREEMENT.
ARTICLE X - INDEMNIFICATION
---------------
BTI warrants that the use of the Product by Interlink or Interlink's
customers will not infringe upon any United States patent, copyright, trade
secret or other proprietary right held by any third party. BTI shall indemnify
Interlink against any claim, suit or proceeding brought by a third party against
Interlink or Interlink's customers relating to the infringement of any such
proprietary right.
BTI, upon prompt notice from Interlink, shall have sole control of any
such action. BTI agrees, at its own expense, to defend or at its option to
settle, any claim, suit or proceeding brought against Interlink or Interlink's
customers for such infringement.
In the event that the Product is determined to be subject to the
proprietary rights of a third party, BTI agrees, at its option to 1) procure for
Interlink or Interlink's customers the right to continue using the Product; or
2) replace or modify the Product to make it non-infringing.
[*Confidential Treatment Requested]
<PAGE>
ARTICLE XI - ARBITRATION
-----------
Any dispute which may arise in connection with the subject matter or
terms of this Agreement, of which the parties hereto are unable to resolve in
good faith, shall be settled finally by binding arbitration. Such arbitration
shall be held in accordance with the rules of the American Arbitration
Association. If arbitration is requested by BTI the place of arbitration shall
be in San Francisco County, California. If requested by Interlink, the place of
arbitration shall be in Middlesex County, Massachusetts. The parties hereto
agree that a judgment on the award rendered may be entered in any court having
jurisdiction. In the event a dispute is submitted to arbitration, the arbitrator
shall award costs and a reasonable attorney's fee to the prevailing party.
ARTICLE XII - DOCUMENTATION
-------------
Interlink shall be entitled to reproduce, change and translate such
literature as is normally provided by BTI with delivery of Product.
ARTICLE XIII - GRANT OF RIGHTS
---------------
Subject to the terms and conditions of this Agreement, BTI
acknowledges and agrees that Interlink shall have, subject to the export
regulations of the U.S. Department of Commerce, a nonexclusive, worldwide right
to sell, lease, loan and maintain any Product it purchases under this Agreement,
under the Interlink trade name, logo and colors without further consent from
BTI.
ARTICLE XIV - GENERAL PROVISIONS
------------------
A. Waiver - the waiver of any default under this Agreement shall not
constitute a waiver of any subsequent or like default.
B. Non-enforceable Provisions and Survival - if any provision of this
Agreement is held to be ineffective, unenforceable, or illegal for any reason,
such decision shall not affect the validity or enforceability of any or all of
the remaining portions hereof.
<PAGE>
C. Notices by a party under this Agreement shall be deemed given when
deposited in the United States mail by certified mail, return receipt requested,
postage prepaid, addressed to the other party at its address:
For BTI: For Interlink:
President President
Bus-Tech, Inc. Interlink Computer Sciences
131 Middlesex Turnpike 47370 Fremont Blvd.
Burlington, Ma. 01803 Fremont, Ca.94538
D. Force Majeure - neither party shall be deemed to be in default for
any failure or delay to furnish or accept items or services hereunder if such
delay or failure on the part of such party is due to (1) acts of God or of a
public enemy, (2) acts of the United States or any state or political
subdivision thereof, (3) fires, floods, explosions, or other catastrophes, (4)
epidemics and quarantine restrictions, (5) strikes, slowdowns, or labor
stoppages of any kind, (6) freight embargoes, (7) unusually severe weather,
or (8) any other similar cause beyond the control and without the fault or
negligence of such party.
E. Governing Law - this Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of Massachusetts.
F. Titles and Subtitles - the titles and subtitles used in this
Agreement are for convenience only, are not a part of this Agreement, and do not
in any way limit or simplify the provisions of this Agreement.
G. Assignment - Neither party shall assign this Agreement or any
rights hereunder; provided, however, that such party may assign its rights
hereunder to a wholly-owned subsidiary or to any company with which it may merge
or consolidate or to which it may sell all or substantially all of its assets,
with notice to the other party.
H. Integration - This Agreement constitutes the entire understanding
reached between the parties with reference to the subject matter herein and
supersedes all prior arrangements, whether oral or written. The terms and
conditions set forth herein shall be modified, amended or rescinded only in
writing, signed by a duly authorized representative of both parties.
I. Attachments - A. Product Specifications
B. Price Schedule
C. ELC Pricing
<PAGE>
ICS TECHNOLOGY, INC. BUS-TECH, INC.
Signature: /s/ Lambert P. Onuma Signature: /s/ R. J. Nicewicz
-------------------- --------------------
Name: Lambert P. Onuma Name: R. J. Nicewicz
------------------------ ------------------------
Title: President Title: President
------------------------ ------------------------
Date: April 11, 1989 Date: February 13, 1989
------------------------ ------------------------
<PAGE>
ATTACHMENT B
------------
Price Schedule
The price established for Interlink for the purchase of the Product
described in Attachment A is as follows:
A. Hardware - $[*]
B. Software - $[*]
Interlink agrees that Product is comprised of both hardware and
software and neither can be purchased individually from BTI.
To obtain this pricing level, Interlink hereby guarantees the purchase
of fifty (50) Products from BTI over an twelve (12) month period, that
period to commence upon the signing of this Agreement. If the guaranteed
quantity of fifty (50) Products in the twelve month period is not met then
pricing to Interlink for all future Product shall be at the prices as shown in
Attachment C, or BTI's then current price list, whichever is greater.
BTI also reserves the right to adjust the purchase price upward each
year following the first anniversary of the signing of the Agreement, said
yearly adjustment not to exceed [*] percent of the previous year's purchase
price.
BTI also offers a maintenance plan that provides for next-day-air
shipment of a replacement Product for a price of $600 per year.
Replacement controller boards for sparing/maintenance purposes may be
purchased for $[*] each.
BTI will repair returned defective Product(s) that are not within the
warranty period or otherwise covered by a maintenance plan for a fixed rate of
[*] percent of the then current purchase price.
[*Confidential Treatment Requested]
<PAGE>
ATTACHMENT C
------------
ELC PRICE LIST
--------------
<TABLE>
<CAPTION>
QUANTITY PRICE
-------- -----
HARDWARE SOFTWARE
-------- --------
<S> <C> <C>
1 - 5 $[*] $[*]
6 - 20 [*] [*]
21 - 50 [*] [*]
51 + [*] [*]
CETI Option [*]
</TABLE>
OEM'S THAT CHOOSE NOT TO HAVE A GUARANTEE IN THE OEM AGREEMENT WILL BE CHARGED
---
ON A CUMULATIVE STEP PRICING BASIS PER THE ABOVE SCHEDULE.
[*Confidential Treatment Requested]
<PAGE>
ATTACHMENT D
------------
In the event that during the term of this Agreement BTI fails to ship product in
a timely manner, for reason other than a pricing or payment dispute, or
termination of the Agreement due to default by Interlink, BTI will provide to
Interlink promptly upon written notice all manufacturing documentation
(schematics, assembly drawings, film, test procedures) related to the production
of the Units. Interlink shall then be permitted to have the Units produced by a
third party from such materials until such time as production by BTI resumes.
Any such third party shall enter into a contract with BTI establishing the
confidentiality of such materials prior to being provided access to said
materials.
<PAGE>
[LETTERHEAD OF INTERLINK CORPORATION]
July 1, 1993
Mr. Bob Nicewicz
Bus-Tech, Inc.
129 Middlesex Turnpike
Burlington, MA 01803
SUBJ: Revisions to OEM/Remarketing Agreement
The purpose of this letter is to amend the existing OEM/Remarketing Agreement
between our two companies dated February 13, 1989 with the following changes.
. Article 1 - change our name to Interlink Computer Sciences, Inc.
. Article V - at this time Interlink wants to extend the term to 5/31/96.
. Article VII - change payment terms to [*] days.
. Article IX - change warranty term to [*] (lines 1 and 6).
. Article X - third paragraph, Item 2, add the words "provided that such
modified or replacement product continues to meet the specifications in
Attachment A" after the words to make it non-infringing.
. Attachment A - Revise attachment to include product specifications for the
ELC1, ELC2, and ELC3 units and boards. Current attachment only covers ELC1
and ELC2.
. Attachment B - see following changes:
Revise hardware and software pricing to include ELC1, ELC2, and ELC3 full
unit pricing and individual board pricing per the following schedule:
UNIT PRICING
. ELC1 unit $[*] total hardware and software.
. ELC2 unit $[*] total hardware and software
. ELC2TR (token ring) unit $[*] total hardware and software
. ELC3, ECA unit $[*] total hardware and software
. ELC3, 2ECA $[*] total hardware and software
. ELC3, TCA unit $[*] total hardware and software
. ELC3, 2TCA unit $[*] total hardware and software
. ELC3, FCA unit $[*] total hardware and software
. ELC3, 2FCA unit $[*] total hardware and software
. ELC3 ECA/TCA unit $[*] total hardware and software
. ELC3 ECA/FCA unit $[*] total hardware and software.
. ELC3 FCA/TCA unit $[*] total hardware and software.
[*Confidential Treatment Requested]
<PAGE>
[LETTERHEAD OF INTERLINK CORPORATION]
BOARD PRICING
. ECA board $[*]
. TCA board $[*]
. FCA board $[*]
. paragraph 3, line 2 - add words "in any combination of products" between the
words "Products" and "from BTI"
. paragraph 3 - change last sentence to read "If the guaranteed quantity of
fifty (50) Products in the twelve month period is not met then pricing to
Interlink for all future Product shall be at BTI's then current price list.
. paragraph 5 - add "to customer site" between the words "shipment" and "of".
. Delete paragraph 6.
. paragraph 7 - change line 3 to "[*]".
. Add new paragraph 8 - "BTI will continue to make spare parts available to
Interlink, at BTI's then current price list, for a period of three (3) years
after contract termination."
. Attachment C - Delete attachment. This no longer applies with proposed
verbage changes for paragraph 3 of Attachment B above.
If you are in agreement with the changes, please have this Amendment signed
by an authorized person and return one copy within ten days to Interlink
Computer Sciences, Inc., 47370 Fremont Blvd., Fremont, CA 94538, attn:
Jeannie Minter, Corporate Contracts Mgr. Please retain one copy for your
files.
Accepted and Agreed to:
Bus-Tech, Inc. Interlink Computer Sciences, Inc.
Inc.
By: /s/ R. J. Nicewicz By: /s/ William C. Jones
--------------------------- -----------------------------
Name: R. J. Nicewicz Name: William C. Jones
------------------------ --------------------------
Title: President Title: Director, Customer Service
------------------------ --------------------------
Date: 7-14-93 Date: July 1, 1993
------------------------ --------------------------
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.6
STANDARD INDUSTRIAL LEASE-NET
-----------------------------
Lease Summary
-------------
The following information affects the terms of the Basic Lease.
I. LANDLORD: King & Lyons, a California Partnership
----------------------------------------------------------------
II. TENANT: Interlink Computer Sciences, Inc., a California Corporation
----------------------------------------------------------------
III. PREMISES: A 23,000 square foot portion of Building 2B of Spinnaker One
----------------------------------------------------------------
specifically designated as 47366-82 Fremont Boulevard, Fremont, CA.
- -------------------------------------------------------------------------------
IV. TERM:
Lease Term: Sixty ( 60 ) months.
---------------------------------- ----------
Lease Commencement [check one]:
X Subject to completion of improvements. Landlord's current estimate
---- of the substantial completion date is February 1, 1987.
---------- --
Commencement Date: , 19 .
------------------------------ --
---- [Landlord initials: ] [Tenant initials: ]
----- -----
V. CHARGES:
Base Monthly Rent: See Addendum ($ ).
---------------------------------- ----------
Fifteen Thousand Five Hundred
Security Deposit: Seventy Dollars ($15,570.00).
---------------------------------- ----------
Seventy-Six and
Percentage Share of Expenses: Seven Tenths percent ( 76.7%).
--------------------- ---------
Estimated Monthly Expenses: Two Thousand Three Hundred Dollars ($2,300.00)
------------------------------------ ---------
Rental Adjustment Period or Date(s): See Addendum
---------------------------------------
- -------------------------------------------------------------------------------.
VI. ATTACHMENTS: The following Exhibits are attached to and a part of this
Lease, for the purposes stated in the Basic Lease:
Addendum, Exhibits A, B and C
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
VII. EXECUTION: The undersigned Landlord and Tenant agree to the provisions of
this lease, including the attached Basic Lease and the Exhibits identified
above.
LANDLORD TENANT
-------- ------
KING & LYONS INTERLINK COMPUTER SCIENCES, INC.
- ------------------------------- ------------------------------------
By: /s/ Landlord By: /s/ Lambert Onuma
- ------------------------------- ------------------------------------
Lambert Onuma
Its: Partner Its: President
- ------------------------------- ------------------------------------
Address: 46721 Fremont Blvd. Address:
----------------------- --------------------------
Fremont, CA 94538
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
Dated As Of: Dec. 8, 1986
---------- --
<PAGE>
Basic Lease
-----------
1. Parties. This Lease is entered into by and between the parties identified
-------
in the Lease Summary as Landlord and Tenant.
2. Premises. Landlord leases to Tenant, and Tenant hires from Landlord, all or
--------
a portion (the "Premises") of a building (the "Building"), as identified in the
Lease Summary. The Premises encompass all space bounded by the inside surface of
the exterior walls and roof, the outside surface of all windows and exterior
doors, the centerline of any partition walls, and the upper surface of the floor
slab. A floor or plot plan depicting the building containing the Premises may be
attached hereto as an Exhibit, with the Premises outlined in some suitable
manner, solely for the purpose of designating the location of the Premises.
3. Term. This Lease shall begin on the commencement date and continue for the
----
term stated in the Lease Summary, in accordance with the following:
3.1. Commencement. The commencement date shall be the Commencement Date
------------
stated in the Lease Summary or, if no Commencement Date is stated, the earlier
of (i) the date of substantial completion of the improvements to be constructed
by Landlord on the Premises, according to any description of Landlord work set
forth on an Exhibit or Addendum to this Lease, or (ii) the date on which Tenant
first uses a portion of the Premises in its business. "Substantial completion"
shall have occurred on the first date on which (i) the governmental authority
having jurisdiction has authorized occupancy of the Premises, (ii) electric
power is available at the Premises, and (iii) the architect, engineer, or other
person supervising construction of the improvements certifies that they are
substantially complete and ready for occupancy, subject only to "punch-list"
defects that do not materially diminish the usefulness of the Premises. Landlord
shall advise Tenant, from time to time and in good faith, of the estimated
completion date. Upon ascertaining the commencement date, the parties shall
insert that date in the Lease Summary, as the "Commencement Date," and initial
the insertion. If the commencement date is other than the first day of a
calendar month, then the lease term shall extend for the number of months stated
in the Lease Summary, beginning with the first day of the month following the
commencement date.
3.2. Postponement. If, for any reason, Landlord is unable to deliver
------------
possession of the Premises to Tenant on a Commencement Date stated in the Lease
Summary, the commencement of the lease term will be postponed, without
liability to either party or affecting the validity of this Lease, and the term
shall begin on such date as Landlord is able to deliver possession. However, if
Landlord is unable to deliver possession then this Lease shall thereupon
terminate without liability to either party.
4. Rental. As rental for the Premises, Tenant shall pay to Landlord, when due
------
and in lawful money of the United States, all sums required to be paid by Tenant
under this Lease, without deduction or offset, and shall promptly discharge all
other monetary obligations of the Tenant hereunder. Any payment not received by
Landlord when due shall thereafter bear interest, at the rate stated in
paragraph 17.1, until received, provided that Landlord will waive interest on
any monthly rental payment received not later than the fifth day of that month
(or the first business day following the fifth if the fifth falls on a weekend
or holiday). All such sums shall be paid to Landlord at Menlo Park, California,
or such other place in California as Landlord may designate.
4.1. Base Monthly Rent. The base monthly rent shall be the amount stated in
-----------------
the Lease Summary, payable in monthly installments in advance, on the first day
of each calendar month during the lease term. If the commencement date is a day
other than the first day of a calendar month, then the rent for that partial
month shall be a fraction of the base monthly rent, based on the number of days
in that partial month, including the commencement date, in proportion to the
total number of days in the month; such rent shall be payable on the first day
of the following month. Rent for the first calendar month of the term is payable
upon execution of this Lease.
5. Security. As security for the performance of its obligations under this
--------
Lease, Tenant gives Landlord the security described in this paragraph.
5.1. Deposit. Tenant shall deposit with Landlord, upon execution of this
-------
Lease, the sum stated in the Lease Summary as the security deposit, which
Landlord shall retain the sum stated in the Lease Summary as the security
deposit, which Landlord shall retain as a debtor and not as a trustee. Tenant
acknowledges that the use value of the security deposit has been considered in
determining the appropriate monthly rent for the Premises, and Tenant shall be
entitled to no credit or compensation, by way of interest or otherwise, for
Landlord's possession of the security deposit, which may be commingled with
Landlord's own funds. If Tenant defaults in the performance of any of its
obligations hereunder, Landlord may apply any portion of the deposit as
necessary to cure the default or to compensate Landlord for its damages from the
default, and Tenant shall, within Ten days after
2
<PAGE>
Landlord's demand therefor, deposit with Landlord the sum that is necessary to
restore the deposit to the full original amount. Upon termination of this Lease,
and after Tenant has vacated the Premises, the amount of such deposit remaining,
after curing Tenant's defaults and compensating Landlord for damages caused by
Tenant, shall be returned to Tenant at its last address known to Landlord.
6. Use. parking spaces immediately surrounding and servicing the subject
---
building.
6.1. Premises. The Premises shall be used only for general industrial,
--------
warehousing, and office purposes. Notwithstanding these permitted uses, Tenant
will engage in no activity on the Premises that would, in the judgment of any
insurer of the Premises, increase the premium on any of Landlord's insurance
over the amount otherwise charged therefor or cause such insurance to be
cancelled. In its use of the Premises, Tenant will comply with all applicable
laws, governmental regulations, and tract restrictions. Tenant will commit no
nuisance or waste on the Premises and will not cause any unreasonable odors,
noise, vibration, electronic emissions, or any other item to emanate from the
Premises so as to damage Landlord's property or interfere with any other person.
6.2. Exterior. No portion of the area outside of the Building is leased to
--------
Tenant. However, Tenant may utilize truck access and turning areas in a
reasonable manner, and Tenant may utilize designated parking areas, in common
with Landlord's other tenants, for daily parking of passenger vehicles.* No
rubbish containers or other materials may be stored outside of the Premises.
**Tenant may not erect or maintain any sign or other marking on, or visible
from, the exterior of the Premises without Landlord's prior written consent;
such consent will not be unreasonably withheld for any sign that conforms to
sign standards described on an Exhibit to this Lease. Tenant shall have no right
of access to the Building roof, and Tenant shall make no penetrations in the
roof without Landlord's prior written consent. **unless screened and approved
by Landlord.
6.3. Waste Materials. Tenant shall not discharge commercial or industrial
---------------
wastes into the sewer system serving the Premises. All such wastes shall be
disposed of only in sanitary containers that are regularly collected by a
properly licensed waste disposal firm. If Tenant causes any waste materials to
contaminate the Premises or any other property, Tenant shall indemnify Landlord
and hold it harmless from all claims, demands, liabilities, and expenses,
including attorneys' fees, arising out of such contamination.
7. Maintenance and Repair.
----------------------
7.1 Original Condition. If the Premises are complete and vacant when this
------------------
Lease is signed, Tenant acknowledges that the Premises are now in good condition
and are not in need of repair. If this Lease is executed while the Premises are
occupied by another tenant or before the Landlord has completed improvements the
Premises that are required by this Lease, then the Premises shall be deemed to
be in good condition and not in need of repair as of the commencement date of
the lease term, excepting only defects that could not be ascertained by
reasonable inspection, within thirty days the Tenant's negligent use of the
Premises.
7.2 Landlord's Obligations. Landlord shall maintain, at its expense, the
----------------------
structural soundness of the Building foundation, walls, floors, and roof.
***Subject to Tenant's obligation to pay a percentage share of the cost in
accordance with paragraph 8, Landlord shall maintain the exterior of the
Building and the landscaping, sidewalks, and parking areas (the "Common Area")
serving the Building. ***except for structural maintainance required and due to
Tenant's negligent use of the premises.
7.3 Tenant's Obligations. Throughout the lease term, Tenant shall
--------------------
maintain the Premises, all improvements on the Premises, and all equipment and
systems that service the Premises in good condition and repair. The items to be
repaired by Tenant include, for example and not as a limitation: plumbing,
heating, air conditioning, ventilating, and electrical equipment; walls, floor
slab surface and coverings, ceilings, doors, and glass. Tenant will cause all
heating, ventilating, air conditioning, and electrical equipment to be
maintained in accordance with the manufacturers' recommendations and
specifications, and Tenant will place such equipment under service contract as
required for proper preventative maintenance. At the end of the lease term,
Tenant shall surrender the Premises to Landlord broom clean, in the same
condition as they existed at the commencement of this Lease, together with such
changes as are permitted to remain pursuant to this Lease, excepting only such
ordinary wear as could not have been avoided by routine maintenance.**** If
Tenant fails to perform proper maintenance or repair, including preventative
maintenance where appropriate, Landlord may, after reasonable notice to Tenant
(or without notice for emergency repairs), cause the same to be performed, and
the cost thereof will promptly be paid by Tenant upon receipt of a statement
from Landlord setting forth the amount due.
8. Costs. Tenant shall pay all utility and maintenance costs, property taxes,
-----
and insurance premiums associated with the Premises, as described below.
****This obligation shall not include unrepaired damage that Landlord may be
obligated to repair under Paragraph 10 of this Lease.
-3-
<PAGE>
8.1. Utility and Maintenance Costs. Tenant shall pay for all costs of
-----------------------------
utility services to the Premises, including fire sprinkler monitoring; if
utilities are not separately metered to the Premises, Tenant shall pay for its
percentage share. Tenant shall pay its percentage share of all costs incurred
by Landlord for the maintenance and repair of the building exterior and Common
Area during the lease term, including but not limited to painting, parking lot
surfacing, and roof maintenance (excluding, in the case of roof maintenance,
expenditures for capital items).
8.2. Property Taxes. Tenant shall pay its percentage share of all taxes,
--------------
general and special assessments, and other charges imposed by any taxing
authority and levied against the property containing the Premises or against
Landlord by virtue of its ownership thereof or collection of rental income
therefrom (excepting only estate taxes, inheritance taxes, and income taxes that
are payable on nonrental as well as rental income). "Taxing authority" includes
all entities having taxing or assessment authority by law or by virtue of any
recorded instrument binding on the owner of the Premises.
8.3. Insurance. Tenant shall pay its percentage share of all premiums for
---------
such insurance, as shall be carried by Landlord to insure: the Building, to its
full, against all perils included in the classifications of fire, extended
coverage, vandalism, malicious mischief, special extended perils, and all-risk
sprinkler leakage; against loss of Building rents, property taxes, and insurance
costs for a period of not more than six months; against personal injury and
property damage liability to the extent such insurance is not provided by Tenant
under this Lease; against such other hazards as are then normally insured
against by owners of commercial buildings of the sort containing the Premises.
*replacement cost value excluding the cost of excavations, foundations and
footings
8.4. Percentage Share. Tenant's percentage share of the costs described
----------------
above shall be the percentage stated in the Lease Summary, or, if no percentage
is there stated, shall be determined by the square footage of the Premises
divided by the square footage of the Building. However, if Tenant utilizers more
than its proportionate share of the Common Area, for parking or other purposes,
or more than a normal amount of any utility service, then Landlord may equitably
increase Tenant's percentage share of costs associated with those items to
account for such additional usage. Tenant's percentage share of property taxes
may also be equitably adjusted by Landlord to take a account of any
disproportionate tax burden imposed by special improvements or valuations
relating to other portions of the Building or to other buildings on the tax
parcel, which adjustment may raise or lower Tenant's percentage share; valuation
data contained on the tax assessor's worksheets, if available, shall
conclusively determine the manner in which any equitable adjustment is to be
made. **Tenant shall have the right to review the tax assessor's worksheets as a
method of auditing Landlord's allocations of property taxes to be paid by
Tenant.
8.5. Payment. At Landlord's election, Tenant shall pay its percentage
-------
share of such costs to Landlord either (i) when incurred, on the basis on
Landlord's periodic billings, or (ii) monthly in advance, on the first day of
each calendar month, and the monthly amount shall be determined by Landlord's
then-current estimate of the average monthly billing date. Landlord's initial
estimate of the average monthly cost may be stated in the Lease Summary.
Periodically, but not less frequently than annually, Landlord will provide
Tenant with an accounting of all such costs for the preceding period, and an
appropriate sum will be credited or debited against Tenant's next monthly rental
payment so as to equalize Tenant's actual payments and Tenant's actual share of
costs for the period. Landlord may revise its monthly cost estimate, and provide
Tenant with an accounting for the previous period, at any time during the lease
term. If the lease term includes only a portion of a taxing or insured period,
then Tenant shall pay a pro rata portion of the total property taxes or
insurance premiums, based upon the number of days in the lease term that are
included in the taxing or insured period; however, Tenant shall pay the entire
amount of any property tax, for the tax year in which this Lease terminates (or
for the succeeding tax year if this Lease terminates after the lien date for
that tax year), levied on or attributable to improvements or property that is to
be removed from the Premises by Tenant prior to or at the end of the lease term.
If the Lease terminates before the property taxes for the then-current fiscal
year are known, the amount of the tax shall be reasonably estimated on the basis
of the best available information on current assessments and tax rates or, if no
such information is available, shall be projected at the same rate as was
imposed for the last previous taxing period, plus 2%.
9. Alterations.
-----------
9.1. Tenant Work. Tenant shall make no alteration, addition, or utility
-----------
installation ("Changes") on or to the Premises without Landlord's prior written
consent. In making approved Changes, Tenant shall comply with all applicable
building code requirements. Unless Landlord has specifically waived this
provision in writing prior to the installation of Changes, such Changes (i)
shall be removed from the Premises, and all damage resulting from such removal
repaired by Tenant, prior to the end of the lease term, or (ii) shall remain on
the Premises at the end of the lease term and become the property of Landlord,
at Landlord's election. If Landlord does not notify Tenant, at least three
months prior to the end of the lease term, of its election to have Changes
remain on the Premises, then Landlord shall thereby have elected to require
Tenant to remove such Changes. In making all Changes, Tenant shall hold
Landlord harmless from mechanics' liens and all other liability resulting
therefrom.
9.2. Landlord Work and Entry. Upon execution of this Lease, or at such
-----------------------
later time as is feasible and consistent with the terms hereof, Landlord shall
commence construction of any improvements depicted or described as Landlord work
on an Exhibit or Addendum to this Lease. Construction of such improvements
shall be pursued to completion with reasonable diligence, subject to delays for
reasons beyond Landlord's reasonable control ("Unexpected Events"). Unexpected
Events include, for example, labor difficulties, inclement
-4-
<PAGE>
weather, rationing or other governmental controls, and shortages of materials or
services. All such improvements shall become part of the Premises and remain
thereon at the termination of the Lease. Landlord may enter the Premises at any
time for inspection purposes, and may enter during normal business hours to show
the Premises to prospective tenants in the last 180 days of the lease term.*
*Provided such entry is consistent with Tenant's security procedures and such
persons are accompanied by employers of Tenant.
10. Damage. If any structural portion of the Premises that Landlord is
------
obligated to maintain is damaged or destroyed by any cause, if such damage is
insured against, and if the insurance proceeds are available for rebuilding,
then this Lease will not terminate and Landlord will cause such damage to be
repaired with reasonable diligence, subject to delays in the disbursement of
insurance proceeds and Unexpected Events. Landlord's obligation in this regard
shall be enforceable by Tenant only if such damage interferes with Tenant's
reasonable occupancy of the Premises. Tenant's rent will abate to the extent
that the damage and repair period interfere with Tenant's use of the Premises.**
If Landlord elects to repair, rent will abate in the manner described above;
other than the obligation to repair stated above, Landlord shall have no
liability to Tenant on account of the damage. **See Paragraph 29.0 of Addendum.
11. Condemnation. If there is a taking by eminent domain or a transfer under
------------
threat thereof of (i) the entire Premises, or (ii) so much of the Premises, for
the balance of the lease term, as prevents the continued reasonable conduct of
Tenant's business thereon, then this Lease shall terminate as of the date that
possession of the condemned premises is delivered to the condemnor. No other
such taking or transfer shall terminate this Lease. All condemnation proceeds
shall be the property of Landlord, excepting only such portion thereof as is
designated by the condemnor as compensation for Tenant's moving expenses, loss
of Tenant's goodwill, or for Tenant's trade fixtures and improvements to the
Premises actually owned by Tenant.
12. Liability.
---------
12.1. Insurance. Tenant shall, at its expense, maintain in force during the
---------
lease term a combined single limit policy of bodily injury and property damage
insurance, having a liability limit of not less than One Million Dollars
($1,000,000), with contractual liability endorsement, insuring Landlord and
Tenant against all liability arising out of the ownership, use, occupancy, or
maintenance of the Premises and appurtenant areas. Such insurance shall be
endorsed as primary and non-contributing, as to any policy carried by Landlord.
Tenant will deliver to Landlord a certificate evidencing such insurance and
providing that the insurance will not be cancelled except on at least 30 days
notice to Landlord.
12.2. Indemnity. Tenant shall indemnify Landlord and hold it harmless from
---------
all claims, demands, liabilities, and expenses, including attorney's fees,
arising out of Tenant's use of the Premises or from any acts permitted by Tenant
on the Premises, excluding claims or actions based upon Landlord's active
negligence or willful misconduct. Notwithstanding the foregoing, Landlord may
not obtain any personal or deficiency judgement against tenant or any of
Tenant's officers, directors, employees or agents.
12.3. Waiver of Liability (No Subrogation). To the extent allowable by the
------------------------------------
applicable insurance policy without reduction of coverage, Landlord and Tenant
hereby waive all rights of recovery against the other for loss or damage that is
compensable by insurance then in force or required by this Agreement.
13. Transfer.
--------
13.1. Transfer by Tenant. Tenant shall not assign, sublet, or otherwise
------------------
transfer, or permit a transfer of, all or any portion of its interest in this
Lease, the Premises, or of a controlling interest in any Tenant entity, without
Landlord's prior written consent, which shall not be unreasonably withheld. No
such consent shall relieve Tenant of any liability under this Lease, nor shall
it constitute consent to any further transfer. As a condition of such consent,
the transferee must assume all of Tenant's liabilities hereunder.
13.2. Transfer by Landlord. The liability of Landlord hereunder shall exist
--------------------
only with respect to the period that Landlord is the owner of the Premises, but
all of Landlord's obligations shall run with the land and be binding upon all
subsequent owners thereof. Upon any transfer of Landlord's interest in the
Premises, and notification thereof to Tenant, Landlord shall be relieved of all
liability hereunder except such as may have to Tenant, Landlord shall be
relieved of all liability hereunder except such as may have accrued prior to the
transfer provided transferee agrees to assume Landlord's obligations under this
Lease.
14. Default.
-------
14.1. Events. The occurrence of any of the following events shall
------
constitute a material breach of this Lease and default by Tenant:
14.1.1. Failure to pay rental within three days after Landlord's
delivery to Tenant, in the manner described in Section 1162 of the California
Code of Civil Procedure, or written notice of default;
14.1.2. Failure by Tenant to perform any nonmonetary obligation under
this Lease where such failure continues for more than thirty days or,*** if the
failure cannot reasonably be cured within thirty days, for a period exceeding
the time within which such failure could be cured with reasonable diligence;
***after receipt of written notice from Landlord
14.1.3. A general assignment by Tenant for the benefit of creditors; the
filing of a petition by or against Tenant, seeking adjudication or
reorganization under the Bankruptcy Code; the appointment of a receiver to take
possession of, or a levy by way of attachment or execution upon, substantially
all of Tenant's assets at the Premises;
14.1.4. Tenant falsely stating its financial condition to Landlord,
either before or after the execution of this Lease.
14.2 Remedies. After any breach or default by Tenant, Landlord shall have
--------
all rights and remedies afforded by law, including but not limited to the
following:
<PAGE>
14.2.1. If Tenant's right to possession is expressly terminated in
writing by Landlord because of such breach, Landlord may recover from Tenant
such damages as may be allowed under the laws of California, with interest at
the rate specified in paragraph 17.1, including 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 the award, exceeds the amount of such rental loss that the Tenant
proves could have been reasonably avoided, as discounted to the then present
value at a rate equal to one percent (1%) over the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award.
14.2.2. Without terminating Tenant's right to possession, Landlord
may enforce all of its rights and remedies under this Lease, including the right
to recover rent as it becomes due. For purposes of this provision, any
reletting of the Premises for a term of less than the unexpired term of this
Lease or any reletting of a portion of the Premises shall, at Landlord's option,
be deemed to terminate the Tenant's right to possession only with respect to
such portion of the unexpired term or such portion of the Premises as is the
subject of such reletting.
14.2.3. Landlord may cause a receiver to be appointed to take
possession of the Premises and all of Tenant's property thereon to protect
Landlord's interest therein.
15. Subordination. At the option of the holder of any security interest
-------------
encumbering the Premises, this Lease shall be either prior to, or subordinate
to, the lien of such security interest, provided that subordination to a
security interest created after execution of this Lease shall occur only if the
security holder agrees* that Tenant's occupancy of the Premises will not be
disturbed by such security holder, or its successor in interest, so long as
Tenant is not in default in the performance of its obligations hereunder.
*in writing
16. Tenant Statements.
-----------------
16.1. Offset. At the request of any prospective purchaser or
------
encumbrancer of the Premises, and for the benefit of such person, Tenant will,
from time to time as required, within ten days after notice from Landlord,
execute a written statement certifying that, to the best of Tenant's
knowledge, (i) this Lease is then unmodified and is in effect, (ii) no rent
other than that for the current month has been paid in advance, (iii) Landlord
is not then in default in the performance of any of its obligations, or
specifying the manner in which any of said matters is untrue. Tenant's failure
to execute such written statement within the time required shall constitute an
admission by Tenant, which may be relied upon by such person, that this Lease is
then in effect without modification, that no advance rent has been paid, and
that Landlord is not then in default.
16.2. Occupancy Certificate. Upon accepting occupancy of the
---------------------
Premises, Tenant will, if required by any mortgagee or prospective mortgagee of
the Premises, complete, execute, and deliver to Landlord a certificate
reflecting Tenant's acceptance of the Premises, in such reasonable form as may
be required by the mortgagee.
17. General Provisions.
------------------
17.1. Monetary Payments. Any monetary payment that is required by
-----------------
this Lease and is not made by Tenant when due shall thereafter bear interest at
the maximum rate as permitted by law. No acceptance by Landlord of any monetary
payment shall constitute a waiver by Landlord of any default by Tenant
hereunder.
17.2. Quiet Enjoyment. So long as Tenant is not in default
---------------
hereunder, Landlord warrants to Tenant the quite possession of the Premises
throughout the lease term, commencing upon Tenant's actual possession of the
Premises, against all persons lawfully claiming possession thereof.
17.3. Construction. The rent payable under this Lease has been
------------
determined in light of all other provisions hereof. Both parties have had equal
opportunity to review this Lease and eliminate any ambiguities contained
herein, and this Lease shall be fairly interpreted in accordance with its
reasonable meaning, neither for nor against either party, neither of which is to
be considered as having drafted this Lease. Captions are for convenience only
and do not define or limit the provisions of this Lease.
17.4. Notices. Any written notice required to be given to a party
-------
hereunder will be effective upon the earlier of (i) the date that it is
delivered in the manner required by applicable law, or (ii) three days after
mailing, if mailed by first class, certified United States mail, posted in
California, and addressed to the party at its address stated in the Lease
Summary, or, if no address is there stated, to Tenant at the Premises and to
Landlord at its then-current address for payment of rent.
17.5. Entire Agreement. This Lease constitutes the entire agreement
----------------
between the parties concerning the subject matter; neither party has made any
representations or warranties to the other except as set forth herein.
17.6. Attorney's Fees. In any suit commenced by Landlord or Tenant,
---------------
the prevailing party shall be entitled to recover its attorney's fees from the
other.
17.7. Time. Time is of the essence in the performance of all
----
obligations required by this Lease.
17.8. Addendum. If an Addendum containing additional provisions is
--------
attached to this Lease, the provisions of that Addendum override the provisions
of the Basic Lease to the extent they are inconsistent herewith.
17.9. Counsel. If a party was represented by counsel in connection
-------
with the negotiation and execution of this Lease, that fact is indicated by the
party's initials below.
Landlord's initials: Tenant's initials:
---------- ----------
END OF BASIC LEASE
<PAGE>
ADDENDUM
--------
LANDLORD: King & Lyons, a California Partnership
TENANT: Interlink Computer Sciences, Inc., a California Corporation
PREMISES: A 23,000 square foot portion of Building 2B of Spinnaker One
specifically designated as 47366-82 Fremont Boulevard, Fremont,
California.
18.0 Rental Schedule: The base monthly rental payable during the lease
---------------
term is as follows:
Months Rent
------ -------
1-5 $ 0
6-18 11,890
19-60 15,570
The rent for month six (6) of the lease term shall be payable upon occupancy of
the Premises by Tenant.
19.0 Security: In addition to the security required under Paragraph 5 of
--------
the Lease Agreement, Tenant shall deposit with Landlord as "additional security"
the amount of Forty Thousand Dollars ($40,000) in the form of cash or an
equivalent acceptable to Landlord. Said additional security shall be deposited
with Landlord on or before December 31, 1986. Should Tenant receive at least Two
Million Dollars ($2,000,000) of equity funding prior to December 31, 1986, then
this requirement for an additional security deposit shall be waived by Landlord.
If Tenant receives at least Two Million Dollars ($2,000,000) of equity funding
at any time during the lease term, the additional security will be released upon
written notice of said funding.
20.0 Landlord's Work: Landlord's work shall consist of the construction
---------------
of tenant improvements generally as depicted on the attached Exhibit B
constructed in accordance with Landlord's Tenant improvement standards. An
allowance of $18.50 per square foot ($425,500) shall be provided by Landlord
towards the cost of these tenant improvements. This allowance shall include the
cost of architectural fees, and permits required by the City of Fremont. This
allowance shall also include a $23,000 portion of the allowance for Landlord's
Additional Work which covers the costs of constructing the computer room as
depicted on Exhibit B and as further provided in paragraph 21.0 of this
Addendum. Tenant shall have the right to audit all costs of Landlord's Work.
Should the costs described above be greater than $18.50 per square foot
(the allowance), Landlord hereby agrees to increase the allowance to a maximum
of $20.00 per square foot provided that the base monthly rent payable during the
term shall increase at the rate of 1.0 cent per square foot per month during
months 1 through 18 of the lease term for each $1.00 per square foot of cost in
excess of the allowance and 1.25 cents per square foot per month during months
19 through 60 of the lease term for each $1.00 per square foot of cost in excess
of the allowance. Tenant shall not be responsible for the payment of
additional rent for costs of Landlord's Work as described in this paragraph in
excess of $20.00 per square foot. This maximum of $20.00 per square foot shall
not apply to Landlord's additional work as provided in Paragraph 21.0 of this
Lease, except for the $23,000 portion of this work allocated as Landlord's Work
and subject to the provisions of this Paragraph 20.0.
<PAGE>
Addendum
Page 2
Should the above-described costs be less than the allowance, the base
monthly rent shall decrease at the rate of .85 cents per square foot per month
during months 1 through 18 of the lease term for each $1.00 per square foot of
costs less than the allowance and 1.12 cents per square foot per month during
months 19 through 60 of the lease term for each $1.00 per square foot of cost
less than the allowance.
21.0 Landlord's Additional Work: The computer room as depicted on the
--------------------------
attached Exhibit B shall be constructed by Landlord as additional work. An
allowance of $4.50 per square foot ($103,500) shall be provided by Landlord
towards the cost of the computer room. A portion of this allowance equal to
$23,000 has been included in Landlord's Work under paragraph 20 of this Lease
Agreement. The remaining portion of the allowance equal to $3.50 per square foot
($80,500) in cost shall be reimbursed to Landlord subject to the provisions of
this paragraph 21. A $40,000 portion shall be reimbursed to Landlord in cash
payable on or before December 31, 1986. The remaining portion of the allowance
($40,500) shall be reimbursed to Landlord during months 6 through 60 of the
lease term at the rate of 2.43 cents per square foot per month for each $1.00
per square foot of remaining cost. Should the actual cost of Landlord's
additional work as described in this paragraph be more or less than the
allowance, the monthly payment described above shall be adjusted up or down at
the rate of 2.43 cents per square foot per month for each $1.00 per square foot
that the actual costs is more or less than the allowance.
22.0 Commencement: Tenant shall be allowed access to the Premises as soon
------------
as feasible prior to the commencement date of this Lease for the purposes of
installing personal property such as computers, temporary partitions, telephones
and other items. Said access shall be provided only if it does not interfere
with the construction of tenant improvements and in any way delays the
completion of the tenant improvements.
23.0 Postponement: If the Premises are not substantially complete and
------------
ready for Tenant's occupancy after ninety (90) days from the date Tenant
executes this Lease Agreement or approves the plans and specifications for
tenant improvements, whichever occurs later, Tenant shall receive one day of
occupancy rent free for each day beyond ninety days that occupancy is delayed.
The 90-day period for substantial completion shall not include days lost due to
delays in completion of construction that are caused by Tenant, either through
changes or additions that are requested by Tenant in the construction of tenant
improvements or delays in construction that are caused by Tenant's access to the
Premises prior to the commencement date.
24.0 Option to Renew: Tenant shall have the option to renew the initial
---------------
five (5) year term of the Lease for one (1) additional period of five (5) years
("Option Period") on the same terms and covenants and conditions provided
herein, except that upon such renewal the Monthly Rent due hereunder shall be
determined as provided below. Tenant shall exercise such option by giving
Landlord written notice ("Option Notice") at least one hundred eightY (180)
days prior to the expiration of the initial term of this Lease.
The initial monthly rent for the Option Period shall be determined as
follows:
(i) The parties shall have thirty (30) days after Landlord receives the
Option Notice within which to agree on the initial Monthly Rent for the Option
Period based upon the then fair market rental value of the Premises. If the
parties agree on the initial Monthly Rent for the Option Period within thirty
(30)
<PAGE>
Addendum
Page 3
days, they shall immediately execute an amendment to this Lease stating the
initial Monthly Rent for the Option Period.
(ii) The "then fair market rental value of the Premises" shall mean the
fair market monthly rental value of the Premises as of the commencement of the
Option Period; taking into consideration the uses permitted under this Lease,
the quality, size, design and location of the Premises, and comparable buildings
located in Fremont, California.
If Landlord and Tenant area are unable to agree on the "then fair market
rental value of the Premises", then this Lease shall expire at the end of the
Initial Term.
25.0 Waste Materials: Subject to the provisions of Paragraph 6.3 of the
---------------
Lease, to the best of Landlord's knowledge the land upon which the Premises are
constructed are free of hazardous waste and contaminants as of the commencement
date of this Lease.
26.0 Property Taxes: Tenant shall not be responsible for its percentage
--------------
share of tax increases as provided in Paragraph 8.2 of the Lease, if such
increases are caused by Landlord's voluntary transfer of the Premises or any
interest therein. This Paragraph shall apply only if the transfer occurs during
the last thirty months of the original lease term and shall apply only to tax
increase payments due from Tenant from the actual date of transfer during the
last thirty months of the term through expiration of the original lease term.
27.0 Insurance: Subject the provisions of Paragraph 8.3 of the Lease,
---------
Landlord shall have the option to insure the Premises at any time during the
lease term or extension thereof against the perils of earthquake.
28.0 Alterations:
-----------
28.1 Tenant Work: Landlord hereby gives Tenant permission to install
-----------
cables for computer terminals and phone lines along with other non-structural
interior improvements. Tenant shall, at Landlord's request, remove any such
improvements at Tenant's sole expense upon expiration of this Lease or any
extension thereof.
28.2 Landlord's Work: Landlord shall construct for Tenant's benefit a
---------------
computer room as depicted on the attached Exhibit B. The computer room shall
include a raised computer floor and a Halon system located beneath the raised
floor. It is anticipated that the $40,000 cash payment by Tenant for the
reimbursement of a portion of the cost of constructing the computer room in
accordance with Paragraph 21.0 of this Addendum, shall cover the cost of the
computer floor and Halon system. Therefore, Tenant shall retain ownership of the
computer floor and Halon system. Landlord shall require Tenant to remove these
items and repair any damage to the Premises caused by such removal at Tenant's
sole expense upon expiration of this Lease or extension thereof.
29.0 Damage: If the damage referred to in Paragraph 10 of the Lease is not
------
insured against, or the available insurance proceeds are insufficient for the
repair, or if the damage occurs within the last six months of the lease term and
the cost of repair is greater than 5% of the replacement cost of the building,
Landlord may, at its option, exercised by notice to Tenant within thirty days of
the date that Landlord acquires knowledge of the damage, elect either to
complete the repair at its expense or to terminate this Lease as of the date of
damage. Tenant shall also have the option to pay for the restoration or
<PAGE>
Addendum
Page 4
repairs and by so doing, the Landlord will not have the option to terminate this
Lease.
30.0 Indemnity: Commencing with Tenant's entry onto the Premises, and
---------
continuing throughout the term of this Lease, including all extension periods,
Tenant shall not be liable for, and Landlord shall indemnify and defend Tenant,
its officers, directors, employees, shareholders, agents and representatives or
any of them, and the successors and assigns of such parties (collectively
"Tenant Indemnitiees"), from and against any and all claims, damages,
liabilities, judgments and expenses (including attorneys' fees and other
costs), for injury to persons, loss of life or damage to property occurring
within, around or adjacent to the Premises, and arising directly or indirectly
out of Landlord's construction of the Premises, Landlord's failure to perform
any of its obligations under this Lease, or any act of or failure to act by
Landlord or any agent or representative of Landlord while on the Premises;
provided however, Landlord shall have no liability for any injury, loss of life
or damage to property occurring in or about the Premises due to the sole
negligence or willful act or failure to act of Tenant, its partners, agents,
contractors, officers, directors, employees, shareholders or invitees.
Landlord's liability under this Paragraph shall be reduced by the net proceeds
of any insurance carried by Landlord to the extent such proceeds are applied
toward payment of such claims, damages, expenses, liabilities and judgments.
Notwithstanding the foregoing, any liability of Landlord to Tenant under this
Paragraph shall be satisfied only out of Landlord's estate hereunder or any
insurance held by Landlord, and Tenant may not obtain any personal or deficiency
judgment against Landlord or any of Landlord's partners, officers, employees or
agents.
31.0 Waiver of Subrogation: Landlord and Tenant each shall, prior to or
---------------------
immediately after signing this Lease, procure from each of their respective
insurers under all policies of property, fire, theft, public liability,
Worker's Compensation and other insurance now or hereafter existing during the
term hereof and purchased by it insuring or covering the Premises or any person
or any contents thereof, or any operations therin, a waiver of all rights of
subrogation with each such insurer might otherwise, if at all, have to any
claims against the other to the extent required by this Lease Agreement and
Addendum.
32.0 Real Estate Commission: Landlord and Tenant mutually agree that the
----------------------
only broker of record in this transaction is Galaxy Realty Investment
Consultants represented by Mr. Sy Najjar. It shall be Landlord's sole
obligation to pay the agreed upon commission to Galaxy Realty in connection with
negotiating this Lease.
33.0 Transfer by Tenant: Subject to the provisions of Paragraph 13 of the
------------------
Lease, Landlord shall consent to a transfer of this Lease to an entity Tenant
controls, is controlled by or is in common control with parent or any transfer
of stock of the non-bankruptcy of Tenant or assignment in connection with
transfer of substantially all of the assets of the Tenant so long as such
transfer or assignment is to an entity whose financial condition is equal to or
greater than that of the Tenant and whose use of the Premises shall be
consistent with that of the Tenant.
<PAGE>
Addendum
Page 5
34.0 Landlord hereby agrees to notify Tenant of Landlord's intent to sell
the subject building in which Premises are located so that Tenant may have an
opportunity to offer to purchase the building.
END OF ADDENDUM
<PAGE>
EXHIBIT A
[MAP AND DESCRIPTION OF SPINNAKER ONE BUILDING]
<PAGE>
EXHIBIT B
[PROPOSED SPACE PLAN FOR INTERLINK]
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT STANDARDS
OFFICE AREA
- -----------
1) Carpet throughout the office area except for sheet vinyl in the restrooms
and lunch room area. Carpet shall consist of 20 ounce level loop direct
glue-down carpet by Design Weave without pad.
2) Suspended acoustical ceiling consisting of a 2' X 4' exposed grid.
3) Recessed fluorescent lighting fixtures.
4) Heating, ventilating and air conditioning.
5) Doors and partitions as shown with partitions to be textured and painted.
Doors are B-3 pre-finished birch, solid core with 20 minute label.
6) Bathroom and lunch room fixtures as shown.
7) Electrical service adequate to serve improvements as shown with standard
switching, electrical and telephone outlet distribution. Telephone outlets
include pull wire, cable provided by others.
WAREHOUSE
- ---------
1) Chain hung strip fluorescent lighting.
2) Sealed concrete floor.
FEES AND PERMITS
- ----------------
The tenant improvement allowance shall also include Landlord's
architectural fees and the cost of permits to be issued by the City of Fremont.
EXCLUSIONS
- ----------
The tenant improvement allowance does not include the following:
1) Window coverings.
2) Electrical data gathering lines or security equipment.
3) Telephonic or other communications systems.
4) Electrical and telephone outlets in the warehouse. Allowance shall include
six (6) electrical outlets in the storeroom and assembly-test area.
By: /s/ Landlord By: /s/ Lambert Onuma
------------------------- -----------------------------
Lambert Onuma
Its: Partner Its: President
-------------------------- ----------------------------
Address: 46721 Fremont Blvd. Address:
--------------------- -------------------------
Fremont, CA 94538
- ----------------------------- ---------------------------------
- ----------------------------- ---------------------------------
- ----------------------------- ---------------------------------
Dated As Of: Dec. 8 1986
----------------------------, --------.
<PAGE>
THIRD ADDENDUM
This Third Addendum to the Lease ("Addendum") is dated for reference purposes as
of 10/5 , 1993 and is made between Bayside Spinnaker Partners I, a California
Limited Partnership ("Landlord") (formerly King & Lyons, a California
Partnership) and Interlink Computer Sciences Corporation, a California
Corporation ("Tenant") to be part of that certain Lease dated December 8, 1986
between Landlord and Tenant (herein the "Lease") concerning the premises located
in Spinnaker I, Building 2B at 47358-47382 Fremont Boulevard, Fremont,
California.
Landlord and Tenant hereby agree that the Lease and any previous Addendum's and
Exhibits, is hereby modified and supplemented as follows:
1. Premises: The premises shall be reduced in size from 30,000 square feet
--------
to 24,000 square feet located in Spinnaker One, Building 2B. The attached
Exhibit A depicts the revised premises.
2. Lease Term: The lease term for the revised premises shall commence on
----------
October 1, 1993 and extend for a period of eighteen months. The termination
date will be March 31, 1995.
3. Sublease: Upon execution of this Lease by Landlord and Tenant, Landlord
--------
shall assume tenants obligations with respect to the sublessee currently
occupying the remaining 6,000 square foot portion of the building except for
paragraphs 17, 18, 19 and 20 of the Addendum to Sublease Agreement which shall
remain agreements and obligations of the tenant and subtenant for the remainder
of the sublease term. Tenant shall transfer the security deposit for the
sublease to the Landlord.
4. Base Rent: Commencing October 1, 1993 and throughout the lease term the
---------
base monthly rent shall equal $16,970.00 per month.
5. Tenant's Percentage Share of Expenses: Tenant's percentage share of
-------------------------------------
Building Operating Expenses shall be Eighty Percent (80%). Tenant's percentage
share of Outside Area and Real Property Tax Expenses shall be Twenty Five
Percent (25%).
6. Estimate Monthly Expenses: Three Thousand Three Hundred Sixty Dollars
-------------------------
($3,360.00) per month.
7. First Right to Lease Adjacent Space: Tenant shall have the first right
-----------------------------------
of refusal to lease the adjacent 6,000 square feet of space located at 47358
Fremont Boulevard, Fremont, California. If at any time during the lease term
Landlord receives an acceptable offer from a third party of the subject adjacent
space, Tenant shall have the right within three days of the date of receipt of
the offer to agree to match the terms and conditions of the offer and lease the
subject space. If Tenant does not exercise this right as provided herein, then
Tenant's rights under this paragraph shall terminate and become null and void.
8. This Addendum will also Amend the Lease to correct the Landlord legal
name. The Landlord is Bayside Spinnaker Partners I, a California Limited
Partnership rather than King & Lyons, a California Partnership.
ALL OTHER TERMS AND CONDITIONS SHALL REMAIN THE SAME.
LANDLORD: /s/ Landlord TENANT: /s/ Tenant
Bayside Spinnaker Partners I, Interlink Computer Sciences Corporation,
a California Limited Partnership a California Corporation
By By
------------------------------ --------------------------------------
Its Partner Its Chief Financial Officer
----------------------------- -------------------------------------
Dated 10/5 1993 Dated 10/5/93 1993
--------------------, ------------------------,
<PAGE>
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT is entered into as of the 21st day of February, 1995,
by and between SCI Limited Partnership-I (formerly known as Bayside Spinnaker
Partners I, a California Limited Partnership) (the "Landlord") and Interlink
Computer Sciences Corporation a California corporation (the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease, dated as of the 8th
day of December, 1986, pursuant to which Landlord leased to Tenant certain
premises located at 47370 Fremont Boulevard, Fremont, California (such lease, as
heretofore and hereafter modified, being herein referred to as the "Lease").
WHEREAS, Landlord and Tenant desire to extend the term of the Lease on the
terms and conditions set forth below.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and Tenant agree as follows:
1. The term of this Lease is extended for nine (9) months, such that the
Lease shall terminate on the 31st day of December, 1995. All of the terms and
conditions of the Lease shall remain in full force and effect during such
extension period except that the Monthly Base Rent shall be $17,520.00 during
such extension.
2. Except as modified herein, the Lease, and all of the terms and
conditions thereof, shall remain in full force and effect.
3. Any obligation or liability whatsoever of SCI Limited Partnership-I, a
Delaware limited partnership, which may arise at any time under the Lease or
this Agreement or any obligation or liability which may be incurred by it
pursuant to any other instrument, transaction or undertaking contemplated
hereby, shall not be personally binding upon, nor shall resort for the
enforcement thereof be had to the property of, its trustees, directors,
shareholders, officers, employees, or agents regardless of whether such
obligation or liability is in the nature of contract, tort or otherwise.
IN WITNESS WHEREOF, the parties hereto have signed this Extension Agreement
as of the day and year first above written.
SCI LIMITED PARTNERSHIP-I
By /s/ IRVING F. LYONS, III
-------------------------------
Name: Irving F. Lyons, III
Title: Managing Director
Interlink Computer Sciences Corporation,
a California corporation
By: /s/ J. HEFFERNAN
------------------------------
Name: J. Heffernan
----------------------------
Title: CFO
---------------------------
<PAGE>
EXTENSION AGREEMENT
-------------------
THIS EXTENSION AGREEMENT is entered into the 19th day of January, 1996 by
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and between SCI Limited Partnership-I, a Delaware Limited Partnership (formerly
known as Bayside Spinnaker Partners I, a California Limited Partnership) (the
"Landlord") and Interlink Computer Sciences Corporation, a California
Corporation (the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease, dated as of the 8th
day of December, 1988, pursuant to which Landlord leased to Tenant certain
premises located at 47370 Fremont Boulevard, Fremont, CA 94538 (such lease, as
heretofore and hereafter modified, being herein referred to as the "Lease").
WHEREAS, Landlord and Tenant desire to extend the term of the Lease on the
terms and conditions set forth below.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and Tenant agree as follows:
1. The term of the Lease is extended for sixty (60) months, such that the
Lease shall terminate on the 31st day of December, 2000. All of the terms and
conditions of the Lease shall remain in full force and effect during such
extension period except that the Monthly Base Rent during such extension shall
be as follows:
January 1, 1996 - June 30, 1998 $18,240
July 1, 1998 - December 31, 2000 $18,960
2. As part of this Extension Agreement, Landlord shall construct the tenant
improvements as described below:
- repaint interior (Paint to be White Opal for main areas and Colonial
Sand for accent walls)
- new carpet throughout the office area (not including computer room)
- carpet shall be DesignWeave New Barrymore, Montego. Carpet for
the three conference rooms shall be DesignWeave Pinnacle, Forest
- reseal warehouse floor
- remove fencing in warehouse area
- replace sinks and faucets in restrooms
- install wall and door to screen shower area in ladies restroom
- add additional lighting in shower areas
- new carpet and VCT in kitchen (Armstrong tile, Sand Rift White)
- mini blinds in kitchen area
- install three 36" wide overhead cabinets in kitchen area
- install three 110V duplex outlets in kitchen area
- provide $350 allowance for Aqua Group 25 gallon per day water
filtration system
- repair bubble in men's restroom counter top
- install icemaker line
- replace counter top in kitchen (Wilsonart, Opal Mix)
- provide overtime budget to accomplish re-painting and re-carpeting
of the support area only (approximately 6,000 square feet)
Landlord shall provide supplemental Tenant Improvement allowance, 50% of
the cost to retrofit the data center, not to exceed $12,500. This allowance
shall be expended by September 1996 to provide retrofit of the data center. This
shall by no means relieve Tenant of its responsibility of removing the data
center upon Lease Termination as detailed in Paragraph 28.2 of the original
Lease dated December 8, 1988. The actual amount expended by Landlord shall be
paid back to Landlord together with interest at 11% per annum in equal monthly
installments over the remaining lease term.
3. Upon execution of this Extension, Tenant shall pay Landlord $720 which
is the remaining rent due for January 1996.
4. Except as modified herein, the Lease, and all of the terms and
conditions thereof, shall remain in full force and effect.
5. Any obligation or liability whatsoever of Security Capital Industrial
Trust, a Maryland real estate investment trust, which may arise at any time
under the Lease or this Agreement or any obligation or liability which may be
incurred by it pursuant to any other instrument, transaction or undertaking
contemplated hereby, shall not be personally binding upon, nor shall resort for
the enforcement thereof be had to the property of, its trustees, directors,
shareholders, officers, employees, or agents regardless of whether such
obligation or liability is in the nature of contract, tort or otherwise.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Extension Agreement
as of the day and year first above written.
SCI Limited Partnership-I, a Delaware Limited
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Partnership
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By: /s/ IRVING F. LYONS, III
------------------------------------------
Name: Irving F. Lyons, III
--------------------
Title: Managing Director
-----------------
LANDLORD
Interlink Computer Sciences Corporation, a
------------------------------------------
California Corporation
----------------------
By: /s/ J. HEFFERNAN
------------------------------------------
Name: J. Heffernan
----------------------------------------
Title: CFO
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TENANT
<PAGE>
SECOND ADDENDUM TO LEASE
------------------------
This SECOND ADDENDUM TO LEASE (Addendum) is dated for reference purposes as
12/15, 1988 and is made between King & Lyons, a California Partnership
- ----- ----
("Landlord") and Interlink Computer Sciences Corporation, a California
Corporation ("Tenant") to be a part of that certain Lease dated December 8, 1986
between Landlord and Tenant (herein the "Lease") concerning 23,000 square feet
of space located in a portion of Building 2B of Spinnaker I at 47366-82 Fremont
Boulevard, Fremont, California. Landlord and Tenant hereby agree that the Lease
is hereby modified and supplemented as follows:
1. Expansion Space: Tenant shall lease the expansion space consisting of
---------------
7,000 square feet located adjacent to Tenant's existing premises at 47358
Fremont Boulevard, Fremont, California. The Lease for the expansion space shall
be upon terms and conditions described in the Lease as modified herein.
2. Expansion Space Improvements: Landlord shall construct tenant
----------------------------
improvements to the expansion space in accordance with plans and specifications
mutually agreeable to Landlord and Tenant.
3. Monthly Rent: Upon completion of the improvements to the expansion
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space, the base monthly rent for the expansion space shall be $5,075 per month
utilizing a $10 per square foot improvement allowance for the construction of
the subject improvements including the costs of plans and permits associated
with said construction. Should the improvement costs for the expansion space
exceed the allowance of $10 per square foot ($70,000), one half of the
additional cost shall be paid directly to Landlord by Tenant with the remaining
one half causing the rent to increase at the rate of 2.25 cents per month per
$1.00 of additional costs. The improvement costs for the expansion space shall
not exceed $95,200.
4. Extended Term: The lease term for the entire premises (the original
-------------
and expansion space) shall be extended for a period of sixty months from the
date of completion of construction of the improvements to the expansion space
("Extended Term"). The total base monthly rent for the entire premises during
the Extended Term shall be $21,677 per month plus any adjustment for additional
improvement costs over and above the allowance of $70,000.
<PAGE>
5. Security Deposit: The security deposit as described in the Lease
----------------
shall be increased to $21,677.
6. Expenses: Subject to the provisions of the lease, Tenant's percentage
--------
share of expenses shall increase to 100% and Tenant's extimated monthly expenses
shall increase to $3,000.
7. Option to Expand: At any time after the expiration of the 36th month of
----------------
the Extended Term, Tenant shall have the option to terminate the Lease in order
to expand to a new building located in the Bayside Business Park to be
constructed by Landlord. The new building shall be at least 45,000 square feet
in size and shall be constructed in a general purpose manner with interior
improvements to accommodate Tenant's use. A new lease shall be executed by
Landlord and Tenant for the new building for a minimum period of sixty (60)
months upon terms, covenants and conditions generally consistent with the Lease
except that the monthly rent payable for the new building shall be determined as
provided below:
(i) The parties shall have sixty (60) days after Landlord receives Tenant's
notice to expand within which to agree on the initial monthly rent for the new
building wich shall be based upon the fair market rental value of the Premises
plus any rent due because of additional tenant improvement costs as described
in the Lease and this Second Addendum.
(ii) The then fair market rental value of the Premises shall mean the fair
market monthly rental value of the Premises as of the commencement of the new
lease; taking into consideration the uses permitted under the Lease, the
quality, size, design and location of the Premises and comparable buildings
located in the Bayside Business Park in Fremont, California.
LANDLORD: TENANT:
King & Lyons Interlink Computer
Sciences, Inc.
By: /s/ Landlord By: /s/ Tenant
------------------------- ----------------------------
Date: 12/15/88 Date: December 06, 1988
----------------------- --------------------------
<PAGE>
[LETTERHEAD OF KING & LYONS]
March 27, 1989
Mr. Chris Kang
Interlink Computer Sciences, Inc.
47370 Fremont Boulevard
Fremont, California 94538
Dear Chris:
This letter will confirm the lease commencement date as April 1, 1989 for
the expanded premises at 47370 Fremont Boulevard. The lease for your entire
premises will extend through March 31, 1994.
Please signify your acceptance of the above by signing and returning the
enclosed copy to me.
Sincerely,
/s/ Barbara McLellan
Barbara McLellan
BM/cb
Enclosure
AGREED AND ACCEPTED:
By: /s/ Chris Kang
---------------------------
Date: 03/27/89
-------------------------
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46704 FREMONT BOULEVARD
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FREMONT, CALIFORNIA 94538
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TELEPHONE (415) 656-1900
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<PAGE>
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
KING & LYONS
46721 Fremont Boulevard
Fremont, California 94538
DECLARATION OF COVENANTS, CONDITIONS, AND RESTRICTIONS
for
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Bayside Business Park
---------------------
Fremont, California
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<PAGE>
TABLE OF CONTENTS
Page
----
I. RECITALS................................................ 1
II. DECLARATION............................................. 1
III. DEFINITIONS............................................. 1
3.1. Agent............................................. 1
3.2. Association....................................... 1
3.3. Board............................................. 1
3.4. Common Area....................................... 2
3.5. Declarant......................................... 2
3.6. Drainage System................................... 2
3.7. Improvements...................................... 2
3.8. Landscaping....................................... 2
3.9. Map............................................... 2
3.10. Owner............................................. 2
3.11. Property.......................................... 2
3.12. Public Access Area................................ 2
3.13. Site or Lot....................................... 3
IV. OWNERS' ASSOCIATION..................................... 3
4.1. Formation......................................... 3
4.2. Purpose........................................... 3
4.3. Organization...................................... 3
4.4. Ownership......................................... 3
4.5. Obligations....................................... 4
4.6. Delegation of Duties to Owner..................... 4
4.7. Maintenance District.............................. 5
4.8. Destruction of Improvements....................... 5
4.9. Condemnation of Association
Property........................................ 5
V. IMPROVEMENTS............................................ 5
5.1. Approval.......................................... 5
5.2. Basis for Approval................................ 6
5.3. Plan Review....................................... 6
5.4. Commencement and Completion
of Work......................................... 7
5.5. Liability......................................... 7
5.6. Waiver............................................ 7
5.7. No Agent.......................................... 7
IV. DEVELOPMENT STANDARDS................................... 7
6.1. Site Coverage..................................... 7
6.2. Setback........................................... 7
6.3. Landscaping....................................... 8
6.4. Signs............................................. 8
6.5. Parking Areas..................................... 8
6.6. Storage and Loading Areas......................... 9
6.7. Sidewalks......................................... 9
6.8. Utilities......................................... 9
6.9. Fire Protection................................... 10
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<PAGE>
TABLE OF CONTENTS (continued)
Page
----
VII. USES.................................................... 10
7.1. Permitted Uses.................................... 10
7.2. Prohibited Uses................................... 10
7.3. No Street Parking................................. 10
7.4. Nuisances......................................... 10
7.5. Condition of Property............................. 11
7.6. Maintenance of Grounds............................ 11
7.7. Hazardous Substances.............................. 11
7.8. Solar Access...................................... 12
7.9. Compliance Certificate............................ 12
VIII. ASSESSMENTS AND REMEDIES................................ 12
8.1. Right to Assess................................... 12
8.2. Remedies of the Association....................... 13
8.3. Mortgagee Protection.............................. 14
8.4. Assessment Statement.............................. 14
8.5. Other Violations.................................. 14
8.6. Sewer Lift Station Assessments.................... 15
IX. ANNEXATIONS............................................. 15
9.1. Annexations to the Property....................... 15
9.2. Effect of Annexation.............................. 15
X. COVENANTS RUNNING WITH THE LAND......................... 16
10.1. Covenants......................................... 16
10.2. Right to Enforce.................................. 16
XI. GENERAL PROVISIONS...................................... 16
11.1. Expiration and Amendment.......................... 16
11.2. Notices........................................... 17
11.3. Interpretation.................................... 17
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<PAGE>
This Declaration is made as of this 25th day of January, 1986 by KING &
LYONS, a California general partnership, and _______________________, a
_______________________ corporation.
I. Recitals
--------
1.1 Declarant is the owner of the Property.
1.2 Declarant desires to develop the Property, as the Bayside Business
Park, and, to that end, desires to subject the Property to the provisions of
this Declaration.
1.3 In connection with its development of the Property, Declarant intends
to construct a levee, storm water retention basin, storm water drainage system,
landscaping, and various other facilities and amenities for the common benefit
of the Property, and Declarant desires, by this Declaration, to create a
mechanism to ensure the continuing maintenance of these common facilities and
amenities.
1.4 Declarant has formed the Association to own certain real property and
to perform certain functions of a quasi-public or common nature, for the benefit
of the Property, and Declarant desires, by this Declaration, to establish the
Association's authority with respect thereto.
II. Declaration
-----------
2.1 NOW, THEREFORE, in furtherance of the recitals set forth above,
Declarant hereby declares that all of the Property shall be owned, conveyed,
encumbered, leased, occupied, developed, and otherwise held and transferred
subject to the covenants, conditions, and restrictions contained herein, all of
which are declared to be in furtherance of general plan for the improvement and
use of the Property, for the benefit of the Property and every part thereof.
Except as otherwise provided herein, all such covenants, conditions, and
restrictions shall run with the Property and shall be binding upon and insure to
the benefit of everyone having an interest in the Property and their heirs,
successors, and assigns. Each Owner shall, by acceptance of a deed or other
conveyance of a Site, thereby have agreed to be bound by the provisions of this
Declaration.
III. Definitions
-----------
As used herein, the following terms shall have the following stated
meanings:
3.1 Agent: Declarant, or such person as may be appointed by Declarant,
-----
provided that, at such time as Declarant's approval is no longer required for an
amendment to this Declaration, pursuant to Section 11.1, the Agent shall be
appointed by the Association.
3.2 Association: Bayside Business Park Association, a California
-----------
nonprofit mutual benefit corporation.
3.3 Board: The Board of Directors of the Association.
-----
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<PAGE>
3.4 Common Area: All such real property, or rights therein, as may, from
-----------
time to time, be owned by the Association and all landscaped areas located
within property shown on the Map that has been dedicated to the City of Fremont.
3.5 Declarant: With respect to the Property described on Exhibit "A"
---------
hereto, KING & LYONS, a California partnership, or its successor as owner of any
of the Property, provided that the instrument of conveyance from KING & LYONS to
such successor states that the successor to become the "Declarant" for purposes
of this Declaration. With respect to the Property described on Exhibit "B"
hereto, TIPPET-RICHARDSON, INC., a California corporation, or its successor as
owner of any of the Property, provided that the instrument of conveyance from
TIPPET-RICHARDSON, INC. to such successor states that the successor is to become
the "Declarant" for purposes of this Declaration.
3.6 Drainage System: All storm water drainage facilities, retention
---------------
facilities, and water control structures installed or to be installed (i) within
portions of the Property designated as "SDE" on the Map, (ii) on Lot 43 or 44 as
shown on the Map, or (iii) on any parcel owned by the State of California that
is contiguous to said Lot 43 or 44.
3.7 Improvements: All buildings, outbuildings, roads, driveways, parking
------------
areas, fences, screening walls and barriers, retaining walls, stairs, decks,
water lines, sewers, electrical and gas distribution facilities, hedges,
windbreaks, plantings, planted trees and shrubs, poles, signs, loading areas and
all other structures, installations, and landscaping of every type and kind,
whether above or below the land surface.
3.8 Landscaping: All landscaping, fountains, signs, and similar items
-----------
located within portions of the Property designated as "LE" on the Map, within
the area of any easement granted to the Association, or within any property
shown on the Map that has been dedicated to the City of Fremont.
3.9 Map: A map entitled "Bayside Business Park, Tract 5187", recorded in
---
the Official Records of Alameda County, California, on June 11, 1984, in Book
145 of Maps, pages 6 through 16.
3.10 Owner: Such person or entity as may, at any time, be the beneficial
-----
owner of the fee interest in any Site, according to the records of the Alameda
County, California, Tax Assessor.
3.11 Property: The real property described on Exhibit "A" hereto and that
--------
real property described as Exhibit "B" hereto.
3.12 Public Access Area: That property which has been set aside for
------------------
public access, pursuant to an Agreement Granting Public Access executed by
Declarant and the San Francisco Bay Area Conservation and Development
Commission, recorded August 8, 1984, in the Official Records of Alameda County,
California, as instrument number 84-161639, including any amendments thereto
that may hereafter be recorded in those Official Records.
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<PAGE>
3.13 Site or Lot: Any property, under common ownership, constituting a
---- ---
single lot or parcel, as shown on the last-recorded subdivision or parcel map
for that property, and located on any portion of the Property; the area of a
Site or Lot shall be determined by including the area of any portion thereof
that is subject to an easement and excluding any portion that is part of the
Public Access Area.
IV. Owners' Association
-------------------
4.1 Formation. Declarant has caused the Association to be incorporated,
---------
under the laws of the State of California, as a nonprofit mutual benefit
corporation.
4.2 Purpose. The purpose of the Association is to serve as an
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association for the common benefit of the Property and to perform the functions
set forth herein.
4.3 Organization. The Association's membership, officers, and Board
------------
shall be determined in the manner set forth in the Association's Articles of
Incorporation and Bylaws. In that connection, the Articles of Incorporation
provide, in part:
Every person or entity who is the beneficial owner of a Lot, as will
be defined in the Declaration, (a "Lot") shall be a member of the
Corporation. Memberships may not be held separately from beneficial
ownership in a Lot. The transfer of beneficial ownership of a Lot shall
automatically transfer the membership interest in the Corporation
associated with such Lot, subject to such conditions and restrictions on
transfer as may be set forth in the Bylaws of the Corporation. The
Corporation shall have two classes of membership, as follows:
Class A. The Class A Member shall be the Declarant, as defined in the
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Declaration. The Class A Member shall be entitled to a vote, as a Member of
the Corporation, that is weighted in proportion to four times the acreage
of the Lots owned by it, according to the recorded map thereof. At such
time as the Declarant is no longer the owner of any Lot, Class A membership
shall cease to exist.
Class B. Class B Members shall be the beneficial owners of all Lots,
-------
excluding said Declarant. All beneficial owners of a single Lot shall be
Members, but all memberships associated with a single Lot shall be entitled
to a vote, as a Member of the Corporation, that is weighted in proportion
to the acreage of that Lot, according to the recorded map thereof.
The "Declaration" referred to in said Articles is this instrument.
4.4 Ownership. Declarant has conveyed, to the Association, Lot 43, as
---------
shown on the Map, an easement for the portions of the Drainage System that are
located on the Property, and an easement over certain areas now intended for
Landscaping. Declarant may also convey to the Association so much of the
following-described property, or rights therein, as is appropriate for
maintenance by the Association in order to benefit the Property: That portion of
Lot 44, as shown on the Map, on which a levee is to be constructed; the Public
Access
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<PAGE>
Area; such other portions of the Property as may be devoted to or developed for
uses of a public, quasi-public, or common character, including easements for
landscaped areas, signs, fountains, statuary, or other purposes.
4.5 Obligations. The Association shall:
-----------
A. Maintain the Common Area, the Drainage System, the Landscaping,
and the Public Access Area in good condition and repair, causing any damage to a
Site resulting from such maintenance to be promptly repaired;
B. Levy and collect assessments against the Sites in accordance with
Article VIII;
C. Enforce the restrictions created hereby, and pursue the remedies
allowed by Article VIII, to the extent the Association deems it advisable to do
so;
D. Allow each Owner to drain surface water from his Site into the
Drainage system, subject to the approvals required by Article V;
E. Pay, before delinquency, all taxes and assessments levied on the
Common Area;
F. As required by the City of Fremont in connection with its approval
of the Map, cooperate with the following persons of entities for the purposes
indicated:
(i) Other property owners in the vicinity of the Property, in
establishing an emergency medical facility;
(ii) Public transportation agencies, to encourage the use of
public transportation by those persons employed on the Property;
(iii) The Fremont Fire Department, in establishing a hazardous
materials handling program;
(iv) The Fremont Police Department, on security measures;
(v) The Union Sanitary District and Water Quality District, to
encourage waste water recirculation processes for large waste water generators;
(vi) Local recyclers for regular pickup of materials;
(vii) Public and private agencies to encourage industrial users to
conserve resources, such as energy and water, whenever feasible.
G. Obtain such insurance as may be appropriate;
H. Perform such other acts, whether or not expressly authorized by
this Declaration, as may be reasonably necessary for the furtherance of its
purposes, duties, rights, and powers, as set forth herein or in the Articles or
Bylaws of the Association.
4.6 Delegation of Duties to Owner. The Association may, if reasonably
-----------------------------
required by the landscaping character or configuration, require an Owner, by
written notice, to maintain all landscaping bordering upon the Owner's Site
which lies within the property that has been dedicated to the City of Fremont.
In such event, the Owner shall receive a credit, against the Owner's share of
assessments made pursuant to Section 8.1, for the maintenance cost saved by the
Association because of the Owner's landscaping maintenance. The Association may
also at any time, by written notice to the Owner, revoke a prior delegation of
maintenance duties made under this Section.
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<PAGE>
4.7. Maintenance District. At any time that the Association determines
---------------------
it to be feasible, the Association may assign any of its rights or obligations
to a maintenance district formed as a public agency under the laws of
California. Each Owner shall join in the formation of such maintenance district,
as and when requested by the Association, as necessary to allow the district to
levy assessments against the Property so that it may perform the Association's
prior obligations.
4.8. Destruction of Improvements. If there is a partial or total
----------------------------
destruction of any Improvements owned or maintained by the Association, the
Association shall restore and repair the same to their former condition, as
promptly as is reasonably practicable, in a workmanlike manner. If the cost of
restoration or repair exceeds the amount of any available insurance proceeds,
the Association may levy a special assessment on the Property for the excess
cost of restoration or repair. If any excess insurance proceeds remain after
completion of any restoration and repair, the Association shall retain such sums
in its general funds.
4.9. Condemnation of Association Property. If there is an actual or
-------------------------------------
threatened taking by power of eminent domain of all or any portion of the
property or Improvements owned or maintained by the Association, the Board shall
represent the Association and all of the Owners in connection with the taking.
The Board may act, in its sole discretion, with respect to any settlement made
in connection with any such taking, and shall be entitled to make a voluntary
sale, at any price acceptable to the Board, to the condemnor in lieu of
condemnation. Any condemnation award or sale proceeds received on account of
such a taking shall be paid to the Association. If there is a taking of less
than all of the property owned and maintained by the Association, and
if restoration and repair of the remainder is required for the benefit of the
Property and is practical, the Association shall apply the proceeds of the
taking to the restoration and repair and may levy a special assessment on the
Property for any excess cost thereof. If such restoration and repair is not
practical, or if there is a taking of all property owned and maintained by the
Association, then the Association shall distribute the amount of any
condemnation award or sale proceeds that remains, after discharging all of the
Association's obligations, to the members of the Association, pro rata, based on
the acreages of their respective Sites.
V. Improvements
---------------
5.1. Approval. No Improvements, excepting those that do not materially
---------
alter existing Improvements, shall be erected, placed, altered, maintained or
permitted to remain on any Site by any Owner or occupant until final plans and
specifications for such Improvements have been approved by the Agent. The
Agent's approval may be conditional, in that it may require that certain
designated changes be made. The plans and specifications shall be prepared or
approved in writing by a licensed architect and shall be submitted to the Agent,
by the Owner of the Site or his designated representative, in duplicate.
Material changes in approved plans must also be submitted to and approved by the
Agent. All plans and specifications submitted shall be in
-5-
<PAGE>
such form and contain such information as may be reasonably required by the
Agent, but shall in any event include the following:
A. A site development plan of the Site showing the nature, grading
scheme, kind, shape, composition and location of all structures on the Site,
their relation to structures on adjoining Sites, and the number and location of
all parking spaces and driveways on the site;
B. A landscaping plan for the Site;
C. A plan for the location of signs and lighting;
D. A building elevation plan showing dimensions, materials, and
exterior color scheme, in no less detail than required by the appropriate
governmental authority for the issuance of a building permit.
5.2. Basis for Approval. The Agent's approval shall be based, among other
------------------
things, upon adequacy of lot dimensions, adequacy of structural design,
conformity and harmony of external design with neighboring structures, effect of
location and use of proposed Improvements upon neighboring Sites, proper facing
of main elevation with respect to nearby streets, adequacy of screening of
mechanical, air conditioning or other rooftop installations, and conformity of
the plans and specifications to the purpose and general plans and intent of this
Declaration. Plans and specifications must provide for the underground
installation of power, electrical, telephone and other utility lines from the
property line to buildings. The Agent shall not arbitrarily or unreasonably
disapprove any plans or specifications; disapproval shall be in writing and
shall describe, with reasonable specificity, the reasons therefor. The Agent may
disapprove plans or specifications on any reasonable ground including, but not
limited to, the following:
A. Failure to comply with any of the restrictions set forth in this
Declaration;
B. Failure to include such information in the plans and
specifications as may have been reasonably requested by the Agent;
C. Objection to the exterior design, the appearance of materials or
materials employed in any proposed structure;
D. Incompatibility of any proposed structure or use with existing
structures or uses upon other Site or other property in the vicinity of the
Property;
E. Objection to the location of any proposed structure with
reference to other Sites or other property in the vicinity;
F. Objection to the grading or landscaping plan;
G. Objection to the color scheme, finish, proportions, style of
architecture, height, bulk or appropriateness of any structure;
H. Objection to the number or size of parking spaces or to the
design of the parking area; or
I. Any other matter which, in the judgment of the Agent, would
render the proposed Improvements or use inharmonious with the general plan for
improvement of the Property or with Improvements located upon other Sites
or other property in the vicinity.
5.3. Plan Review. A review fee of two hundred fifty dollars ($250) shall
-----------
be paid to the Agent at such time as plans and specifications are submitted to
it. All plans, specifications, and changes thereto that are submitted to the
Agent shall be deemed approved thirty (30) days after the date on which such
items are submitted to the Agent, unless the Agent has theretofore disapproved
such items by written
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<PAGE>
notice to the Owner or the Owner's designated representative. A copy of all
plans and specifications shall be retained by the Agent and another copy shall
be returned by the Agent to the Owner or the Owner's designated agent at the
time the same are approved or disapproved.
5.4. COMMENCEMENT AND COMPLETION OF WORK. The Owner shall diligently
-----------------------------------
commence and complete all Improvements for which final plans and specifications
have been approved by the Agent. If work does not commence within one (1) year
from the date of approval of the final plans and specifications, or if the
improvements are not completed within two (2) years from such date, approval
shall thereupon be automatically revoked unless the Agent extends, in writing,
the period of time within which work must be commenced or completed. If work
upon the Improvements is delayed by strike, fire, national emergency, natural
disaster or other supervening force beyond the reasonable control of the Owner
or occupant, the period of time within which work must be commenced and
completed shall be extended by the same period as the delay.
5.5. LIABILITY. Neither the Agent nor the Association shall be liable
---------
for any damage, loss or prejudice suffered or claimed by any person on account
of its approval or disapproval of any plans, drawings or specifications, the
development of any Site, the construction of any improvement or the performance
of any work, whether or not pursuant to approved plans, drawings and
specifications. The Agent's approval or disapproval of any plans, drawings and
specifications shall not be deemed a representation as to whether the proposed
Improvements comply with the applicable laws or whether they may in any way be
defective.
5.6. WAIVER. The Agent may, in good faith, waive or vary the
------
requirements of this Article V as it deems appropriate in order to fulfill the
purposes of this Declaration. Such waiver or variance shall not constitute a
waiver or variance as to any other Site.
5.7. NO AGENT. If at any time, no person or entity is serving as the
--------
Agent, the Improvements may be constructed in accordance with any plans and
specifications that satisfy the requirements of the City of Fremont, or other
public agency having jurisdiction over the Property, for issuance of a building
permit.
VI. DEVELOPMENT STANDARDS.
---------------------
6.1. SITE COVERAGE. Without the Agent's written consent, the ground
-------------
level of all buildings on any Site shall not occupy more than forty percent
(40%) of the area of the Site.
6.2 SETBACK. Unless otherwise approved in writing by the Agent, no
-------
Improvements or parts of Improvements shall be placed closer than thirty (30)
feet to a property line fronting upon a public street (other than Landing Road)
nor closer than ten (10) feet to any other property line, except the following:
A. Roof overhang, provided such overhang does not exceed more than
six (6) feet into the setback area;
B. Driveways and walkways;
<PAGE>
C. Paving other than driveways and walkways, except that such paving
shall not be located within fifteen (15) feet of the property line fronting upon
any public street (other than Landing Road) or within five (5) feet of any other
property line;
D. Fences, except that no fence shall be placed closer to a public
street than the minimum paving setback, as stated above;
E. Landscaping and irrigation systems;
F. Planters, not to exceed three (3) feet in height;
G. Building site identification signs, directional and parking signs
and signs identifying the owner or occupant of a Site, subject to the Guidelines
adopted by the Association pursuant to Section 6.4.
H. Lighting facilities;
I. Underground utilities, storm drains, and sewers.
6.3 Landscaping. All portions of an improved Site that are not occupied by
-----------
structures or paving shall be landscaped and maintained in accordance with
Landscape Guidelines and Landscape Area Maintenance Guidelines adopted by the
Association, as amended from time-to-time by the Association. A copy of the
Guidelines shall be provided by the Association upon request.
6.4 Signs. No sign shall be permitted on any Site except in accordance with
-----
the Sign Guidelines adopted by the Association, as may be amended from time-to-
time by the Association. "Sign" means any structure or device upon or by which
any printing, lettering, illustration, or other advertising or communication of
any kind whatsoever is displayed, including any display of merchandise visible
from a street. A copy of the Guidelines shall be provided by the Association
upon request.
6.5 Parking Areas. Each Site shall provide off-street parking adequate to
-------------
accommodate the parking needs of all businesses conducted on that Site,
including employees and visitors, consisting of not fewer than three (3)
parking stalls for each 1,000 square feet of building floor area. The Agent may
require a greater parking ratio if the proposed use of the Site so necessitates
in order to preclude the need for
-8-
<PAGE>
any on-street parking. If parking requirements for a Site increase as a result
of a change in use or in the number of persons employed, the Owner of the Site
shall provide sufficient additional off-street parking to satisfy the
requirements of this Section. All parking areas shall conform to the following
standards:
A. Required off-street parking shall be provided on the Site itself,
on a contiguous Site, or within such distance from the Site as the Agent deems
reasonable. Where parking is to be provided other than upon the Site concerned,
an appropriate instrument must be executed, acknowledged, and filed for
recordation by the person or persons holding title (including mortgagees) to the
property upon which the parking area is located, reserving that property for
such parking use.
B. Parking areas shall be paved so as to provide dust-free,
all-weather surfaces. Each parking space provided shall be designated by lines
painted upon the paved surface and shall be adequately sized. All parking areas
shall provide, in addition to parking spaces, adequate driveways and space for
the movement of vehicles and shall comply with applicable laws.
C. In determining the adequacy of the number of parking spaces to be
provided, the Agent shall consider the nature of the proposed use of the Site,
the amount of vehicular traffic generated by such use, the anticipated number of
employees and the manner of their employment, the nature and location of
proposed structures on the Site and such other matters as the Agent considers
relevant.
D. No parking spaces shall be located on or permitted closer than
twenty-five (25) feet to the curb line of an adjacent street without the Agent's
written consent.
6.6. Storage and Loading Areas. Storage, maintenance and loading areas on
-------------------------
a Site must be constructed, maintained and used in accordance with the
following:
A. Unless approved in writing by the Agent, no materials, supplies or
equipment, including trucks or other motor vehicles, shall be stored except
inside a closed building or behind a visual barrier, so as not to be visible
from neighboring property and streets. Any storage areas screened by visual
barriers shall be located upon the rear portions of a Site, unless otherwise
approved in writing by the Agent. All refuse containers shall be covered,
suitably screened form view, and located at the rear of buildings.
B. Provision shall be made on each Site for any necessary vehicle
loading, and no on-street vehicle loading shall be permitted. Loading dock
areas shall be set back, recessed or screened so as not to be visible from
streets and so as to have minimal visual impact on neighboring Sites. No
loading dock be closer than seventy-five (75) feet to a property line fronting
upon a street, unless approved in writing by the Agent.
6.7. Sidewalks. At the time an Owner improves his Site, the Owner shall
---------
install sidewalks along all street frontages, built to the standers then
required by the City of Fremont.
6.8. Utilities. All utility lines shall be placed underground.
---------
-9-
<PAGE>
6.9. Fire Protection. All structures erected on the Property shall be
---------------
equipped with automatic fire sprinklers approved by the Fire Department of the
City of Fremont. Any person using hazardous materials on any portion of the
Property shall make available, to personnel of the Fremont Fire Department,
information and training for the handling of such materials, to the extent
required by that Department.
VII. Uses
----
7.1. Permitted Uses. Any industrial, office, or business use that is not
--------------
specifically prohibited herein or prohibited by applicable municipal statute or
regulation shall be permitted upon a Site. Such use shall be performed or
carried out entirely within a building. Uses which cannot be carried on
entirely within a building may be permitted, by the Agent's written consent,
provided the use is screened so as not to be visible from any point exterior to
the Site.
7.2. Prohibited Uses. The following uses shall not be permitted on any
---------------
Site:
A. Trailer or recreation vehicle storage;
B. Junk yards or recycling facilities;
C. Drilling for and removing oil, gas or other hydrocarbon
substances, by extraction through the surface of any part of the Property;
D. Commercial petroleum storage yards;
E. Excavation of materials; provided that this prohibition does not
prevent any excavation necessary in the course of approved construction;
F. Refining, smelting, or tanning operations;
G. Dumping or incineration of refuse;
H. Animal husbandry or veterinary facilities;
I. Flea markets, auctions, or outdoor sales activities.
7.3. No Street Parking. Each Owner shall cause all persons utilizing the
-----------------
Owner's Site to park their vehicles elsewhere than on a public street.
7.4. Nuisances. No nuisance shall be permitted to exist or operate upon
---------
any Site so as to be offensive or detrimental to any adjacent Site or property
or to its occupants. A "nuisance" shall include, but not be limited to, any of
the following conditions:
A. Any use, excluding reasonable construction activity, of a Site
that emits dust, sweepings, dirt or cinders into the atmosphere, or discharges
liquid, solid wastes or other matter into the ground, Drainage System, or any
waterway which, in the reasonable opinion of the Agent, may adversely affect the
health, safety, or comfort of any person or the reasonable use of any portion of
the Property.
B. The escape or discharge of any fumes, odors, gases, vapors,
steam, acids or other substance into the atmosphere which, in the reasonable
opinion of the Agent, may be detrimental to the health, safety, or comfort of
any person or cause an adverse effect on any portion of the Property.
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<PAGE>
C. The radiation or discharge of light, heat, or nuclear,
electromagnetic, microwave, ultrasonic, laser or other radiation that may be
detected from any point exterior to the Site.
D. The generation of sounds that are unreasonable in volume or
duration.
E. Visible emissions of smoke, steam, or particulate matter that
exceed Ringlemann No. 1 on the Ringlemann Chart of the United States Bureau of
Mines.
F. Ground vibrations, inherently and recurrently generated, that are
perceptible without instruments at any point exterior to the Site.
G. The storage of vehicles or materials on paved areas of a Site for
a period longer than 24 hours, or 72 hours if a weekend is included.
7.5. Condition of Property. The Owner of a Site shall at all times keep
---------------------
the Site and the Improvements and appurtenances thereon in a neat and clean
condition and shall comply, at its own expense, in all respects with all
applicable governmental, health, fire and safety ordinances, regulations,
requirements and directives. No building or structure upon any Site shall be
permitted to fall into disrepair. Each such building and structure shall at all
times be kept in good repair and adequately painted or otherwise finished.
7.6. Maintenance of Grounds. Each Owner shall maintain and repair all
----------------------
parking areas, driveways, walkways and landscaping on his Site. Such
maintenance and repair shall included, without limitation:
A. Maintaining all parking areas, driveways and walkways in a clean
and safe condition, including the paving and repairing or resurfacing of such
areas, as and when necessary for their neat appearance, with the type of
material originally installed thereon or a substitute equal in quality,
appearance and durability; promptly removing debris and waste materials;
regular, periodic washing and sweeping of paved areas; painting and repainting
of striping markers and directional signals, as required for their clear
visibility;
B. Cleaning, maintaining, and relamping of all external lighting
fixtures;
C. Maintaining all landscaping, including trimming, watering and
fertilization of all grass, ground cover, shrubs or trees, removal of dead or
waste materials, and replacement of any dead or diseased grass, ground cover,
shrubs or trees.
D. Keeping all outdoor refuse collection containers covered and
visually screened so as not to be visible from neighboring Sites or streets.
7.7. Hazardous Substances. All hazardous substances on a Site shall be
--------------------
stored and disposed of only in accordance with the requirements of state and
federal law. The Association or its agents may, without having any obligation
to do so, enter on a Site at all reasonable times for the purpose inspecting for
the existence of hazardous substances and determining whether they are being
stored and disposed of properly. The Association shall be entitled to bring an
action, in state or federal court, (i) to enjoin the violation on the Property
of any state of federal law dealing with hazardous substances, and (ii) to
recover
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<PAGE>
damages, including attorney's fees, on its own behalf and on behalf of all
Owners from any person violating such a law on the property.
7.8. Solar Access. No Owner shall unreasonably interfere with another
------------
Owner's access to solar energy, and each Owner shall, as and when requested by
the Owner of a contiguous Site, make available such solar access easement as may
be reasonably required by such other Owner. Any Owner providing such a solar
access easement may charge a reasonable price therefor. It is not the intent of
this Section 7.8 to preclude any Owner from making reasonable use of his Site,
nor is it intended that any Owner's construction of solar energy collectors will
thereby create a solar access easement across another Owner's Site without
reasonable payment being made therefor. No solar access easement shall exist on
any portion of the Property, so as to be binding upon a bona fide purchaser or
encumbrancer, unless it is evidenced by a written instrument that is duly
recorded in the Official Records of the County in which that portion of the
Property is located.
7.9. Compliance Certificate. Any Owner or bona fide, prospective
----------------------
purchaser or encumbrancer of a Site, for value, may, by written request, obtain
from the Association a written statement to the effect that the Site then
complies in all respects with the requirements of Articles V, VI, and VII of
this Declaration, or setting forth in reasonable detail the manner in which the
Site does not so comply. If the Association fails to supply such a statement
within fourteen (14) days of its receipt of the written request therefor, then
it shall be conclusively deemed that the Site then complies in all respects with
those requirements.
VIII. Assessments and Remedies
------------------------
8.1. Right to Assess. The Association, by action of the Board, shall
---------------
assess the Property and the Owners, as necessary to provide funds to perform all
obligations of the Association, according to the terms of this Declaration. Such
assessments shall be made against all Sites, in proportion to the respective
acreages thereof, according to the following procedure:
A. The Association shall operate on a fiscal year ending June 30.
Annually, on or before September 1 of each fiscal year, the Board shall provide
each Owner, by notice, with a proposed Association budget for that year and a
notice of annual assessment, setting forth that Owner's assessed share of the
funds that the Board estimates will be required by the Association to meet its
budgetary requirements. Assessments, as set forth in the notice, shall be due
and payable in two equal installments, on December 10 and April 10.
B. If at any time the Association requires additional funds, because
of unbudgeted requirements, failure to collect annual assessments, or any other
reason, the Board may, by notice to each Owner, levy a special assessment, which
will be due and payable to the Association fifteen (15) days after the date the
notice is given.
C. Within ninety (90) days after the end of each fiscal year of the
Association, the Board shall provide each Owner with a written financial
statement, showing the Association's receipts and expenditures during the
preceding year, in reasonable detail, and a balance sheet
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<PAGE>
setting forth the assets and liabilities of the Association as of the end of the
preceding year. Such financial statement shall be prepared by an independent
certified public accountant, but need not be audited.
8.2. Remedies of the Association. Any assessment levied against a Site
---------------------------
which is not paid when due shall become delinquent. The Board may, at its
option, require that any delinquent assessment bear interest, from its original
due date, at the then-maximum legal rate or one and one-half percent (1 1/2)
per month, whichever is greater, and a late charge of six percent (6%) of the
amount of the unpaid assessment. The Association may, in addition to any other
remedy the Association may have, collect a delinquent assessment as follows:
A. The Association may bring suit against the Owner, who shall be
personally obligated to pay the assessment. The prevailing party in any such
action shall be entitled to recover its reasonable attorneys' fees.
B. The Board may deliver a notice to the defaulting Owner, which
notice shall state the date of the delinquency, the amount of the delinquency,
including interest and any late charge, and make demand for payment thereof. If
such delinquency is not cured within ten (10) days after delivery of such
notice, the Association may record in the Office of the Recorder of Alameda
County a claim of lien against the Site of the delinquent Owner. The claim of
lien shall state: (i) the name of the delinquent Owner or reputed Owner; (ii) a
description of the Site on which the claim is made; (iii) the amount claimed to
be due and owing; (iv) that the claim of lien is made by the Association
pursuant to the terms of this Declaration; (v) that a lien is claimed against
said Site in an amount equal to the amount of the delinquency including
interest, any late charge, costs, and attorneys' fees; (vi) a date, not less
than thirty (30) days from the date the claim is recorded, by which the
delinquency must be cured. Any such claim of lien shall be signed and
acknowledged by an authorized officer of the Association and shall create a lien
against the Site upon the recordation thereof. Each default shall constitute a
separate basis for a claim of lien. The lien created by the claim of lien may be
foreclosed in the manner provided by law for either (i) judicial foreclosure of
a mortgage or (ii) foreclosure of a mortgage by power of sale and, for that
latter purpose, the Association is hereby granted a power of sale with respect
to each Site. If foreclosure is by suit, the Association may also recover its
reasonable attorney's fees. If foreclosure is by power of sale, the Board or a
person designated by it in writing shall conduct the sale and shall be entitled
to actual expenses and such fees as may be allowed by law or as may be
prevailing at the time the sale is conducted in accordance with the provisions
of the California Civil Code, Sections 2924 and following, or in any other
manner permitted by law. A certificate of sale shall be executed and
acknowledged by any authorized officer of the Association or by the person
conducting the sale. Such a certificate executed, acknowledged and made under
penalty of perjury by any two authorized officers of the Association shall be
conclusive upon the Board, the Association, and all Owners, in favor of any and
all persons who rely thereon in good faith as to the matters contained therein.
If the Association fails to collect the full amount of the delinquent assessment
at such sale, it shall continue to have the right to enforce, by suit, the
personal liability of the Owner therefor. If any
<PAGE>
claim of lien has been recorded as herein provided, and thereafter the
Association receives payment in full of the amount claimed to be due and owing
together with all accrued interest, late charges, costs, and attorney's fees
incurred by the Association, then, upon demand by the Owner, the Board, acting
through any authorized officer of the Association, shall execute, acknowledge
and record a release of the Association's claim of lien.
C. The remedies of the Association hereunder shall be in addition to
and shall not exclude any other rights and remedies which the Association may
have by law.
8.3. Mortgagee Protection. The Association's foreclosure of a lien for
--------------------
delinquent assessments shall not extinguish or render invalid the lien of any
mortgage or deed of trust encumbering a Site, provided that the mortgage or deed
of trust secures a bona fide debt, created for value. However, any person
acquiring a Site upon foreclosure of such a mortgage or deed of trust, or by
deed in lieu thereof, shall acquire the Site subject to the obligation to pay
all delinquent assessments, including those that may still be unpaid after the
Association's foreclosure of its lien.
8.4. Assessment Statement. Any bona fide, prospective purchaser or
--------------------
encumbrancer of a Site for value may, by written request accompanied by a fee of
twenty-five dollars ($25), obtain from the Association a written statement
setting forth the amount of any regular, special or individual assessment
against such Site which is either delinquent or assessed but not yet due and
payable (an "Assessment Statement"). If the Association fails to supply an
Assessment Statement within fifteen (15) business days of its receipt of such
written request and fee, then it shall be conclusively deemed that there are no
outstanding assessments against such Site as of the date of such written request
unless a claim of lien has theretofore been recorded against the Site in
accordance with Section 8.2 hereof.
8.5. Other Violations. If any violation of a covenant, condition, or
----------------
restriction contained herein comes to the attention of the Board, the Board may
deliver a notice of violation, in writing, to the Owner of the affected Site. If
the violation described in the notice is not corrected within thirty (30) days
after the date such notice is given, the Association may, if such violation may
be corrected without entering into any building on the Site, then enter on the
Site and correct the violation at the Owner's expense, and the Owner will
reimburse the Association for the cost thereof, plus an administrative charge of
fifteen percent (15%) of that cost, on demand. The Association is hereby granted
a license to enter on all Sites as necessary to correct such violations. Whether
or not violations may be corrected by entry onto a Site, and whether or not a
notice of violation has theretofore been given, the Association may bring suit
against an Owner to enjoin a violation, to recover any damages to Association
property resulting therefrom, and to pursue any other remedy allowed by law; in
any such action brought by the Association, the prevailing party shall be
entitled to recover its reasonable attorney's fees.
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<PAGE>
8.6. Sewer Lift Station Assessments. The Owners of Lots 17 through 34, as
------------------------------
shown on the Map, are hereby notified that a sanitary sewer lift station has
been constructed to serve those Lots and certain other property not now part of
the Property. The lift station will be maintained by the Union Sanitary District
(the "District") under an arrangement by which all costs of maintaining,
operating, and replacing the lift station will be charged to the owners of the
properties then being served by the lift station, with such costs apportioned
among those properties in such reasonable manner as may be determined by the
District. Such costs may include, but are not limited to, the costs of the
District's labor, power, and an equipment replacement allowance determined by
amortizing the replacement costs of the equipment's useful life. The apportioned
costs may be collected directly by the District, by assessment, or, at the
District's option, may appear as additional charges on annual property tax bills
issued by the County Tax Collector. To enable the District to enforce its
assessments, the District is hereby granted a lien against Lots 17 through 34.
If an assessment against any of said Lots is not paid when due, the District may
foreclose its lien against such Lot in the manner provided by California law for
judicial foreclosure of a mortgage or deed of trust.
IX. Annexations
-----------
9.1. Annexations to the Property. If Declarant then owns at least ten
---------------------------
percent (10%) of the Property, by area, real property other than the Property
may become subject to this Declaration by means of annexation. Such other real
property must (i) be contiguous to the Property, and (ii) not cause a material
increase in the financial obligations of the Owners, by reason of a
disproportionately large common area or otherwise. Other real property shall be
considered "contiguous" if it is separated from the Property only be real
property owned by a public agency. Annexation shall be accomplished by
Declarant's filing for recordation, in the office of the County Recorder where
the real property to be annexed is located, an executed Notice of Annexation
describing the other real property, referring to this Declaration, and stating
the other real property is thereafter to be included in the Property for
purposes hereof.
9.2. Effect of Annexation. With respect to any real property annexed
--------------------
pursuant to this Article IX:
A. Each Owner of a portion of such real property, but virtue of being
such an Owner and for so long as he is such an Owner, shall enjoy all the rights
and have all the obligations of any Owner hereunder and shall be a member of the
Association.
B. The terms "Owner", "Lot", "Property", and "Site" shall refer to
such annexed real property or portions thereof, or its owner(s), as the context
may require for the proper inclusion of such other real property in the scheme
of this Declaration.
C. The Notice of Annexation may contain such other covenants,
conditions, and restrictions, applicable to the annexed real property, including
provisions that differ from provisions of this Declaration, as Declarant deems
appropriate.
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<PAGE>
X. Covenants Running With the Land
-------------------------------
10.1. Covenants. The covenants, conditions, and restrictions set forth
---------
herein are made by Declarant on its own behalf, as owner of the Property, and on
behalf of the successive owners of all Sites, for the direct benefit of the
entire Property and shall be "covenants" that "run with the land", as referred
to in Section 1468 of the California Civil Code. The burdens created by this
Declaration shall be binding upon each Site and the successive owners thereof.
Each Owner of a Site shall acquire the Site subject to the prior Owner's
obligation to pay any unpaid assessment, and any other amounts due hereunder,
assessed against or payable with respect to such Site or the prior Owner's
actions. Accordingly, Declarant, on its own behalf and on behalf of the
successive owners of Sites, specifically waives the provisions of California
Civil Code Section 1466, which provides:
No one, merely by reason of having acquired an estate subject to a covenant
running with the land, is liable for a breach of the covenant before he
acquired the estate, or after he has parted with it or ceased to enjoy its
benefits.
The provisions of this Section 10.1 shall not limit any claim or right an Owner
of a Site may have against his predecessor in interest for failure to pay
assessments or for other obligations incurred prior to the date such Owner
acquired title to the Site.
10.2 Right to Enforce. No Owner shall have the right to bring suit against
----------------
another Owner or any other person to enforce the obligations of such other Owner
or person under this Declaration, it being the intent of this Declaration that,
except as may otherwise be specifically provided herein, only the Association
shall have the power, right and authority to enforce the provisions of this
Declaration against the Owners.
XI. General Provisions.
------------------
11.1. Expiration and Amendment. The provisions of Articles V and VI of this
------------------------
Declaration, excepting Section 6.9, shall automatically expire and have no
further effect as of December 31, 2009; provided that, at any time during the
year 2009, Owners of Sites constituting not less than two-thirds (2/3) of the
Property, by area, may extend said provisions for a designated additional term
that does not extend beyond December 31, 2019. The remaining provisions of this
Declaration shall run with and bind the Property in perpetuity. This Declaration
may at any time be amended by the vote of Owners holding not less than two-
thirds (2/3) of the voting power of the Association. However, so long as
Declarant owns at least ten percent (10%) of the Property, by area, or for a
period of fifteen (15) years from the date of recordation of this Declaration,
whichever is longer: (i) no amendment hereof shall be effective without the
written approval of Declarant, and (ii) Declarant may amend this Declaration
without the consent of any other party, but only with respect to procedural or
technical matters that further the apparent original purpose hereof and do not
alter the respective rights and obligations of the Owners. The written
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<PAGE>
consent of the City of Fremont, California, shall be required for any amendment
to this Declaration that purports to alter the effectiveness of any of the
following Sections of this Declaration: 4.5(F), 6.9, 7.3 or 11.1 (this sentence
only). To be effective, an amendment to this Declaration must be in writing,
executed by the required party or parties, and filed for recordation in the
Office of the Recorder of the County or Counties where the Property is located;
no amendment will be effective against an Owner who acquired a Site prior to the
recordation of the amendment, until the Owner has actual knowledge of the
amendment.
11.2. Notices. Any notice required or desired to be given or sent pursuant
-------
to or with respect to this Declaration shall be in writing and shall be
personally served, or, in lieu of personal service, may be given by depositing
such notice in the United States mail, certified or registered, postage
prepaid, addressed to the party to be served at its address as shown in the
records of the Alameda County, California, Tax Assessor. Any notice given by
certified or registered mail shall be deemed to have been given on the third
business day after its deposit in the United States mail. Any Owner or the
Association may, by written notice to the Association or, in the case of the
Association, to all Owners change the address to which notices addressed to it
shall thereafter be mailed. Until changed, the address of the Association and
the Agent shall be c/o King & Lyons, 3000 Sand Hill Road, Building 4, Suite 245,
Menlo Park, California 94025. If a Site is owned by more than one Owner, then
such co-Owners shall designate, by written notice to the Association, a single
Owner as their agent to receive notices hereunder, and any notice given to such
designated Owner shall be deemed given to all the Owners of such Site. In the
absence of any such designation, any notice given to any one of the co-Owners of
a Site shall suffice as notice to all co-Owners.
11.3. Interpretation. The provisions of this Declaration shall be fairly
--------------
construed so as to effectuate their purpose of creating and implementing a
continuing uniform plan to facilitate the Association's performance of its
obligations, assessment of the Owners for the costs and expenses paid or
incurred by the Association, the creation and enforcement of liens to secure
payment of such assessments, and the development of the Property as a business
park of uniform quality and appearance. If any provison of this Declaration is,
or is adjudged to be, unenforceable or invalid, the remainder shall continue in
full force and effect. The heading contained in this Declaration are for the
purpose of reference only, and are not an aid in the construction or
interpretation of any provision hereof.
IN WITNESS WHEREOF, Declarant has executed this Declaration on the date
first above written.
Declarant:
KING & LYONS
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<PAGE>
EXHIBIT "A" to
DECLARATION OF COVENANTS, CONDITIONS, AND RESTRICTIONS
For
---
Bayside Business Park
---------------------
Real property located in the City of Fremont, Alameda County, California,
described as follows:
A. Lots 1 through 38 and Lots 41 and 42 as shown on a map entitled
"Bayside Business Park, Tract 5187", recorded in the Official Records of
Alameda County, California, on June 11, 1984, in Book 145 of Maps, pages 6
through 16, inclusive.
B. All that property conveyed to King & Lyons, a partnership, by
grant deed recorded in the Official Records of Alameda County, California,
on July 31, 1984, as instrument number 84-154424.
C. Parcel 2 of Parcel Map 4703 recorded in the Official Records
of Alameda County, California, on November 22, 1985, in Book 157 of Maps,
pages 57 and 58.
<PAGE>
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT is entered into as of the 19th day of January,
1996, by and between SCI Limited Partnership-I, a Delaware Limited Partnership
(formerly known as Bayside Spinnaker Partners I, a California Limited
Partnership) (the "Landlord") and Interlink Computer Sciences Corporation, a
California Corporation (the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease, dated as of the 8th
day of December, 1988, pursuant to which Landlord leased to Tenant certain
premises located at 47370 Fremont Boulevard, Fremont, CA 94538 (such lease, as
heretofore and hereafter modified, being herein referred to as the "Lease").
WHEREAS, Landlord and Tenant desire to extend the term of the Lease on the
terms and conditions set forth below.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and Tenant agree as follows:
1. The term of the Lease is extended for sixty (60) months, such that the
Lease shall terminate on the 31st day of December, 2000. All of the terms and
conditions of the Lease shall remain in full force and effect during such
extension period except that the Monthly Base Rent during such extension shall
be as follows:
January 1, 1996 - June 30, 1998 $18,240
July 1, 1998 - December 31, 2000 $18,960
2. As part of this Extension Agreement, Landlord shall construct the
tenant improvements as described below:
-- repaint interior (Paint to be White Opal for main areas and
Colonial Sand for accent walls)
-- new carpet throughout the office area (not including computer
room) - carpet shall be DesignWeave New Barrymore, Montego.
Carpet for the three conference rooms shall be DesignWeave
Pinnacle, Forest.
-- reseal warehouse floor
-- remove fencing in warehouse area
-- replace sinks and faucets in restrooms
-- install wall and door to screen shower area in ladies restroom
-- add additional lighting in shower areas
-- new carpet and VCT in kitchen (Armstrong tile, Sand Rift White)
-- mini blinds in kitchen area
-- install three 36" wide overhead cabinets in kitchen area
-- install three 110V duplex outlets in kitchen area
-- provide $350 allowance for Aqua Group 25 gallon per day water
filtration system.
-- repair bubble in men's restroom counter top
-- install icemaker line
-- replace counter top in kitchen (Wilsonart, Opal Mix)
-- provide overtime budget to accomplish re-painting and
re-carpeting of the support area only (approximately
6,000 square feet)
Landlord shall provide supplemental Tenant Improvement allowance, 50% of
the cost to retrofit the data center, not to exceed $12,500. This allowance
shall be expended by September 1996 to provide retrofit of the data center. This
shall be no means relieve Tenant of its responsibility of removing the data
center upon Lease Termination as detailed in Paragraph 28.2 of the original
Lease dated December 8, 1988. The actual amount expended by Landlord shall be
paid back to Landlord together with interest at 11% per annum in equal monthly
installments over the remaining lease term.
3. Upon execution of this Extension, Tenant shall pay Landlord $720
which is the remaining rent due for January 1996.
4. Except as modified herein, the Lease, and all of the terms and
conditions thereof, shall remain in full force and effect.
5. Any obligation or liability whatsoever of Security Capital
Industrial Trust, a Maryland real estate investment trust, which may arise at
any time under the Lease or this Agreement or any obligation or liability which
may be incurred by it pursuant to any other instrument, transaction or
undertaking contemplated hereby, shall not be personally binding upon, nor shall
resort for the enforcement thereof be had to the property of, its trustees,
directors, shareholders, officers, employees, or agents regardless of whether
such obligation or liability is in the nature of contract, tort or otherwise.
<PAGE>
EXHIBIT 10.8
SOFTWARE LICENSE AND DISTRIBUTION AGREEMENT
This agreement is entered into and effective as of this 10th day of May,
1996 (hereinafter the "Effective Date") by and between Interlink Computer
Sciences and its Affiliates and Subsidiaries (hereinafter referred to as
Interlink), with offices at 47370 Fremont Boulevard, Fremont, California 94538;
and Legato Systems, Inc., and its Affiliates and Subsidiaries (hereinafter
referred to as Legato), with office at 3145 Porter Drive, Palo Alto, California
94304.
WITNESSETH THAT:
WHEREAS, Legato owns or has the right to license certain computer software
storage and retrieval programs known as Networker which operate in a networked
computer environment and Interlink owns or has the right to license certain
computer software storage and retrieval programs known as Harbor which operate
in a mainframe computer environment; and
WHEREAS, the parties desire to obtain certain rights, as hereinafter
described, to the other's programs such that Interlink will be able to offer
customers an solution to data storage and retrieval needs in which the networked
system and mainframe system can operate together on an enterprise-wide level (an
"Enterprise Solution"); and
WHEREAS, each party is willing to grant such rights to the other party on
the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound by the provision hereof,
hereby agree as follows:
1. DEFINITIONS.
-----------
1.1 GENERAL. Words shall have their normally accepted meanings as employed
-------
in this Agreement. The word "shall" is mandatory, the word "may" is permissive,
the word "or" is not exclusive, the words "includes" and "including" are not
limiting and singular includes the plural and visa versa.
1.2 "Networker Software" shall mean Legato's computer programs which
operate with and interface to Legato's Networker reference ports, including all
Corrections and Updates thereto and all translations thereof made by Legato. The
Networker Software is more specifically identified in the Specifications
(Addendum A).
1.3 "Networker Documentation" shall mean all visually and/or machine
readable materials developed by or for Legato for use in connection with the
Networker Software including revisions, new and corrected documents and
translation. Networker Documentation is more specifically identified in
Addendum A.
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
1.4 "Subsidiary" shall mean a corporation, company or other entity in which
fifty-percent (50%) or more of the outstanding voting control is, now or
hereafter, owned or controlled, directly or indirectly, by a party.
1.5 "Affiliate" shall mean a corporation, company or other entity which,
now or hereafter, controls or is controlled by a party, provided that such
controlling interest is more than ten percent (10%) but less than fifty percent
(50%) of the outstanding voting control.
1.6 "Third Party" shall include any party, including dealers, value added
resellers, distributors and manufacturers other than Legato or Interlink or
their Subsidiaries and Affiliates.
1.7 "End User" shall mean the customers who are granted a license which
includes the right to use a software product internally and not for further
distribution.
1.8 "Corrections" shall mean changes made in the applicable software
product to correct errors or defects in the software or make it conform to its
specifications.
1.9 "Update" shall mean a release of the applicable software product
subsequent to the initial delivery which incorporates (i) accumulated
Corrections, (ii) contains new features or functionality (iii) improves
performance or (iv) has been modified to operate with other software products or
with other operating systems or platforms, together with new or revised
Documentation which properly describes the updated software.
1.10 "Source Code" shall mean software in symbolic programming language(s)
in human-readable.
1.11 "Object Code" shall mean the machine executable form of software
which results from the compilation and/or assembly of Source Code.
1.12 "Harbor Agent for Networker" or "Harbor Agent" shall mean the
software module to be developed by Interlink pursuant to Section 2. 1 which will
permit interoperability between the Networker Software and Interlink's Harbor
software products including all Corrections and Updates thereto provided by
Interlink to Legato.
2. DEVELOPMENT AND LICENSE OF HARBOR AGENT
---------------------------------------
2.1 Development. Interlink will use reasonable commercial efforts to
-----------
develop and deliver the Harbor Agent for Networker to Legato and to ensure
compatibility of the Harbor Agent for Networker with Legato's server products
for Solaris, AIX, HP-UX, NT and Netware operating environments for the duration
of this Agreement. Interlink has sole ownership of the Harbor Agent for
Networker.
-2-
<PAGE>
2.2 Delivery of Networker Source Code and Technical Assistance. Promptly
----------------------------------------------------------
after the Effective Date Legato shall deliver, in English and in reproducible
form, the Networker Source Code and Networker Documentation to Interlink. Legato
hereby grants to Interlink a limited license to use the Networker Source Code
for the purposes of developing and maintaining the Harbor Agent for Networker.
Legato will provide Interlink with all technical assistance reasonably requested
by Interlink to complete the development of the Harbor Agent.
2.3 Distribution of Harbor Agent.
----------------------------
(a) License to Legato. Interlink hereby grants to Legato a worldwide,
-----------------
perpetual, royalty-free, exclusive (subject to the limitations described in (b)
below) license to integrate the Harbor Agent for Networker into the Networker
Software and to copy and distribute the Harbor Agent, directly or through
distributors, as integrated into the Networker Software. Legato may not
distribute the Harbor Agent on a standalone basis. Interlink reserves all rights
not expressly granted herein.
(b) Distribution by Legato. Legato shall integrate the Harbor Agent
----------------------
into the Networker Software and make any modifications to the Networker Software
required to cause the Harbor Agent to operate in accordance with Interlink's
specifications. After successful completion of such integration, every copy of
the Networker Software for Solaris, AIX, HP-UX, NT and Netware operating
environments distributed by Legato during the term of this Agreement shall
include the Harbor Agent as a selectable option, including copies distributed as
Updates or Corrections to existing customers. If Interlink requests that Legato
provide the Harbor Agent to any then-existing Networker customer and Legato
refuses or fails to do so within 5 business days, then Interlink shall have the
right to provide a copy of the Harbor Agent to such customer. Legato will refer
all customer inquiries regarding an Enterprise Solution to Interlink. At such
time as Interlink licenses its Harbor software products to a customer which has
licensed the Networker Software containing the Harbor Agent, Interlink will
enable the Harbor Agent. Interlink will notify Legato that the Harbor Agent has
been enabled within a reasonable time period so that Legato may invoice the
customer for license fees, if any, relating to the Harbor Agent.
2.4 Maintenance of Networker Source Code and Fee.
--------------------------------------------
(a) Maintenance Releases. Legato shall promptly inform Interlink and
--------------------
shall keep Interlink advised of the status of all Corrections and Upgrades being
developed by or for Legato for the Networker Software and Networker
Documentation. When any such Corrections or Updates have been completed by
Legato, but prior to commercial release, Legato shall provide to Interlink one
(1) copy of the Networker Software in Source Code form and Object Code form
incorporating such Corrections or Updates. In any event, Legato shall provide
such Corrections and Updates to Interlink no later than the time they are
provided to any Third Party. Legato shall provide Interlink access to Legato's
Source Control System for the purposes of providing advanced access to
Corrections and Updates. At a minimum, a "bug" list shall be made available for
Interlink's review on a quarterly basis.
-3-
<PAGE>
(b) Translations. If any portion of the Networker Software or
------------
Networker Documentation is translated or nationalized by or for Legato, Legato
shall notify Interlink of the availability of such version and, if requested by
Interlink, Legato shall, within thirty (30) days of such request, deliver two
(2) copies of such translated or nationalized version to Interlink.
(c) Source Maintenance Fee. In exchange for continuing access to the
----------------------
Networker Source Code, Interlink shall pay Legato an annual maintenance fee of
$[*]. Such fee shall be required for the first year from the Effective Date
of this Agreement and will be at Interlink's option after such period. If
Interlink fails to pay the annual maintenance fee, Interlink will promptly
return the Networker Software Source Code to Legato and shall have no further
rights to access such Source Code.
2.5 Maintenance and Technical Support for Harbor Agent.
--------------------------------------------------
(a) Technical Support. Legato will provide first level support to its
-----------------
customers relating to the Harbor Agent and will not refer any inquiries directly
to Interlink. Interlink will provide back up support to Legato by providing
telephone consulting services to Legato's designated personnel during
Interlink's standard technical support hours provided to its own customers to
assist such personnel in resolving problems, obtaining clarification relating to
the Harbor Agent, and providing assistance regarding suspected defects or errors
in the Harbor Agent. Interlink will respond to inquiries and requests from
Legato and provide corrections or workarounds within its standard response time
guidelines which are attached as Addendum B. Where necessary in Interlink's
discretion, Interlink will provide such support directly to the End User.
(b) Maintenance. Interlink will provide Legato with Updates and
-----------
Corrections of the Harbor Agent from time to time and Legato will promptly
distribute such Updates and Corrections to all customers. Legato shall provide
Interlink with such technical assistance as is reasonably requested by Interlink
in maintaining the Harbor Agent.
(c) Maintenance Fees for Interlink Support. In exchange for
--------------------------------------
Interlink's technical support as described in Section (b) above, Legato shall
pay Interlink [*]% of all maintenance fees booked as revenue by Legato which are
allocable to the Harbor Agent.
3. OPTION TO LICENSE NETWORKER FOR DSS
-----------------------------------
3.1 Option to License. Beginning on the Effective Date and ending on the
-----------------
date 6 months thereafter, Legato grants Interlink an option to license Networker
Software Source Code on the terms described in this Section 3 (the "Option"). To
exercise the Option, Interlink must provide written notice of exercise to Legato
along with delivery of $[*] as a royalty advance. Such amount may be
credited by Interlink against royalties due until recovered in full.
[*Confidential Treatment Requested]
-4-
<PAGE>
3.2 License Grant. Effective upon exercise of the option, Legato hereby
-------------
grants to Interlink a non-exclusive, worldwide, perpetual, license, including
the right to sublicense, to use, copy and modify the Networker Software Source
Code and to integrate portions thereof with other software to create a
distributed storage server ("DSS") software product [for the Solaris, AIX, HP-
UX, NT and Netware operating environments] (the "Harbor DSS") and to copy and
distribute Harbor DSS directly or through distributors. Legato also grants to
Interlink a license to copy, modify and distribute the Networker Documentation
in connection with the Harbor DSS. Title to the Networker Software and Networker
Documentation shall remain with Legato and Legato reserves all rights not
expressly granted in this Agreement. If Interlink integrates Networker clients,
Interlink will use reasonable efforts to ensure that Harbor DSS is interoperable
with standard Networker clients and will create backup tapes using the Legato
open tape format.
3.3 Royalties. Interlink shall pay royalties to Legato equal to [*]% of Net
---------
Revenue received by Interlink. Net Revenue means gross monetary receipts booked
as revenue by Interlink which are directly attributable to the sale or licensing
or other like disposition of the Harbor DSS product net of all taxes, interest
and other finance charges paid by customers, customs duties and other
governmental charges, transportation, insurance and storage charges, and
discounts and less refunds paid in connection with product returns. It is
expressly understood that no royalty shall be due or payable in respect of
copies of the Harbor DSS distributed or displayed in connection with
sales/marketing presentations and demonstrations, tests, evaluation and support
or similar non-revenue generating purposes. If requested by Interlink, Legato
agrees to review the royalties payable by Interlink when mutual benefit may be
achieved in response to special marketing situations.
3.4 Reporting and Payments. Interlink will provide Legato with quarterly
----------------------
reports within 60 days from the end of each calendar quarter setting forth Net
Revenues for the previous quarter and a calculation of the royalties due
thereon. Payment of the royalties due shall accompany each such report.
3.5 Audit Rights. During the term of this Agreement, through a mutually
------------
acceptable independent auditor, Legato shall have reasonable access to the books
and records of Interlink, no more than once every twelve (12) months and upon
reasonable notice, for the sole purpose of determining the royalty amounts due
under Section 3.3 above. Such audit shall be at Legato's own cost and subject to
such auditor agreeing to be bound by the provisions of Section 7, Confidential
Information.
3.6 Harbor DSS Maintenance and Technical Support.
--------------------------------------------
(a) Technical Support. Interlink shall provide first level support to
-----------------
its customers for the Harbor DSS product and will not refer any inquiries
directly to Legato. Legato will provide back up support by providing telephone
consulting services to Interlink's designated personnel to assist such personnel
in resolving problems, obtaining clarification relating to the Networker
Software and Networker Documentation, (including use of individual features) and
providing assistance regarding suspected defects or errors in the Networker
Software or Networker Documentation.
[*Confidential Treatment Requested]
-5-
<PAGE>
Legato services shall be provided during normal working hours five (5) days per
week, eight (8) hours per day on PST. Legato will respond to inquiries and
requests from Interlink and provide corrections or workarounds within its
standard response time guidelines which are attached as Addendum C. Where
necessary in Legato's discretion, Legato will provide such support directly to
the End User.
(b) Maintenance. Legato shall continue to provide the maintenance
-----------
described in Section 2.4 with respect to the Networker Software without any
increase in the annual maintenance fee.
3.7 Technical Training
------------------
(a) Initial Training. Legato shall, as requested by Interlink, furnish
----------------
a single two (2) day training class to not more than ten (10) Interlink
personnel in the modification and enhancement of the Networker Software.
Additionally, Legato shall provide, as requested by Interlink, a single two (2)
day training class to not more than ten (10) Interlink personnel in the
installation, maintenance and operation of the Networker Software. Such training
shall include a sufficiently detailed analysis of the design, structure and
architecture of the Networker Software so that such personnel can, in turn,
adequately train other Interlink personnel to competently perform such tasks.
Each training class shall be of sufficient length to accomplish the competency
level described above. Class materials shall be provided at no charge and may be
retained by the trainees.
(b) Update Training. If a major Update to the Networker Software (i.e.
---------------
those changes for which Legato offers "differential" training to its own
customers) is made by Legato, Legato shall, promptly notify Interlink and as
requested by Interlink, provide one (1) training class in installation,
maintenance and operation of the Updated Networker Software in accordance with
requirements set forth in Section (a) above, for a maximum of ten (10) Interlink
personnel.
(c) Facilities and Expenses. The training to be performed under this
-----------------------
Section shall be provided at Interlink's designated facility unless Interlink
elects to have the training provided at Legato's facilities. If the training is
to be performed at Legato's facilities, (i) Legato shall make available for the
use of Interlink's personnel, equipment, facilities and other items required
for such training and (ii) Interlink shall bear the cost of travel and living
expenses of its personnel. If training is to be performed at other than Legato's
facilities (or Interlink's facilities), Interlink shall (i) reimburse Legato for
travel and living expenses incurred by Legato's personnel to the extent that
such expenses are reasonable and arise solely and directly from the training
being performed at other than a Legato facility and (ii) make available adequate
facilities and equipment reasonably required for such training.
4. NOTICES
-------
4.1 General. All notices contemplated herein shall be sent in writing and
-------
delivered in person, by certified mail, return receipt required, or by reputable
overnight courier service addressed
-6-
<PAGE>
to the other party's Contract Administrator or Technical Administrator at the
address indicated below, or as the same may be changed from time to time by
notice similarly given. Such notices shall be deemed to be effective, upon
delivery if personally delivered, 5 days after deposit in the U.S. mail if sent
by certified, return receipt mail or 2 days after delivery to the courier if
sent by courier service.
For Interlink
-------------
Contract Administrator
Interlink Computer Sciences
47370 Fremont Boulevard
Fremont, CA 94538
Phone: (510) 657-9800
Fax: (510) 659-6381
For Legato
----------
Contract Administrator
Legato Systems, Inc.
3145 Porter Drive
Palo Alto, CA 94304
Phone: (415) 812-6000
Fax: (415) 812-6032
4.2 Technical Administrators. Each party will designate a Technical
------------------------
Administrator by July 1, 1996. The Technical Administrators may clarify,
explain, provide further details, handle necessary technical matters, implement
technical aspects; and develop administrative procedures, but shall have no
authority to affect or change any of the terms and conditions of this Agreement.
5. TERM OF AGREEMENT. The term of this agreement shall commence on the
-----------------
Effective Date and shall continue for 5 years, with 1 year automatic extensions
unless on party notifies the other party in writing at least ninety (90) days
prior to the anniversary date of its intent not to renew, or unless terminated
or canceled as provided for herein.
6. CANCELLATION
------------
6.1 Cancellation.
------------
(a) If Legato substantially fails to perform any of its material
obligations hereunder and said failure is not corrected within thirty (30) days
after delivery of a written notice from Interlink specifying such failure,
Interlink shall have the option of either canceling this Agreement for cause or
continuing to act under the Agreement but without obligation to pay royalties
until Legato cures its failure.
(b) If Interlink fails to make payment due hereunder and said
failure is not
-7-
<PAGE>
corrected within thirty (30) days after delivery of a written notice from Legato
specifying such failure, Legato may cancel this Agreement.
6.2 Survival. Upon expiration or cancellation of this Agreement the
--------
provisions of Sections 1, 4, 6, 7, 8, 9, 10, 14 and all payment obligations
incurred prior to the date of cancellation or expiration, and all end user
licenses granted by either party shall survive.
6.3 Not Exclusive Remedy. The right to cancel this Agreement in accordance
--------------------
with Section 6.1 is in addition to and shall not limit or prejudice any other
right or remedy available under the Agreement, at law or in equity except as
provided herein.
7. CONFIDENTIAL INFORMATION
------------------------
7.1 Definition. Confidential Information shall mean any information
----------
which either party may disclose to the other party which is proprietary to the
disclosing party and, if it is disclosed in tangible form the disclosing party
marks such information as being confidential to it by marking such information
as "Proprietary", "Restricted" or "Confidential" or if disclosed verbally will
be identified as confidential at the time of disclosure and thereafter confirmed
in writing as being confidential.
7.2 Non-disclosure. Each party shall exercise the same degree of care to
--------------
avoid the publication or dissemination of the Confidential Information of the
other party as it affords to its own Confidential Information of a similar
nature which it desires not to be published or disseminated. Confidential
Information disclosed under this Agreement shall only be used by the receiving
party in the furtherance of this Agreement or the performance of its obligations
hereunder.
7.3 Exceptions. Neither party shall be obligated to protect Confidential
----------
Information of the other party which:
(a) is rightfully received by the receiving party from another party
without restriction, or
(b) is known to or developed by the receiving party independently
without use of the Confidential Information, or
(c) is or becomes generally known to the public by other than a breach
of duty hereunder by the receiving party, or
(d) has been or is hereafter furnished to others without restriction
on disclosures.
7.4 Residuals. Notwithstanding this Section 7, each party shall have the
---------
right to exploit and use Residuals for any purpose. "Residuals" shall mean that
confidential information which is of general application in nature and not
peculiar to the design or specification information provided by either party
which is retained by an employee of either party in an intangible form in the
normal
-8-
<PAGE>
course of their work, where no effort has been made to retain or memorialize
this information in any way, and without further reference to any material that
is written, stored in magnetic, electronic or physical form, or otherwise fixed.
7.5 Scope of Obligation. Nothing contained in this Section 7 or elsewhere
-------------------
herein, shall be construed as preventing Interlink from marketing or
sublicensing the Networker Software and Networker Documentation in the same
manner as it may then market or sublicense its other software products,
including establishing Source Code escrows for the benefit of its customers.
Interlink may disclose certain Legato Confidential Information to End Users to
the extent necessary for the purposes of training, operation, maintenance and
marketing of the Networker Software; provided, however, that Interlink shall
require such End Users to keep confidential any Legato Confidential Information
so transferred to the same extent Interlink requires confidentiality with regard
to its own confidential information under similar circumstances.
8. WARRANTY
--------
8.1 Title. Legato warrants that it owns the entire right, title and
-----
interest in and to the Networker Software and Networker Documentation and that
the Networker Software and Networker Documentation have not been disclosed to
others except under an obligation of confidentiality.
8.2 No Violation. Legato warrants that it has the right and power to
------------
grant the licenses and rights set forth in this Agreement and warrants that the
Networker Software and the Networker Documentation do not violate the patents,
copyrights, trade secrets, or other proprietary rights of others.
8.3 Performance Warranty. Legato warrants that (i) the Networker Software,
--------------------
as supplied, will perform in accordance with its specifications and the
documentation listed in Addendum A and the other requirements of this Agreement
and (ii) the Networker Documentation accurately describes the features and
functionality of the Networker Software.
8.4 Intellectual Property. Legato warrants that neither the Networker
---------------------
Software nor the Networker Documentation are in the public domain. Legato
warrants that it has no knowledge of any patents or copyrights which are
infringed or may be infringed, or of trade secrets or other proprietary rights
of any Third Parties within are or may be misappropriated or violated by the
using, making, copying, licensing, or distributing of the Networker Software or
Networker Documentation.
8.5 Employees. Legato warrants that it has agreements with its employees
---------
which are sufficient for the fulfillment of Legato's obligations pursuant to
this Agreement.
8.6 Disclaimer. EXCEPT AS EXPRESSLY STATED HEREIN, NEITHER PARTY HAS MADE
----------
ANY WARRANTIES OR REPRESENTATION, EXPRESS OR IMPLIED BY OPERATION OF LAW OR
OTHERWISE, CONCERNING THE SOFTWARE TO BE
-9-
<PAGE>
PROVIDED HEREUNDER, THE SCOPE OR DURATION OF ANY MARKETING EFFORT OR THE
SUCCESS OF ANY SUCH EFFORT, WRITTEN OR ORAL, AS AN INDUCEMENT TO ENTERING INTO
THIS AGREEMENT. EACH PARTY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
9. LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN SECTION 10, INFRINGEMENT/
-----------------------
INDEMNITY, NEITHER PARTY SHALL BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL
OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, EVEN IF
THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10. INFRINGEMENT/INDEMNITY. Legato agrees to indemnify and hold harmless
----------------------
Interlink and its End Users from any claim, liability, damage or expense
including but not limited to legal expenses of whatever kind for, or on account
of, patent infringement, copyright infringement, misappropriation of trade
secrets or violation of other proprietary rights in connection with or relating
to the use, performance, reproduction, translation, distribution, licensing or
other disposition of the Networker Software or Networker Documentation. Legato
agrees to defend or settle at Legato's expense, all suits or proceedings arising
out of any of the foregoing; provided, however, that Interlink shall give Legato
prompt written notice of all such claims. Interlink, at its own expense, shall
have the right to participate in Legato's defense of any such action through
Interlink's own counsel. In the event that Legato fails, after notice, to
adequately defend or settle any action which it is obligated to defend or settle
under this Section 10 Interlink shall have the right of prosecuting and
defending such action or actions and to collect such costs and expenses
(including attorneys' fees) from Legato and shall further have the right to
charge Legato with any and all awards or damages and court costs in such action
or actions and to collect such awards, damages and court costs from Legato. If
the Networker Software or Networker Documentation is held to be an infringement
or misappropriation for which Interlink is indemnified by Legato, and its use is
enjoined, Legato shall, at Legato's option and expense, either:
(a) procure for Interlink the right to continue to utilize the Networker
Software and Networker Documentation pursuant to the license granted herein, or
(b) replace or modify it in such a way that it will not continue to
constitute an infringement or misappropriation.
Legato will not be liable under this Section 10 if the Software or
Documentation has been modified by any of the parties indemnified hereunder and
such modification is solely the cause of any such infringement or
misappropriation unless such modifications were made in accordance with Legato's
instructions.
-10-
<PAGE>
11. TRADEMARKS AND TRADE NAMES. Legato is authorized to use the mark "Harbor"
---------------------------
in connection with its distribution of the Harbor Agent. Interlink may use the
mark "Networker" in connection with distributing the Harbor DSS. Use by each
party of the other's mark shall be in accordance with the owning party's
trademark usage guidelines.
12. FORCE MAJEURE. Neither Interlink nor Legato shall be liable to the other
-------------
for delays in the performance of or completion of this Agreement if such delay
is caused by strikes, riots, wars, government regulations, acts of God, fire,
flood or other similar causes beyond its control; provided, however, if such
delay exceeds 120 days, the other party shall have the option, exercisable by
written notice, to terminate this Agreement, in which case the licenses granted
hereunder shall survive.
13. ASSIGNMENT. All the terms and conditions of this Agreement shall be binding
----------
upon, inure to the benefit of, and be enforceable by the respective successors
and permitted assigns of the parties hereto. Except as specifically stated in
this Agreement, neither this Agreement nor any of the rights, interests or
obligations of either party shall be assigned or delegated without the prior
written consent of the other party which shall not unreasonably withhold its
consent, except that such consent shall not be required in connection with a
merger or sale of assets of a party relating to the subject matter of this
Agreement. Any unauthorized assignment or delegation shall be null and void.
14. GENERAL PROVISIONS
------------------
14.1 Governing Law. This Agreement shall be construed, governed and
-------------
interpreted in accordance with the laws, but not the rules relating to the
choice of law, of the State of California.
14.2 Guarantee. Each party hereby fully guarantees the performance of
---------
this Agreement by its Affiliates and Subsidiaries which exercise any rights
hereunder.
14.3 Captions/Headings. The captions and headings of the Sections and
-----------------
paragraphs contained herein have been inserted for the convenience of the
parties and shall not be construed as a part of or as modifying any provisions
of this Agreement.
14.4 Waiver. The failure of either party to insist, in any one or more
------
instance, upon the performance of any of the terms, covenants or conditions of
this Agreement or to exercise any right hereunder, shall not be construed as a
waiver of the future performance of any such term, covenant or condition or the
future exercise of such right.
14.5 Severability. If any court should find any particular provision of
------------
this Agreement void, illegal, or unenforceable, then that provision shall be
regarded as stricken from this Agreement and the remainder of this Agreement
shall remain in full force and effect and the parties shall negotiate a
substitute provision which most nearly effects the intent of the stricken
provision.
14.6 Independent Contractors. It is agreed that the relationship
-----------------------
between the parties is that of independent contractors and nothing contained in
this Agreement shall be construed or implied to
-11-
<PAGE>
create the relationship of partners, joint ventures agent and principal,
employer and employee, or any other relationship other than that of independent
contractors. At no time shall either party make any commitments or incur any
charges or expenses for or in the name of the other party.
14.7 Right to Develop Independently. Legato understands and acknowledges
------------------------------
that Interlink is in the business of developing products generally based upon
the same computer software, tools, knowledge base and look and feel as the
Networker Software and Legato agrees that nothing in this Agreement will impair
Interlink's right to develop for itself or others, acquire or license to other
parties, computer software substantially similar to, or performing the same or
similar functions as, the Networker Software subject to Interlink's obligations
under Section 7 (Confidential Information).
14.8 Conflict of Interest. Legato agrees that it will not engage directly
--------------------
or indirectly either for itself, or with or for any other person or corporation
in any work or undertaking which shall conflict with or create any legal
impediment against Legato's performance or obligations under this Agreement and
the rights and licenses granted to Interlink hereunder. Legato represents that
there is no such present conflict of interest nor any such legal impediment.
14.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which together shall constitute one and the same
instrument.
14.10 Publicity. Legato shall not, except as may be required by law or
---------
federal regulation, or except with the prior written permission of Interlink,
publicly advertise this Agreement or disclose its contents.
14.11 Risk of Loss. Until such time as any deliverable items are in
------------
Interlink's possession, all risk of loss shall be Legato's.
14.12 Personal Injury/Property Damage. Each party (the "Indemnifying
-------------------------------
Party") shall hold harmless the other party from any claim by a Third Party of
personal injury or property damage arising solely from any grossly negligent act
or omission of the Indemnifying Party.
14.13 Notice of Delay. Whenever any occurrence (e.g., an event of
---------------
Force Majeure or a filing under a bankruptcy law) is delaying or threatens to
delay Legato's timely performance under this Agreement, it will promptly give
notice thereof, including all relevant information to the other party.
14.14 Compliance with Law. The parties shall in the performance of this
-------------------
Agreement comply with all applicable laws, executive orders, regulations,
ordinances, rules, proclamations, demands and requisitions of national
governments or of any state, local or other government authority which may now
or hereafter govern performance hereunder including all laws executive orders,
regulations, ordinances, rules and proclamations regarding Equal Employment
Opportunity and exporting of technology.
-12-
<PAGE>
14.15 Addenda/Attachments. All Addenda, attachments and other documents
-------------------
referred to in this Agreement and any documents referenced in such Addenda,
attachments and other documents and other documents are hereby incorporated in
and made a part of this Agreement.
14.16 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and shall
supersede all previous proposals, negotiations, representations, commitments,
writings, agreements and other communications, both oral and written, between
the parties. This Agreement may not be released, discharged, changed or modified
except by an instrument in writing signed by a duly authorized representative of
each of the parties.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto, as of the Effective Date.
LEGATO SYSTEMS, INC. INTERLINK COMPUTER SCIENCES
By: /s/ LOUIS COLE By: /s/ CHARLES W. JEPSON
------------------------- ---------------------------
Louis Cole Charles W. Jepson
------------------------- ---------------------------
(Printed Name) (Printed Name)
President President & CEO
------------------------- ---------------------------
(Title) (Title)
Date: May 10, 1996 Date: May 13, 1996
------------------------- --------------------------
-13-
<PAGE>
SOFTWARE LICENSE AGREEMENT
ADDENDUM A
SPECIFICATIONS
NETWORKER SOFTWARE AND DOCUMENTATION
1. SOFTWARE
Legato NetWorker version 4.2 for Unix and NT, and version 4.0 for Netware.
II. RELATED DOCUMENTATION
A. NetWorker internals manual
B. User Guide Installation & Maintenance Guide and Administration Guide
in either Postscript or Frame format.
C. Marketing Literature
<PAGE>
SOFTWARE LICENSE AGREEMENT
ADDENDUM B
INTERLINK'S RESPONSE TIME GUIDELINES
HARBOR'S RESPONSE TIME GUIDELINES
DEFINITIONS
Acknowledgement: consists of the notification by Interlink to Legato of
acceptance of the reported problem.
Fix: consists of the completion of all activities necessary to resolve a problem
occurrence, including a patch, a workaround, a new release, or notification to
Legato of "no problem found" (works as designed).
Final resolution: consists of final correction, including updates or new release
and revised or new documentation as necessary.
PROBLEM SEVERITY
Problems are classified, responded to and escalated using these guidelines:
SEVERITY 1: Customer is unable to use HARBOR at the host or is unable to
restore data.
SEVERITY 2: Customer is encountering performance, security, install, major host
or major client problems.
SEVERITY 3: Customer is encountering minor host problems or multiple client
problems.
SEVERITY 4: Low priority problem or acceptable workaround is available.
SEVERITY 5: Problem is very low priority, requires only documentation changes
or a significant development effort is required.
RESPONSE TIME TARGETS
Acknowledge Fix Final Resolution
---------------- -------------- ------------------
Severity 1 2 business hours 1 business day Next release
Severity 2 4 business hours 5 business days Next release
Severity 3 1 business day 30 days Next major release
Severity 4 1 business day N/A N/A
Severity 5 1 business day N/A N/A
<PAGE>
SOFTWARE LICENSE AGREEMENT
ADDENDUM C
LEGATO'S RESPONSE TIME GUIDELINES
Definitions
- -----------
Acknowledgement: consists of the notification of acceptance by Legato to
Interlink of the reported problem.
Fix: consists of the completion of all activities necessary to resolve a problem
occurrence, including a patch, a workaround, a new release, or notification to
Interlink of "no problem found" (works as designed).
Final resolution: consists of final correction, including updates or new release
and revised or new documentation as necessary.
Problem Severity
- ----------------
P1: Data lost or corrupted, or the operation of the system is interrupted
and no workaround is available,
P2: Critical function in inoperable and no workaround is available.
P3: Errors do not impact a critical function, or errors impact a critical
function but a workaround is available.
P4: Minor problems that do not impact function of the system, or have a very
low frequency.
RFE: Request for enhancement to the product.
<TABLE>
<CAPTION>
Response Time Targets
- ---------------------
<S> <C> <C> <C>
Acknowledge Fix Final Resolution
----------- ------- ------------------
P1 2 hours 1 day next release
P2 4 hours 5 days next release
P3 1 day 30 days next major release
P4 1 day n/a n/a
RFE 1 day n/a n/a
</TABLE>
<PAGE>
EXHIBIT 10.9
REVENUE SHARING AGREEMENT
This Agreement is entered into and effective as of this 10th day of
May, 1996 by and between Interlink Computer Sciences (hereinafter referred to as
"Agent"), with offices at 47370 Fremont Boulevard, Fremont, California 94538 and
Legato Systems, Inc., (hereinafter referred to as "Seller"), with offices at
3145 Porter Drive, Palo Alto, California 94306.
1. Appointment. Subject to the terms and conditions of this Agreement,
-----------
Seller hereby appoints Agent and Agent's authorized representatives as Seller's
sales representative for Seller's products listed in Seller's published price
list (the "Products") to end user customers ("End Users") worldwide.
2. Validity of Terms and Conditions. The terms and conditions of this
--------------------------------
Agreement shall remain valid until otherwise superseded or changed by mutual
agreement of Seller and Agent.
3. Product Ordering Process. To order Product(s), Agent shall secure a
------------------------
purchase order from an End User which must contain, at a minimum, the following
information: (i) identification of Product(s) by quantity, Product number from
Seller's published price list, description and charge, and (ii) shipment
instructions including destination, method of shipment (UPS-Ground is standard)
and requested delivery dates. Terms and conditions on such purchase order shall
not modify this Agreement unless agreed to in writing by Seller.
4. Promotional Materials. Seller shall furnish Agent with reasonable
---------------------
quantities of samples, catalogues, literature, demo and trial copies of the
Products and any other materials Seller deems necessary for proper promotions
and sales presentations of its Products at no charge.
5. Trademarks. During the term of this Agreement, Agent shall have the
----------
right to indicate to the public that it is an authorized representative of
Seller's Products and to advertise such Products under the trademarks, marks,
and trade names of Seller that Seller may adopt from time to time ("Seller's
Trademarks") and in the promotion of the Products; provided, however, that upon
thirty (30) days prior written notice to Agent, Seller may substitute
alternative marks for any or all of the Seller's Trademarks. All representations
of Seller's Trademarks that Agent intends to use shall first be submitted to
Seller for approval (which shall not be unreasonably withheld) of design, color
and other details or shall be exact copies of those used by Seller.
6. Pricing and Terms. Seller shall provide Agent with copies of its
-----------------
current published price list, its delivery schedule and its standard terms and
conditions of sale, as established from time to time. Agent shall quote to End
Users only those authorized prices (within a range of a [*]% discount from the
published price list), delivery schedules and other terms and conditions of
sale. Seller shall provide Agent sixty (60) days advance written notice of
changes to Seller's published list prices for Products.
[*Confidential Treatment Requested]
<PAGE>
7. Agent Commission. Agent's compensation under the terms of this
----------------
Agreement shall be a commission computed in accordance with this Section 7. The
commission shall apply to all purchase orders for Products solicited by Agent
that have been accepted by Seller and for which shipment has occurred. Agent
shall receive a commission on such sales of Product(s) which is equal to the
amount derived from the following formula: Commission = invoiced price to End
User for Product - [*]% of Legato list price for Product as of date of order. In
special marketing situations in which the foregoing commission is not
commercially viable for Agent, Seller agrees to negotiate an adjusted commission
in good faith.
8. Taxes. Seller shall include applicable sales taxes on the invoice
-----
presented to the End User, and shall be responsible for tax accounting and
remittance for the transactions.
9. Cancellation and Rescheduling of Products. Once an order is placed by
-----------------------------------------
an End User, Agent will retain responsibility for advising Seller of changes in
such End User's planned acceptance date or ship-to location of which Agent is
notified. Changes in shipment date or locations must be received ten (10) days
in advance of shipment.
10. Discontinued Products and Releases. Seller will give Agent thirty (30)
----------------------------------
days prior written notice if Seller discontinues Products or supersedes existing
Products with new releases of Products.
11. Credit and Payment. Seller shall have the sole right of credit
------------------
approval or credit refusal for End Users in all cases. Seller shall render all
invoices directly to End Users and shall send copies of all invoices subject to
commission to Agent. Payments by End Users shall be made directly to Seller.
Full responsibility for all collection rests with Seller.
12. Commission Payment. Payment of commissions shall be in United States
------------------
dollars. The commission on a given purchase order shall be due and payable net
thirty (30) days after the end of the calendar month in which Seller receives
payment from the End User. Commissions shall be earned and paid pro rata on
partial payments received.
13. Monthly Statements. Seller shall submit to Agent monthly statements of
------------------
the commissions due and payable to Agent under the terms of this Agreement, with
reference to the specific invoices on which the commissions are being paid.
14. Inspection of Records. Agent shall have the right during the term of
---------------------
this Agreement and for a period of two (2) years thereafter to authorize an
independent auditor reasonably acceptable to both parties to inspect those
accounting records necessary to verify the accuracy of commissions paid by
Seller under the terms of this Agreement. Such inspections shall take place upon
not less than fifteen (15) days prior written notice to Seller during Seller's
normal business hours and on a date mutually agreed upon by the parties. Prompt
adjustment shall be made by Seller to Agent corresponding to the net amount of
any underpayment of commissions due hereunder. If such
[*Confidential Treatment Requested]
2
<PAGE>
inspection reveals an underpayment of more than five percent (5%), then Seller
shall promptly reimburse Agent for the cost of the inspection.
15. Warranty. Seller warrants the Product(s) in accordance with its
--------
standard Product(s) warranties, copies of which are available upon request. The
warranties provided for the Product(s) are exclusive warranties and remedies and
are in lieu of any other warranties or remedies expressed or implied, including
the implied warranty of merchantability or fitness for intended or particular
purpose. Agent shall refer all End User warranty inquiries and claims to Seller.
16. Limitation of Liability. EXCEPT FOR SELLER'S OBLIGATIONS UNDER
-----------------------
SECTION 19 BELOW, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
OR ANY THIRD PARTY FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS, LOST
PROFITS OR ANY OTHER SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT
DAMAGES, HOWEVER CAUSED, AND WHETHER BASED ON CONTRACT, TORT
(INCLUDING NEGLIGENCE), PRODUCTS LIABILITY OR ANY OTHER THEORY OF
LIABILITY, REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
17. No Commitment. Notwithstanding any provision of this Agreement, the
-------------
parties acknowledge and agree that Agent does not commit, promise or agree to
achieve any level of sales of the Products for Seller.
18. Intellectual Property Indemnity.
-------------------------------
18.1 Seller shall defend, or at its option settle, and Seller agrees,
at its own expense, to defend or at its option to settle, any third party claim,
suit or proceeding (collectively, "Action") brought against Agent alleging the
Products infringe any patent, copyright or trademark, subject to the limitations
hereinafter set forth. Seller will have sole control of any such Action or
settlement negotiations, and Seller agrees to pay, subject to the limitations
hereinafter set forth, any final judgment entered against Agent on such issue in
any such Action defended by Seller. Agent agrees to notify Seller promptly in
writing of such Action, give Seller authority to proceed as contemplated
herein, and give Seller proper and full information and assistance to settle
and/or defend any such Action at Seller's expense. Seller will not be liable for
any costs or expenses incurred without its prior written authorization.
18.2 THIS SECTION 18 STATES SELLER'S TOTAL RESPONSIBILITY AND
LIABILITY, AND AGENT'S SOLE REMEDY, FOR ANY ACTUAL OR ALLEGED
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT BY ANY PRODUCTS
DELIVERED HEREUNDER, OR ANY PART THEREOF. THIS SECTION IS IN LIEU OF AND
REPLACES ANY OTHER EXPRESS, IMPLIED OR STATUTORY WARRANTY AGAINST
INFRINGEMENT.
3
<PAGE>
19. Term and Termination.
--------------------
19.1 This Agreement shall remain in effect for an initial term of five
(5) years. This Agreement may be renewed for successive one (1) year terms by
written agreement of the parties prior to the anniversary date on which the
Agreement would otherwise expire.
19.2 If either party defaults in the performance of any provision of
this Agreement, then the non-defaulting party may give written notice to the
defaulting party that if the default is not cured within thirty (30) days, the
Agreement will be terminated. If the non-defaulting party gives such notice and
the default is not cured during the thirty (30) day period, then the non-
defaulting party may terminate this Agreement by written notice effective
immediately at the end of that period.
19.3 Either party may terminate this Agreement for any or no reason
upon thirty (30) days prior written notice to the other party.
19.4 Upon termination, Seller shall pay commissions to Agent on all
purchase orders meeting both of the following requirements: (i) the purchase
order is solicited by Agent, and (ii) the purchase order is accepted by Seller
within thirty (30) days after the date of termination of this Agreement.
19.5 The following provisions shall survive any expiration or
termination of this Agreement: 14, 16, 18, 19, 20-27.
20. Applicable Law. This Agreement will be interpreted under California
--------------
law and both Seller and the Agent consent to the exclusive jurisdiction and
venue of the state and federal courts of the State of California to adjudicate
any dispute arising out of or related to this Agreement.
21. Enforcement and Provisions. Failure on any occasion by Seller or Agent
--------------------------
to enforce any term or condition will not prevent enforcement on any other
occasion.
22. Modification and Waiver. All changes to these terms and conditions
-----------------------
must be in writing and approved by both Seller and Agent.
23. Severability of Provisions. If part of these terms and conditions is
--------------------------
prohibited, the remainder will still be valid.
24. Software. Agent agrees that any software supplied by Seller with its
--------
Product(s) will be licensed subject to the terms and conditions of the "break-
the-seal" End User license agreement provided with the Products and that the
Agent will not disturb, remove, or separate the such license agreement from the
packaging of such software.
25. Proprietary Information. Seller and Agent agree that information
-----------------------
disclosed to the other party hereunder, identified verbally or in writing as
proprietary, shall be held in confidence and
4
<PAGE>
not disclosed hereunder in the same manner and with the same precautions as it
treats and safeguards its own proprietary information.
26. Notices. All notices will be effective when received in writing.
-------
Notices to Agent will be given at the address on the front of this agreement and
notices to Seller will be given at 3145 Porter Drive, Palo Alto, California
94304, Attention: Contract Administration. Either party can give notice of an
address change provided such notice is in writing.
27. Entire Agreement. This Agreement contains the entire understanding of
----------------
the parties with respect to the subject matter hereof and supersedes all prior
agreements relating thereto, written or oral, between the parties.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first written above.
INTERLINK COMPUTER SCIENCES, INC.
By: Charles W. Jepson
-------------------------
(Name)
President & CEO
-------------------------
(Title)
/s/ Charles W. Jepson May 13, 1996
------------------------- --------------------------
(Signature) (Date)
LEGATO SYSTEMS, INC.
By: Louis Cole
-------------------------
(Name)
President
--------------------------
(Title)
/s/ Louis C. Cole May 10, 1996
--------------------------- ---------------------------
(Signature) (Date)
5
<PAGE>
EXHIBIT 10.10
================================================================================
AGREEMENT AND PLAN OF BUSINESS ACQUISITION
among
INTERLINK COMPUTER SCIENCES, INC.
a California corporation
("Interlink"),
NEW ERA SYSTEMS SERVICES LTD.
an Alberta, Canada corporation
("New Era")
and
Certain Shareholders of New Era
(collectively, the "Principal Shareholders")
Date December 13, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 - DEFINITIONS...................................................... 1
SECTION 2 - PLAN OF BUSINESS ACQUISITION..................................... 4
2.1 The Offer.............................................................. 4
2.2 Contingent Acquisition Activities...................................... 4
2.3 Consideration for Outstanding Securities............................... 5
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF NEW ERA........................ 6
3.1 Organization........................................................... 6
3.2 Capitalization......................................................... 6
3.3 Power, Authorization and Validity...................................... 7
3.4 No Violation of Existing Agreements.................................... 7
3.5 Subsidiaries........................................................... 7
3.6 Financial Statements................................................... 7
3.7 Tax Matters............................................................ 8
3.8 Absence of Certain Changes or Events................................... 8
3.9 Title and Related Matters; Inventory................................... 9
3.10 Proprietary Rights..................................................... 10
3.11 Employee Benefit Plans................................................. 12
3.12 Bank Accounts.......................................................... 13
3.13 Contracts.............................................................. 13
3.14 Compliance with Law.................................................... 14
3.15 Labor Difficulties..................................................... 14
3.16 Trade Regulation....................................................... 15
3.17 Certain Transactions................................................... 15
3.18 Employees, Consultants and Independent Contractors..................... 15
3.19 Insurance.............................................................. 15
3.20 Litigation............................................................. 15
3.21 Corporate Minutes, Etc................................................. 16
3.22 Compliance with Environmental Requirements............................. 16
3.23 No Brokers............................................................. 16
3.24 Disclosure............................................................. 16
3.25 New Era Options........................................................ 17
3.26 Government Contracts................................................... 17
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SHAREHOLDERS............................................................... 17
4.1 Power, Authorization and Validity...................................... 17
4.2 Title to Securities.................................................... 17
4.3 Absence of Violations or Conflicts..................................... 18
4.4 Absence of Claims Against the Company.................................. 18
4.5 Litigation............................................................. 18
4.6 No Brokers............................................................. 18
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 5 - REPRESENTATIONS AND WARRANTIES OF INTERLINK...................... 18
5.1 Organization and Good Standing......................................... 18
5.2 Capitalization......................................................... 19
5.3 Power, Authorization and Validity...................................... 19
5.4 Financial Statements................................................... 19
5.5 Absence of Changes or Events........................................... 20
5.6 No Violation of Existing Agreements.................................... 20
5.7 Disclosure............................................................. 20
5.8 Financial Resources.................................................... 20
SECTION 6 - COVENANTS OF NEW ERA............................................. 20
6.1 Advice of Changes...................................................... 20
6.2 Conduct of Business.................................................... 20
6.3 Risk of Loss........................................................... 22
6.4 Access to Information.................................................. 22
6.5 Regulatory Approvals................................................... 22
6.6 Satisfaction of Conditions Precedent................................... 22
6.7 Other Negotiations..................................................... 22
6.8 Publicity.............................................................. 22
6.9 Employee Confidentiality and Proprietary Rights Agreements............. 23
6.10 New Era Key Employees.................................................. 23
6.11 Distribution of Certain Assets......................................... 23
6.12 Redemption of Class A Preferred........................................ 23
6.13 Purchase of Class B Preferred.......................................... 23
SECTION 7 - COVENANTS OF THE PRINCIPAL SHAREHOLDERS.......................... 23
7.1 Advice of Changes...................................................... 23
7.2 Regulatory Approvals................................................... 23
7.3 Satisfaction of Conditions Precedent................................... 23
7.4 Disposition of Securities; Solicitation; Voting; Etc................... 24
7.5 Other Negotiations..................................................... 24
SECTION 8 - COVENANTS OF INTERLINK........................................... 24
8.1 Advice of Changes...................................................... 24
8.2 Regulatory Approvals................................................... 24
8.3 Satisfaction of Conditions Precedent................................... 25
8.4 Board Representation................................................... 25
SECTION 9 - MUTUAL COVENANTS................................................. 25
9.1 Confidentiality........................................................ 25
9.2 Acquisition Entity..................................................... 25
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 10 - THE CLOSING..................................................... 25
10.1 Time and Place......................................................... 25
10.2 Delivery of Instruments................................................ 26
10.3 Manner of Closing and Payment to Tendering New Era Securityholders..... 26
SECTION 11 - CONDITIONS TO THE CLOSING....................................... 26
11.1 Conditions to Each Party's Obligations................................. 26
11.2 Conditions to Obligations of New Era and the Principal Shareholders.... 27
11.3 Conditions to Obligations of Interlink................................. 27
SECTION 12 - TERMINATION OF AGREEMENT........................................ 28
12.1 Termination by Interlink............................................... 28
12.2 Termination by New Era................................................. 28
12.3 Termination by Mutual Consent.......................................... 29
12.4 Termination by Expiration of Term...................................... 29
12.5 Effect of Termination.................................................. 29
SECTION 13 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.............................................................. 29
13.1 Survival of Representations and Warranties and Covenants............... 29
13.2 Indemnification by New Era; Limitation of Liability.................... 29
13.3 Claims for Indemnification............................................. 30
13.4 Defense................................................................ 30
13.5 Manner of Indemnification.............................................. 30
SECTION 14 - MISCELLANEOUS................................................... 30
14.1 Governing Law.......................................................... 30
14.2 Assignment; Binding upon Successors and Assigns........................ 30
14.3 Severability........................................................... 30
14.4 Entire Agreement....................................................... 31
14.5 Counterparts........................................................... 31
14.6 Expenses............................................................... 31
14.7 Other Remedies......................................................... 31
14.8 Amendment and Waivers.................................................. 31
14.9 Waiver................................................................. 31
14.10 Attorneys' Fees........................................................ 31
14.11 Jurisdiction of Disputes............................................... 31
14.12 Notices................................................................ 32
14.13 Construction and Interpretation of Agreement........................... 32
14.14 No Joint Venture....................................................... 33
14.15 Further Assurances..................................................... 33
14.16 Absence of Third Party Beneficiary Rights.............................. 33
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C>
Exhibits and Schedules
Exhibit A - Form of Warrant
Exhibit B - Form of Initial Payment Note
Exhibit C - Form of Deferred Payment Note
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF ACQUISITION
This AGREEMENT AND PLAN OF ACQUISITION is entered into on December 13,
1995, by INTERLINK COMPUTER SCIENCES, INC., a California corporation
("Interlink"), NEW ERA SYSTEMS SERVICES LTD., an Alberta, Canada corporation
("New Era"), and each of Ben Dulley and John Eddy (collectively, the "Principal
Shareholders").
Recitals
--------
A. The parties intend that, pursuant to the terms and subject to the
conditions set forth below, Interlink shall make an offer to all holders of
Class A Common Shares, Class B Preferred Shares, and Common Share Options of New
Era with the intent of acquiring one hundred percent of the ownership of New
Era.
B. The parties intend that the acquisition will be treated by Interlink
as a purchase for accounting purposes.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1
DEFINITIONS
-----------
The following terms when used herein have the meanings set forth below.
"Affiliate" means a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
another person.
"Alberta Law" means the Business Corporations Act (Alberta).
"Closing" and "Closing Date" have the respective meanings set forth in
Section 10.1.
"Confidentiality Agreement" means the Mutual Non-Disclosure Agreement dated
December 1, 1995, between Interlink and New Era.
"Deferred Payment Notes" has the meaning set forth in Section 2.3(b).
"Depository" shall mean Montreal Trust Company of Canada.
"Employee Benefit Plans" has the meaning set forth in Section 3.11.
"Employment Agreements" means the Employment and Non-Competition Agreements
to be entered into between Interlink, New Era, and certain senior managers of
New Era prior to the Closing as more particularly described in Section 6.10.
"Encumbrances" means, with respect to an item, claims, liabilities, liens,
pledges, mortgages, restrictions, options, charges and encumbrances of any kind,
whether accrued, absolute, contingent or otherwise, affecting that item.
<PAGE>
"Fees" means the amount payable to Concord Corporation or its affiliates
for advisory services rendered in connection with the transactions contemplated
hereby and fees payable to the Depository.
"GAAP" means Canadian, as to New Era, or U.S., as to Interlink, generally
accepted accounting principles, consistently applied.
"Government Contract Party" means any independent or executive agency,
division, subdivision, audit group, or procuring office of the provincial or
federal government, including any prime contractor of the provincial or federal
government and any higher level subcontractor of a prime contractor of the
provincial or federal government, and including any employees or agents thereof,
in each case acting in such capacity.
"Governmental Entity" means any court, administrative agency or commission
or other governmental authority or agency, domestic or foreign.
"Indemnified Party" and "Indemnifying Party" have the respective meanings
set forth in Section 13.3.
"Initial Payment Note" has the meaning set forth in Section 2.3(a).
"Interlink Audited Financials" mean Interlink's consolidated balance sheet
as of June 30, 1995, and its consolidated statements of income, changes in
shareholder's equity and cash flows for the fiscal year then ended, audited and
reported on by Coopers & Lybrand L.L.P., independent accountants.
"Interlink Disclosure Schedule" has the meaning set forth in the
introductory paragraph to Section 5.
"Interlink Financial Statements" means the Interlink Audited Financials and
the Interlink Unaudited Financials.
"Interlink Unaudited Financials" means Interlink's unaudited balance sheet
as of September 30, 1995, and its statements of income, changes in shareholders'
equity and cash flows for the three-month period then ended.
"New Era" shall mean New Era Systems Services Ltd. and, except where the
context would imply otherwise, its consolidated Subsidiaries.
"New Era Audited Financials" means New Era's consolidated balance sheet as
of February 28, 1995, and its consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal year then ended, audited and
reported upon by Ernst & Young, independent chartered accountants.
"New Era Common" means the Class A Common Shares of New Era outstanding as
of the date of this Agreement.
"New Era Components" has the meaning given to it in Section 3.10(g).
"New Era Disclosure Schedule" has the meaning given to it in the
introductory para to Section 3.
"New Era Financial Statements" means the New Era Audited Financials and the
New Era Unaudited Financials.
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"New Era Options" means options to acquire New Era Common Shares from New
Era, outstanding as of the date of this Agreement.
"New Era Preferred" means the Class B Preferred Shares of New Era
outstanding as of the date of this Agreement.
"New Era Products" has the meaning given to it in Section 3.10(a).
"New Era Unaudited Financials" means New Era's unaudited balance sheet as
of August 31, 1995, and its statements of income, changes in shareholders'
equity and cash flows for the six-month period then ended.
"Notice of Claim" and "Notice of Possible Claim" have the respective
meanings set forth in Section 13.3.
"Offer to Purchase" means the offer made by Interlink to all Shareholders
and Optionholders pursuant to the Tender Offer Documents.
"Optionees" or "Optionholders" means the holders of New Era Options.
"Proprietary Rights" has the meaning set forth in Section 3.10(a).
"Purchase Condition" has the meaning given to it in Section 2.1(b).
"Securityholders" means the Shareholders and the Optionees.
"Shareholders" means the holders of New Era Common.
"Subsidiary" has the meaning set forth in Section 3.1(b).
The term "tax" includes all federal, state, local and foreign income,
property, employment, sales, use, license, payroll, occupation, franchise,
occupation, recording, value added, transfer, excise, goods and services and
other taxes, fees, levies or assessments of any nature whatsoever (whether
payable directly or by withholding) and, with respect to such tax, any estimated
tax, interest, penalties and additions and related charges of Governmental
Entities.
"Tender Offer Documents" means those documents by which Interlink offers to
purchase all of the outstanding securities of New Era.
"Third Party Licenses" and "Third Party Technology" have the respective
meanings set forth in Section 3.10(b).
"Transaction Documents" means this the Agreement, the Tender Offer
Documents, the Employment and Non-Competition Agreements, and the Warrants.
"Warrant" means the warrants in substantially the form attached hereto as
Exhibit A.
- ---------
Unless otherwise stated in this Agreement, references to dollars (or $) are
to Canadian dollars.
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SECTION 2
PLAN OF BUSINESS ACQUISITION
----------------------------
2.1 The Offer.
---------
(a) Provided that this Agreement shall not have been terminated
pursuant to Section 12 and that the conditions set forth in Section 11 of this
Agreement shall have occurred, Interlink shall, as soon as practicable after the
date hereof commence an offer for all of the outstanding New Era Common and all
of the outstanding New Era Options for the consideration set forth in Section
2.3.
(b) The obligations of Interlink to accept for payment and pay for
any of the New Era Common or New Era Options tendered shall be subject only to
the Closing conditions set forth in Section 11 of this Agreement, including the
condition that ninety-eight percent (98%) of the New Era Common outstanding on a
fully diluted basis (including for purposes of such calculation all shares
issuable upon exercise of outstanding New Era Options and any other rights or
securities to purchase or acquire any capital stock of New Era), being validly
tendered and not withdrawn prior to the expiration of the Offer (the "Purchase
Condition"). The Offer shall remain open until December 28, 1995 (the
"Expiration Date"), unless Interlink extends the Offer as permitted by this
Agreement, in which case the "Expiration Date" means the latest time and date to
which the Offer is extended.
(c) Interlink reserves the right to waive any conditions to the Offer
to increase the price per share payable in the Offer or to make any other
changes in the terms and conditions of the Offer; provided, however, that no
such change may be made which decreases the price per share, changes the form of
consideration payable in the Offer, imposes conditions to the Offer in addition
to those set forth in Section 11 of this Agreement or amends any other material
term of the Offer in a manner materially adverse to those tendering their shares
without New Era's prior written consent. If all conditions set forth in Section
11 of this Agreement are satisfied on the initial Expiration Date, other than
the Purchase Condition, Interlink may extend (and re-extend) the Offer until the
termination of this Agreement to provide time to satisfy such conditions, so
long as all such other conditions remain satisfied.
(d) The Offer shall be made by means of an Offer to Purchase
containing the terms set forth in this Agreement and certain other terms
applicable to the manner of delivery of the certificates representing the
outstanding shares and the documents representing the New Era Options, and the
manner of payment to be made upon receipt of the certificates and documents.
2.2 Contingent Acquisition Activities. Should the Purchase Condition
---------------------------------
not be met and should Interlink determine that sufficient shareholders and
optionees have tendered for Interlink to waive the Purchase Condition pursuant
to Section 2.1(c), then Interlink may, at such time after the Closing as it sees
fit, undertake such actions as it believes are required to acquire ninety-eight
percent (98%) of all outstanding new Era Common, all outstanding New Era
Options, and any other rights or securities to purchase or acquire any capital
stock of New Era. Such actions may include (a) accepting tenders of New Era
Common, or New Era Options after the Closing Date, (b) compulsory acquisition of
any remaining shares as permitted by Alberta Law if the Offer to Purchase has
been accepted by the holders of not less than ninety percent (90%) of the New
Era Common, or (c) an amalgamation, statutory arrangement or other transaction
involving Interlink or an affiliate of Interlink pursuant to which a special
meeting of the shareholders of New Era may be called, provided, however, that
any such actions will only be undertaken on the same terms as are offered under
Section 2.1, New Era and the Principal Shareholders agree to undertake their
reasonable commercial efforts to assist Interlink with any such procedure.
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2.3 Consideration for Outstanding Securities. Shareholders and
----------------------------------------
Optionholders wishing to accept the Offer to Purchase will deposit their share
certificates or option documents, respectively, together with a letter of
transmittal and any other required documents to the Depository prior to the
Expiration Date. At the Closing, Interlink will deliver to the Depositary for
the benefit of the tendering Shareholders and Optionholders the Closing
consideration as follows:
(a) The Initial Payment Note. Interlink will issue a promissory
------------------------
note due January 4, 1996 in the form attached to this Agreement as Exhibit B
(the "Initial Payment Note"). The Initial Payment Note will be a single note for
the benefit of all tendering Shareholders and Optionholders which such holders
shall own beneficially in the following proportions:
(i) New Era Common. The tendering holders of New Era Common
--------------
shall be entitled to receive out of the Initial Payment Note an amount equal to
the principal on the Initial Payment Note divided by the total number of shares
of New Era Common and Class A Common Stock issuable upon exercise of New Era
Options, and multiplied by the number of shares of New Era Common held by such
holder.
(ii) New Era Options. The tendering holders of New Era Options
---------------
shall be entitled to receive out of the Initial Payment Note an amount equal to:
(A) the principal on the Initial Payment Note divided by the total number of New
Era Common and common stock issuable upon exercise of New Era Options, minus (B)
$15.00, then multiplied by (C) the number of shares of common stock of New Era
issuable upon exercise of such New Era Option.
The Depository will be instructed to make payment to the tendering
Shareholders and Optionholders on January 4, 1996 of the amounts due under the
Initial Payment Note from amounts deposited by Interlink with the Depository at
Closing, provided, however, that the Depository will be instructed to pay to New
Era out of each Shareholder payment any amounts of principal and accrued
interest on any obligations to New Era incurred for the purchase of such shares
outstanding at Closing.
The principal amount of the Initial Payment Note shall equal CDN
$15,000,000, minus $384,000 to be paid at the Closing by Interlink to Concord
Corporation as part of the Fees, minus an aggregate of $150,000 for the
estimated fees of the Depository, Ernst & Young as accountants for New Era, and
MacLeod Dixon as counsel to New Era, which will be paid when due by Interlink,
minus the amount paid by New Era prior to the Closing in redemption of 50,000
shares of New Era Class A Preferred Stock outstanding as of the date of this
Agreement (the remaining 20,000 shares of New Era Class A Preferred Stock are
also to be redeemed prior to Closing in exchange for an outstanding note payable
to New Era), minus the amount paid by New Era prior to the Closing in redemption
of 30,000 shares of New Era Class B Preferred Stock outstanding of the date of
this Agreement, and plus the aggregate exercise price of all New Era Options
outstanding as of the Closing.
(b) The Deferred Payment Notes. Interlink will issue promissory
--------------------------
notes in the aggregate principal amount of CDN $9,000,000, with CDN $2,000,000
due on January 2, 1997, CDN$3,500,000 due on January 31, 1997, and the remaining
CDN $3,500,000 due on January 31, 1998, in the form attached hereto as Exhibit C
(the "Deferred Payment Notes"). A Deferred Payment Note will be issued at the
Closing to (i) each tendering holder of New Era Common and New Era Options and
(ii) Concord Corporation in the amount of $360,000 as part of the Fees, and will
be delivered to the Depository for distribution to such holders and Concord
Corporation, respectively, on January 4, 1996. Each tendering holder of New Era
Common and New Era Options shall be entitled to receive a Deferred Payment Note
in principal amount equal to CDN $8,640,000 divided by the total number of
shares of New Era Common
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and common issuable upon exercise of New Era Options, multiplied by the number
of shares of New Era Common and/or common issuable upon exercise of New Era
Options held by such Shareholder or Optionholder.
(c) Warrants. Interlink will issue at the Closing a Warrant in the
--------
form attached hereto as Exhibit A to each tendering holder of New Era Common or
New Era Options exercisable under its terms for a number of shares of Interlink
Common Stock equal to (1) 700,000 minus 28,000 shares underlying the Warrant
granted to Concord Corporation at the Closing as part of the Fees, divided by
(2) the total number of shares of New Era Common and common issuable upon
exercise of New Era Options, multiplied by (3) the number of shares of New Era
Common and/or common issuable upon exercise of New Era Options held by such
Shareholder or Optionholder.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF NEW ERA
-----------------------------------------
Except as set forth in the New Era Disclosure Schedule, a copy of
which has been delivered to Interlink on or before the date of this Agreement
(the "New Era Disclosure Schedule"), New Era represents and warrants to
Interlink as set forth below. No fact or circumstance disclosed to Interlink
shall constitute an exception to the following representations and warranties
unless such fact or circumstance is set forth in the New Era Disclosure Schedule
or such supplements thereto as may mutually be agreed upon in writing by New Era
and Interlink.
3.1 Organization.
------------
New Era is a corporation duly organized, subsisting and in good
standing under the laws of the province of Alberta and has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted. New Era is duly qualified or licensed to
do business and in is good standing in each jurisdiction in which the nature of
its business or properties makes such qualification or licensing necessary,
except where the lack of such qualification or licensing will not have a
material adverse effect on New Era. True, correct and complete copies of New
Era's Articles of Incorporation and By-Laws, in effect on the date hereof and as
will be in effect immediately prior to the Closing, have been delivered to
counsel for Interlink. The New Era Disclosure Schedule lists the locations of
all offices and facilities of New Era in which New Era maintains any employees.
The New Era Disclosure Schedule lists all states and provinces in which New Era
is qualified or licensed to transact business.
3.2 Capitalization. The authorized capital stock of New Era consists
--------------
of, and immediately prior to the Closing will consist of, (i) an unlimited
number of shares of New Era Common Stock, 234,064 of which are issued and
outstanding as of the date of this Agreement and will be issued and outstanding
immediately prior to the Closing (subject only to the issuance of additional
shares upon the exercise prior to the Closing of New Era Options granted prior
to the date of this Agreement), and (ii) 100,000 shares of Class A Preferred
Stock, and (iii) 100,000 shares of Class B Preferred Stock. 70,000 shares of
Class A Preferred Stock and 30,000 shares of Class B Preferred Stock are issued
and outstanding as of the date of this Agreement. The shares of Preferred Stock
are not convertible under any circumstances into Class A Common Shares. All
such issued and outstanding shares have been duly authorized, are validly
issued, fully paid and nonassessable and were issued and sold in compliance with
all applicable securities laws. New Era has reserved for issuance 50,000 shares
of New Era Common issuable upon exercise of outstanding New Era Options. Except
for the foregoing, there are no outstanding rights, options, warrants,
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conversion rights or other agreements for the purchase or acquisition from New
Era of any shares of its capital stock or securities convertible into or
exchangeable for any shares of such capital stock. There are no preemptive
rights to purchase or otherwise acquire any securities of New Era pursuant to
any provision of law or the Articles of Incorporation or By-Laws of New Era, by
any unanimous shareholder agreement or other agreement to which New Era is a
party or, to New Era's knowledge, otherwise, and no existing voting or stock
restriction agreements, proxies or similar agreements to which New Era is a
party applicable to any outstanding securities of New Era.
3.3 Power, Authorization and Validity.
---------------------------------
(a) New Era has the corporate right, power, legal capacity and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of, and the consummation of the
transactions contemplated by this Agreement have been duly and validly approved
and authorized by the Board of Directors of New Era and all other necessary
corporate action on the part of New Era has been taken.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to New Era in connection with the execution and delivery of, and the
consummation by New Era of the transactions contemplated by this Agreement or to
permit New Era to continue, without material change, the business activities of
New Era as currently conducted and as proposed to be conducted.
(c) This Agreement upon its execution and delivery by New Era will be
duly executed and delivered by New Era and will constitute upon its execution
and delivery, a valid and binding obligation of New Era, enforceable against New
Era in accordance with its terms, subject to the rules of equity and rules
relating to insolvency.
3.4 No Violation of Existing Agreements. The execution and delivery of
-----------------------------------
this Agreement does not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with, or
result in any violation of, or default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, (i) any provision of the Articles of Incorporation or
By-Laws of New Era, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license to which New Era is a party or by which New Era or any of its
properties or assets is bound or affected, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to New Era or its
properties or assets, other than such conflicts, violations, defaults or rights
that individually or in the aggregate do not and will not have a material
adverse effect on New Era. The consummation of the transactions contemplated by
this Agreement will not require the consent of any third party or have a
material adverse effect upon any such right, license, franchise, lease or
agreement.
3.5 Subsidiaries. New Era (i) does not directly or indirectly control or
------------
own an equity interest in any corporation, partnership, limited liability
company, joint venture, business trust or association, or other entity (a
"Subsidiary"), and (ii) does not have any Affiliates.
3.6 Financial Statements.
--------------------
(a) New Era has delivered to Interlink the New Era Financial
Statements. The New Era Financial Statements have been prepared in accordance
with GAAP and present fairly the financial position of New Era as of their
respective dates and the results of operations, equity transactions and changes
in financial position of New Era for the periods indicated, except that the New
Era Unaudited
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Financials (i) are subject to normal year-end audit adjustments, which
adjustments will not individually or in the aggregate be material, (ii) do not
contain all footnotes required under GAAP, and (iii) all software product
revenue is reported as gross revenue in the amount of the sale to the end user
before any commission or royalty to the reseller or distributor.
(b) New Era has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the New Era Unaudited
Financials, except for those (i) that have been incurred after August 31, 1995,
or (ii) that are not required by GAAP to be included in a balance sheet or the
notes thereto. The reserves, if any, reflected on the balance sheet included in
the New Era Unaudited Financials are adequate in light of the contingencies with
respect to which they are made. Each debt, liability, and obligation of any
nature of New Era incurred after August 31, 1995, has been incurred in the
ordinary course of New Era's business.
3.7 Tax Matters.
-----------
New Era, on the date hereof or prior to the Closing,
(a) has duly and in a timely manner filed all returns, elections,
filings and reports required pursuant to the Income Tax Act, the Alberta Tax
Act, the income tax legislation of any other province of Canada or any foreign
jurisdictions having jurisdiction over the affairs of New Era, the Excise Tax
Act (Canada) as it relates to the goods and services tax ("GST"), and any
similar legislation of provinces of foreign jurisdictions having jurisdiction
over the affairs of New Era for all prior periods in respect of which such
filings have heretofore been required, and such filings are substantially true,
complete and correct; the tax liability of New Era is as indicated by the above
returns and filings, and New Era has made timely payment of, or has duly and
properly accrued on the books thereof, the taxes (including interest and
penalties thereon) shown in these returns and filings, with respect to periods
ending prior to February 28, 1995 and any subsequent assessments, reassessments
or determinations thereof;
(b) has made adequate provision for taxes or other amounts payable
pursuant to any legislation referred to in (i) above for the current period for
which returns, reports, elections or other filings are not yet required to be
filed, and New Era has paid all required installments of income, capital,
property and business taxes payable on account of the current period;
(c) is not aware of any contingent tax liabilities or any grounds
that could prompt an assessment or reassessment and has not received any
indication from any taxation authorities that an assessment or reassessment,
regardless of its merits, is proposed or is under consideration;
(d) is not a party to any agreements or waives extending the
statutory period of limitations applicable to any federal, provincial or other
income tax return for any period;
(e) has withheld, and will continue to withhold until the Closing
Date, from each payment made to any of its officers, directors, former directors
and employees and to all non-residents of Canada and other persons with respect
to whom it is required by law to withhold any amounts, the amount of all taxes
(including, without limitation, income tax) and other deductions required to be
withheld therefrom and has paid the same to the proper tax or other authority
within the time required under any applicable legislation;
(f) has not to the best of its knowledge without special
investigation undergone an acquisition of control, for the purposes of the
Income Tax Act or any relevant provincial statute, that
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would affect any taxation years of New Era ending immediately before the Closing
Date, except as a result of transactions contemplated by this Agreement.
3.8 Absence of Certain Changes or Events. Since August 31, 1995, New Era
------------------------------------
has conducted its business in the ordinary and usual course and, without
limiting the generality of the foregoing, has not:
(a) suffered any material adverse change;
(b) suffered any damage, destruction or loss, whether or not covered
by insurance, that had a material adverse effect on its properties or business;
(c) granted any increase in the compensation payable or to become
payable by New Era to its officers or employees, except those occurring in the
ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of its capital stock or declared any
direct or indirect redemption, retirement, purchase or other acquisition of such
shares;
(e) issued any shares of, any warrants, rights or options for, or
entered into any other commitment relating to, its capital stock;
(f) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of its business;
(h) sold, assigned, transferred, or otherwise disposed of other than
by license any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright), invention, process, know-
how, formula or trade secret or interest therein or other intangible asset or
licensed any of the foregoing, except under licenses referenced in the New Era
Disclosure Schedule;
(i) suffered any labor dispute;
(j) entered into any material commitment or obligation (including
without limitation any borrowing or capital expenditure), except in the ordinary
course of business and under licenses referenced in the New Era Disclosure
Schedule;
(k) incurred any liability (including, without limitation, any
contingent liability with respect to the obligation of others), except in the
ordinary course of its business and consistent with past practice and except for
the borrowing of an additional $190,000 from the Western Economic
Diversification Fund, that would be required to be disclosed in financial
statements prepared in accordance with GAAP;
(l) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except liens of current taxes not yet due;
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(m) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with, any of its Affiliates, officers, directors or shareholders or any
Affiliate of any of the foregoing; or
(n) agreed to take any action described in this Section or outside of
the ordinary course of its business or that would constitute a breach of any of
the representations or warranties of New Era contained in the Transaction
Documents.
3.9 Title and Related Matters; Inventory.
------------------------------------
(a) New Era has good and marketable title to all the properties,
interests in properties and assets, real and personal, reflected in the balance
sheet included in the New Era Unaudited Financials or acquired after the date of
that balance sheet (except properties, interests in properties and assets sold
or otherwise disposed of since the date of that balance sheet), free and clear
of all Encumbrances, except the lien of current taxes not yet due and payable.
All real and personal property leases to which New Era is a party are valid,
binding, enforceable and effective in accordance with their respective terms,
subject to the rules of equity and rules relating to insolvency. There is not
under any of such leases any existing material default or event of default or
event that, with notice or lapse of time or both, would constitute a material
default by New Era or, to New Era's knowledge, by any other party to such
leases. The New Era Disclosure Schedule contains a description of all real and
personal property leased or owned by New Era, describing its interest in each
property and, with respect to real property, a description of each parcel and a
summary description of the buildings, structures and improvements thereon. A
true, correct and complete copy of each New Era lease described in this Section
has been delivered to counsel for Interlink.
(b) Each item of inventory used or held for use in connection with
the business of New Era as of the Closing Date, including, without limitation,
raw materials, work in process and finished goods, (i) was acquired and has been
maintained in the ordinary course of business, (ii) is of a quality, quantity
and condition useable, saleable or licensable in the ordinary course of
business, and (iii) is not subject to any write-down or write-off under any of
New Era's accounting policies, all of which policies related to write-downs and
write-offs are in accordance with GAAP. New Era is not under any liability or
obligation, and no outstanding claim has been made or threatened, for the return
of inventory in the possession of wholesalers, distributors, retailers or other
customers, except for product returns in the ordinary course of business.
3.10 Proprietary Rights.
------------------
(a) New Era owns all right, title and interest in, to, under and with
respect to, all intellectual property rights related to or used by New Era in
connection with its business as of the Closing Date, including without
limitation, (i) the patents, trademarks, service marks, copyrights and
applications therefor and registrations thereof, mask works and mask work
registrations, integrated circuit topographies and topography registrations,
trade names and trade styles all of which are listed in the New Era Disclosure
Schedule, (ii) all trade secrets (including without limitation know-how,
processes, formulae, business and marketing plans), and confidential and other
proprietary information owned by New Era, including, without limitation, all
proprietary rights developed or discovered in connection with or contained in
the products of New Era sold, offered, or under development as of the date of
this Agreement (the "New Era Products"), subject only to the rights of third
parties who may have independently developed similar proprietary rights, of
which New Era has no knowledge, and (iii) all of the computer software and data,
including, without limitation, all source and object codes, all developer notes
and documentation, all manuals and other user materials, all publishing rights
with respect thereto and rights
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to derivations and modifications thereof, and all intangible data contained in
or stored on computer hardware related to or used by New Era in connection with
its business as of the Closing Date (collectively, the "Proprietary Rights"),
free and clear of all Encumbrances. The foregoing representation as it relates
to Third Party Technology, as defined in Section 3.10(b) below, is limited to
New Era's interest pursuant to the Third Party Licenses, as defined in Section
3.10(b) below, each of which is valid and enforceable, subject to the rules of
equity and rules relating to insolvency, and in full force and effect and which
grant New Era such rights to Third Party Technology, as defined in Section
3.10(b) below, as are employed in or necessary for the conduct of New Era's
business as presently conducted. None of New Era's licenses of Proprietary
Rights to third parties (i) assigns or otherwise transfers New Era's title to
any portion of any of the Proprietary Rights, or (ii) licenses any portion of
any of the Proprietary Rights on an exclusive basis.
(b) The New Era Disclosure Schedule contains an accurate and complete
description of (i) all patents, trademarks (with separate listings of registered
and unregistered trademarks), trade names, and registered copyrights in or
related to the New Era Products, all applications and registration statements
therefor, and a list of all licenses and other agreements relating thereto, and
(ii) all licenses and other agreements with third parties (the "Third Party
Licenses") relating to any patents, copyrights, technology, software, software
tools, know-how, processes, trade secrets, trademarks, service marks, trade
names or other proprietary rights that New Era is licensed or otherwise
authorized by such third parties to use, market, distribute or incorporate into
products distributed by New Era (such proprietary rights being collectively
referred to as the "Third Party Technology").
(c) All of New Era's trademark or trade name registrations related to
the New Era Products and all of New Era's copyrights in or related to any of the
New Era Products are valid and in full force and effect, and the execution and
delivery of, and the consummation of the transactions contemplated by, the
Transaction Documents will not alter or impair any such rights.
(d) New Era has taken the measures described in the New Era
Disclosure Schedule to protect the Proprietary Rights and the confidential
information of third parties. No claim has been asserted against New Era (and to
New Era's knowledge there are no claims that are likely to be asserted against
New Era or which have been or are likely to be asserted against others) by any
person challenging New Era's use or distribution of any patent, trademark, trade
name, copyright, trade secret, software, technology, know-how or process used by
New Era (including without limitation the Third Party Technology) or challenging
or questioning the validity or effectiveness of any license or agreement
relating thereto (including without limitation the Third Party Licenses). There
is no valid basis for any claim of the type specified in the immediately
preceding sentence that could in any way interfere with the continued
distribution of any of the New Era Products by New Era, Interlink or, to New
Era's knowledge, the continued enhancement or exploitation by them of any of the
New Era Products.
(e) None of the New Era Products or the use of any of the Proprietary
Rights by New Era in its business as conducted to the date hereof on the rights
of, constitutes misappropriation of, or in any way involves unfair competition
with respect to, any proprietary information or intangible property right of any
third party, including without limitation any patent, trade secret, copyright,
trademark or trade name, subject only to possible infringement of patents issued
after the date of this Agreement.
(f) No third party has any right to manufacture, reproduce,
distribute, market or exploit any of the New Era Products or any adaptations,
translations, or derivative works based on the New Era Products or any portion
thereof, except under licenses or agreements referenced in the New Era
Disclosure Schedule. No third party has any right to manufacture, reproduce,
distribute, market or exploit any work or material of which any of the New Era
Products is a "derivative work", as that term is defined in the United States
Copyright Act, Title 17, U.S.C. Section 101, except for the rights of third
parties to
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the Third Party Technology and except under the licenses or agreements
referenced in the New Era Disclosure Schedule. New Era is not a party or subject
to any agreement, obligation or commitment, written or oral, under which New Era
is obligated to manufacture for or supply to any third party any of the New Era
Products or components thereof, except under the licenses or agreements
referenced in the New Era Disclosure Schedule.
(g) All designs, drawings, specifications, source code, object code,
documentation, flow charts and diagrams incorporating, embodying or reflecting
any of the New Era Products at any stage of their development (the "New Era
Components") were written, developed and created solely and exclusively by
employees of New Era without the assistance of any third party or were created
by third parties who assigned ownership of their rights to New Era pursuant to
valid and enforceable agreements previously provided to counsel for Interlink
and listed on the New Era Disclosure Schedule. New Era has at all times treated
the New Era Products and New Era Components as containing trade secrets, has at
all times used reasonable commercial efforts to protect such trade secrets and
has not disclosed or otherwise dealt with such items in such a manner as to
cause the loss of such trade secrets by their release into the public domain.
New Era has at all times used reasonable commercial efforts to protect the
confidentiality of all of its other confidential and proprietary information and
that of third parties that is or has been in its possession.
(h) To New Era's knowledge, no employee of New Era is in violation of
any term of any employment contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of any such employee with New
Era or, to New Era's knowledge, any other party, because of the nature of the
business conducted by New Era to the date hereof.
(i) Each person currently employed by New Era (including consultants
and independent contractors, if any) that has or had access to confidential
information of New Era has executed and delivered to New Era a confidentiality
and non-disclosure agreement in the form previously provided to counsel for
Interlink. Such confidentiality and non-disclosure agreements constitute valid
and binding obligations of New Era and such person, enforceable in accordance
with their respective terms, subject to the rules of equity and rules relating
to insolvency. To New Era's knowledge, neither the execution and delivery of
any such agreement, nor the carrying on of New Era's business by any such person
as an employee, consultant or independent contractor, as the case may be, has or
will 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 persons is obligated.
(j) No product liability or warranty claim has been asserted or
threatened against New Era nor, to New Era's knowledge, is there any specific
situation, set of facts or occurrence that provides a basis for any such claim.
3.11 Employee Benefit Plans.
----------------------
(a) Except as set forth in the New Era Disclosure Schedule, New Era
has no employment benefit plan, including without limitation, any plan for
bonuses, time off with pay, deferred compensation, incentive, severance pay,
pension, profit-sharing, retirement, stock purchase, stock option or any other
employee benefit plan, employee fringe benefit plan, arrangement or practice
with regard to present or former employees (all of which are referred to as
"Employee Benefit Plans"), whether formal or informal.
(b) Each Employee Benefit Plan is registered, if required, and has at
all times since its inception been established, qualified, invested, funded and
administered in all respects in accordance
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with (i) all laws, regulations, orders, administrative or judicial promulgations
and regulatory policy applicable to the plan ("Applicable Law"), including, but
not limited to, the Workers Compensation Act (Alberta) and the Unemployment
Insurance Act (Canada), (ii) the terms of the plan as amended from time to time
and all employee plan summaries, booklets and manuals, and (iii) all
understandings, written or oral, between New Era and any participant or
beneficiary of the plan;
(c) All obligations (including, without limitation, those respecting
the making or payment of contributions or premiums, as applicable) under the
terms of the Plan and pursuant to Applicable Law have been satisfied in
accordance with such terms and Applicable Law, and no taxes, penalties or fees
are owing under the plan;
(d) If an Employee Benefit Plan is required to be funded or insured
under the terms of the plan or pursuant to Applicable Law, the plan is fully
funded or insured, as applicable, on a going concern and solvency basis;
(e) The aggregate amount paid by New Era during the fiscal year last
ended pursuant to all Employee Benefit Plans, whether formal or informal, is
disclosed in the New Era Disclosure Schedule.
(f) New Era has no agreement, arrangement or commitment, whether
formal or informal and whether legally binding or not, to create any additional
plan or arrangement or to modify or amend any existing Employee Benefit Plan;
(g) There are no actions, suits, investigations, examinations, claims
or other proceedings by an party (other than routine claims for benefits)
pending or, to the best of New Era's knowledge after appropriate investigations,
threatened or reasonably expected to be asserted against any Employee Benefit
Plan or the assets of any such Plan which would have a material adverse effect
upon the business, business prospects, assets, operation or condition (financial
or other) of New Era;
(h) No event has occurred which could require termination, in whole
or in part, or which could adversely affect the registration or tax status of
any Employee Benefit Plan;
(i) Neither New Era nor any agent of New Era has been in breach of
any fiduciary obligation respecting an Employee Benefit Plan;
(j) All withdrawals, applications and transfers of assets from any
Employees Benefit Plan or any fund or assets related to the plan have been
undertaken and completed in accordance with plan terms and Applicable Law;
(k) The employee data respecting each Employee Benefit Plan is true
and correct and sufficient for the proper administration of the plan; and
(l) No employee Benefit Plan that is not a pension or retirement plan
provides benefits to retirees.
3.12 Bank Accounts. The New Era Disclosure Schedule sets forth the names
-------------
and locations of all banks, trust companies, savings and loan associations, and
other financial institutions at which New Era maintains accounts of any nature
and the names of all persons authorized to draw thereon or make withdrawals
therefrom.
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3.13 Contracts.
---------
(a) New Era is not a party or subject to any agreement, obligation or
commitment, written or oral:
(i) that is currently expected to result in any loss (before
allocation of overhead and administrative costs) upon completion or performance
thereof;
(ii) that restricts New Era from carrying on anywhere in the
world its business or any portion thereof as currently conducted or as proposed
to be conducted;
(iii) with respect to obligations as guarantor, surety, co-
signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation
of any other person or entity;
(iv) for the sale or lease of any real property;
(v) that calls for any fixed or contingent payment or
expenditure or any related series of fixed and/or contingent payments or
expenditures by or to New Era totaling more than CDN$25,000 in any calendar
year;
(vi) with agents, advisors, salesmen, sales representatives,
independent contractors or consultants that are not cancelable by it on no more
than 30 days' notice and without liability, penalty or premium;
(vii) to provide funds or to make any investment in any other
person or entity (in the form of a loan, a capital contribution, or otherwise);
or
(viii) with any distributor, original equipment manufacturer,
value added remarketer or for the distribution of any of the New Era Products.
(b) Each contract, agreement and instrument to which New Era is a
party is valid, binding, in full force and effect, and enforceable by New Era in
accordance with its terms, subject to the rules of equity and rules relating to
insolvency. No such contract, agreement or instrument contains any material
liquidated damages, penalty or similar provision. To New Era's knowledge, no
party to any such instrument intends to cancel, withdraw, modify or amend such
instrument.
(c) The New Era Disclosure Schedule lists each vendor that (i)
manufactures for or supplies to New Era any material product or component of any
New Era Product and to which New Era paid more than CDN$25,000 in any calendar
year or more than CDN$25,000 during 1995 to date, or (ii) is the sole source for
any product or component of any New Era Product.
(d) New Era is not in default under or in breach or violation of, nor
is there any valid basis for any claim of default by New Era under, or breach or
violation by New Era of, any contract, commitment or restriction to which New
Era is a party or by which it or any of its properties or assets is bound or
affected, where such defaults, breaches, or violations would, in the aggregate,
have a material adverse effect on New Era. To New Era's knowledge, no other
party is in default under or in breach or violation of, nor, to New Era's
knowledge, is there any valid basis for any claim of default by any other party
under, or any breach or violation by, any other party of, any material contract,
commitment, or restriction to which New Era is a party or by which any of its
properties or assets is bound or affected,
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where such defaults, breaches, or violations would, individually or in the
aggregate, have a material adverse effect on New Era.
3.14 Compliance with Law. New Era possesses all regulatory consents,
-------------------
authorizations, approvals, licenses and permits required by federal, provincial,
state and local regulatory agencies in connection with the conduct of all
aspects of its business as presently conducted, except where the lack thereof
would not, individually or in the aggregate, have a material adverse effect on
New Era. The operations of New Era are currently being conducted in compliance
with all such consents, authorizations, approvals, licenses and permits and with
all applicable laws, regulations and other requirements of each Governmental
Entity having jurisdiction over New Era, except where noncompliance would not,
individually or in the aggregate, have a material adverse effect on New Era. New
Era has not received any (i) notification of any asserted present or past
failure by New Era to comply with such laws, rules or regulations, or (ii)
written complaint, inquiry or request for information from any Governmental
Entity relating thereto.
3.15 Labor Difficulties. New Era is not engaged in any unfair labor
------------------
practice and is not in violation of any applicable laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours, except where noncompliance would not, individually or in the aggregate,
have a material adverse effect on New Era. There is no unfair labor practice
complaint against New Era actually pending or threatened before any labor
grievance agency or similar governmental organization. There is no strike,
labor dispute, slowdown, or stoppage actually pending or threatened against New
Era. No union representation question exists respecting the employees of New
Era and, to New Era's knowledge, New Era is not now and has never been subject
to any union organizing activities. New Era is not and has never been subject
to any collective bargaining or union agreement, obligation or commitment,
written or oral, with respect to any of its employees and is not subject to any
other agreement, obligation or commitment, written or oral, with any trade or
labor union, employees' association or similar organization. New Era has not
experienced any work stoppage or other labor difficulty. To New Era's
knowledge, (i) the consummation of the transactions contemplated by the
Transaction Documents will not have a material adverse effect on its relations
with the New Era key employees, and (ii) none of the New Era key employees
intends to leave its employment, whether as a result of the transactions
contemplated by this Agreement or otherwise.
3.16 Trade Regulation. New Era has not refused to ship New Era Products
----------------
to any dealer, distributor, original equipment manufacturer, third party
marketing entity or customer for any reason that would constitute a violation of
any applicable antitrust law. All of the prices charged by New Era in connection
with the marketing or sale of any products or services complied with all
applicable antitrust laws and regulations. No claim has been asserted or
threatened against New Era with respect to wrongful termination of any dealer,
distributor or any other marketing entity, discriminatory pricing, price fixing,
unfair competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind, and to New Era's knowledge no specific situation, set of facts, or
occurrence provides any basis for any such claim.
3.17 Certain Transactions.
--------------------
(a) No Affiliate of New Era has any interest in (i) any material
equipment or other property or asset, real or personal, tangible or intangible,
including, without limitation, any of the Proprietary Rights, used in connection
with or pertaining to the business of New Era, (ii) any creditor, supplier,
customer, manufacturer, agent, representative, or distributor of any of the New
Era Products, (iii) any entity that competes with New Era, or with which New Era
is affiliated or has a business relationship, or (iv) any agreement, obligation
or commitment, written or oral, to which New Era is a
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party; provided, however, that no Affiliate of New Era or other person shall be
deemed to have such an interest solely by virtue of the ownership of less than
5% of the outstanding stock or debt securities of any publicly held company, the
stock or debt securities of which are traded on a recognized stock exchange or
quoted on The Nasdaq Stock Market.
(b) Except as contemplated by the Transaction Documents, New Era is
not a party to any (i) agreement with any officer or other employee of New Era
(x) the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving New Era in the nature of
any of the transactions contemplated by the Transaction Documents, (y) providing
any term of employment or compensation guaranty, other than by operation of
rules of law, or (z) providing severance benefits or other benefits after the
termination of employment of such officer or other employee regardless of the
reason for such termination of employment, other than by operation of rules of
law, or (ii) agreement or plan, including, without limitation, any stock option
plan, stock appreciation right plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by the
Transaction Documents or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by the
Transaction Documents.
3.18 Employees, Consultants and Independent Contractors. New Era has
--------------------------------------------------
disclosed to Interlink all agreements with individual employees, consultants,
and independent contractors to which New Era is a party. A true, correct and
complete copy of each such written agreement and a true, correct and complete
description of each such oral agreement have been delivered to counsel for
Interlink. New Era has disclosed to Interlink the names of all New Era
employees, their salaries or wages, other compensation and dates of employment
and positions. New Era is required to pay accrued vacation and severance pay as
obligated by applicable law.
3.19 Insurance. The New Era Disclosure Schedule contains a list of the
---------
insurance policies and other forms of insurance held by New Era. New Erahas not
done anything, either by way of action or inaction, that would invalidate such
policies in whole or in part.
3.20 Litigation. There is no action, proceeding, claim or investigation
----------
pending against New Era or affecting any of its properties, assets
or operations before any court or administrative agency with respect to which
New Era has been served, and, to New Era's knowledge, no such action,
proceeding, claim or investigation has been threatened or is pending but with
respect to which New Era has not been served. There is no substantial basis for
any shareholder or former shareholder of New Era, or any other person, firm,
corporation or entity, to assert a claim against New Era, Interlink based upon
(i) ownership or rights to ownership of any shares of New Era Common or New Era
Class A or Class B Preferred Shares, (ii) any rights as a New Era shareholder,
including any option or preemptive rights or rights to notice or to vote, or
(iii) any rights under any agreement between New Era and any of its shareholders
or former shareholders, or option holders or former option holders in their
capacity as such. There is no judgment, decree, injunction, rule or order of any
Governmental Entity outstanding against New Era or, to New Era's knowledge,
affecting any of its properties, assets or operations.
3.21 Corporate Minutes, Etc. New Era has delivered to counsel for
----------------------
Interlink true, correct and complete copies of (i) its minute books containing
complete records of all proceedings, consents, actions, and meetings of its
shareholders, Board of Directors and any committees thereof, (ii) all permits,
orders, and consents issued by any Governmental Entity with respect to New Era,
or any securities of New Era, and all applications for such permits, orders, and
consents, and (iii) the Share certificate and transfer books and the share
register of New Era setting forth all issuances and transfers of any capital
stock of New Era. The corporate minute books, stock certificate books, share
registers and other corporate records of New
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Era and the copies thereof provided to counsel for Interlink are complete and
accurate in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction, except
for such noncompliance as will not, individually or in the aggregate, have a
material adverse effect on New Era.
3.22 Compliance with Environmental Requirements.
------------------------------------------
(a) New Era has not transported, stored, used, manufactured, released
or exposed its employees or any other person to any substance that is regulated
or prohibited by any local, provincial, state or federal government authority or
which has been designated by any such authority to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment ("Hazardous
Materials") in violation of any applicable local, provincial, state or federal
statute, rule, regulation, order or law. New Era has no obligation to
investigate, remediate or take other action with respect to any Hazardous
Material that is present on any New Era facility or other property other than
those for which adequate reserves have been established on the New Era Unaudited
Financials.
(b) No action, claim or proceeding which could have a material
adverse effect on New Era is pending or, to the best of New Era's knowledge,
threatened concerning any New Era facility or New Era's transportation, storage,
use, manufacture, release or exposure of any employee or any other person to a
Hazardous Material, and New Era is not aware of any fact or circumstance that
could impose any material environmental liability upon New Era other than
liabilities for which an adequate reserve has been established on the New Era
Unaudited Financials.
3.23 No Brokers. New Era is not obligated for the payment of fees or
----------
expenses of any broker or finder in connection with the origination, negotiation
or execution of any of the Transaction Documents or in connection with any
transaction contemplated thereby.
3.24 Disclosure. No statement by New Era contained in any Transaction
----------
Document to which New Era is a party or any certificate furnished or to be
furnished pursuant thereto or in connection with the transactions contemplated
thereby contains or will contain any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. New Era has delivered to counsel for Interlink a
true, complete and correct copy of each document referred to in the New Era
Disclosure Schedule or this Section 3.
3.25 New Era Options. The New Era Disclosure Schedule contains a list of
---------------
all Optionees. All New Era Options that will be outstanding immediately prior
to the Closing have been issued pursuant to the forms of option agreement
previously provided to counsel for Interlink.
3.26 Government Contracts. To New Era's knowledge, all representations,
--------------------
certifications and disclosures made by New Era to any Government Contract Party
were in all respects current, complete and accurate at the time they were made,
and to New Era's knowledge there are no acts, omissions or non-compliance with
regard to any applicable public contracting statute, regulation, or contract
requirement (whether express or incorporated by reference) relating to any of
New Era's contracts with any Government Contract Party that have led to or could
lead to, either before or after the Closing Date, (i) any claim or dispute
involving New Era and any Government Contract Party, or (ii) any suspension,
debarment or contract termination, or proceeding related thereto which is
reasonably expected to have a material adverse effect on New Era. To New Era's
knowledge there are no acts or omissions relating to the licensing or selling to
any Government Contract Party or of any marking of any of New Era technical
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<PAGE>
data and computer software that have led to or could lead to, either before or
after the Closing Date, any material cloud on any of New Era's rights in and to
its technical data and computer software. All of New Era's technical data and
computer software was developed exclusively at private expense.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS
------------------------------------------------------------
Each of the Principal Shareholders, severally and not jointly, represents
and warrants to Interlink that:
4.1 Power, Authorization and Validity.
---------------------------------
(a) Such Principal Shareholder has the full right, power, legal
capacity and authority to enter into and perform his obligations under each of
the Transaction Documents to which such Principal Shareholder is or will be a
party.
(b) Except as set forth in the New Era Disclosure Schedule, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or any other consent, approval or
authorization from any other third party, on the part of such Principal
Shareholder is required in connection with his execution or delivery of the
Transaction Documents to which such Principal Shareholder is or will be a party
or the consummation by such Principal Shareholder of the transactions
contemplated by, other compliance with, or performance under, such Transaction
Documents.
(c) Each of the Transaction Documents to which such Principal
Shareholder is or will be a party constitutes, or will constitute upon its
execution and delivery by such Principal Shareholder, a valid and binding
obligation of such Principal Shareholder enforceable in accordance with its
terms, subject to the rules of equity and rules relating to insolvency.
4.2 Title to Securities. Such Principal Shareholder owns of record and
-------------------
beneficially, and immediately prior to the Closing will own of record and
beneficially, the number of shares of New Era stock set forth opposite such
Principal Shareholder's name on New Era's share register. Such Principal
Shareholder owns, and will own immediately prior to the Closing, all right,
title and interest in and to such shares, free and clear of all Encumbrances,
proxies, rights of refusal and similar rights and other transfer restrictions of
any nature whatsoever (including any arising from any existing or threatened
litigation) other than restrictions on transfer arising out of applicable
securities laws.
4.3 Absence of Violations or Conflicts. The execution and delivery by
----------------------------------
such Principal Shareholder of the Transaction Documents to which such Principal
Shareholder is or will be a party and the consummation by such Principal
Shareholder of the transactions contemplated by, or other compliance with or
performance under, them do not and will not with the passing of time or giving
of notice or both: constitute a violation of, be in conflict with, constitute a
default or require any payment under, permit a termination of, or result in the
creation or imposition of any lien upon any properties or assets of New Era,
under (x) any contract, agreement, commitment, undertaking or understanding
(including rights of refusal or similar rights or other transfer restrictions)
to which such Principal Shareholder is a party or to which such Principal
Shareholder or such Principal Shareholder's properties or assets are subject,
bound or affected, (y) any judgment, decree or order of any Governmental Entity
to or by which such Principal Shareholder or such Principal Shareholder's
properties or assets are subject, bound or affected, or (z) any applicable law;
or create, or cause the acceleration of the maturity of, any debt, obligation or
liability of
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<PAGE>
such Principal Shareholder that would result in any lien or other claim upon the
properties or assets of New Era.
4.4 Absence of Claims Against the Company. Such Principal Shareholder has
-------------------------------------
no claim against New Era, except for accrued compensation and benefits and the
reimbursement of expenses incurred in the ordinary course of business. Such
Principal Shareholder has no right, claim or interest in or to any stock or
equity ownership interest in New Era other than those shown on New Era's record
of Shareholders and Optionholders delivered to Interlink, and such Principal
Shareholder has no right, claim or interest in or to the Proprietary Rights.
4.5 Litigation. There is no action, proceeding, claim or investigation
----------
pending with respect to which such Principal Shareholder has been served or, to
such Principal Shareholder's knowledge threatened against such Principal
Shareholder or pending but with respect to which such Principal Shareholder has
not been served, relating to such Principal Shareholder's ownership of New Era
Common Shares or New Era Options.
4.6 No Brokers. Such Principal Shareholder is not obligated for the
----------
payment of fees or expenses of any broker or finder in connection with the
origination, negotiation or execution of any of the Transaction Documents or in
connection with any transaction contemplated thereby.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF INTERLINK
-------------------------------------------
Except as set forth in the Interlink Disclosure Schedule, if any, a copy of
which has been delivered to New Era on or before the date of this Agreement (the
"Interlink Disclosure Schedule"), Interlink represents and warrants to New Era
as set forth below. No fact or circumstance disclosed to New Era shall
constitute an exception to the following representations and warranties unless
such fact or circumstance is set forth in the Interlink Disclosure Schedule or
such supplements thereto as may mutually be agreed upon in writing by New Era
and Interlink.
5.1 Organization and Good Standing. Interlink is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the state of
California and has all requisite corporate power and authority to carry on its
business as now conducted. Interlink is qualified as a foreign corporation in
any jurisdiction in which a failure to so qualify would have a material adverse
effect on Interlink and its subsidiaries, taken as a whole.
5.2 Capitalization. The authorized capital stock of Interlink consists
--------------
of, and immediately prior to the Closing will consist of, (i) 15,000,000 shares
of Interlink Common Stock, 4,899,543 of which are issued and outstanding as of
the date of this Agreement and will be issued and outstanding immediately prior
to the Closing (subject only to the issuance of additional shares upon the
exercise prior to the Closing of New Era Options granted prior to the date of
this Agreement), and (ii) 2,625,000 shares of Interlink Series 1 Preferred
Stock, 2,459,424 of which are issued and outstanding as of the date of this
Agreement and will be issued and outstanding immediately prior to the Closing.
All such issued and outstanding shares have been duly authorized, are validly
issued, fully paid and nonassessable and were issued and sold in compliance with
all applicable securities laws. Interlink has options to purchase 2,035,054
shares of Common Stock and warrants to purchase an additional 313,334 shares of
common stock outstanding as of the date of this Agreement, and has reserved for
issuance shares of Interlink Common Stock upon exercise of such outstanding
options and warrants. Except for the foregoing, there
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are no outstanding rights, options, warrants, conversion rights or other
agreements for the purchase or acquisition from Interlink of any shares of its
capital stock or securities convertible into or exchangeable for any shares of
such capital stock. There are no preemptive rights to purchase or otherwise
acquire any securities of Interlink pursuant to any provision of law or the
Articles of Incorporation or By-Laws of Interlink, by any agreement to which
Interlink is a party or, to Interlink's knowledge, otherwise, and no existing
voting or stock restriction agreements, proxies or similar agreements to which
Interlink is a party applicable to any outstanding securities of Interlink.
5.3 Power, Authorization and Validity.
---------------------------------
(a) Interlink has the corporate right, power, legal capacity and
authority to execute and deliver, and to consummate the transactions
contemplated by, the Transaction Documents to which it is or will be a party and
to perform its obligations under each of them. The transactions contemplated
hereby have been duly and validly approved and authorized by Interlink. The
execution and delivery of, and the consummation of the transactions contemplated
by, each of the Transaction Documents to which Interlink is or will be a party
has been duly and validly approved and authorized by Interlink's Board of
Directors and all other necessary corporate action.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Interlink in connection with the execution and delivery of, and the
consummation by them of the transactions contemplated by, any of the Transaction
Documents to which either of them is or will be a party.
(c) Each of the Transaction Documents to which Interlink is or will
be a party has been, or upon its execution and delivery by Interlink will have
been, duly executed and delivered by it and constitutes or will constitute upon
its execution and delivery, a valid and binding obligation of Interlink,
enforceable in accordance with its terms, subject to the rules of equity and
rules relating to insolvency.
5.4 Financial Statements.
--------------------
(a) Interlink has delivered to New Era the Interlink Financial
Statements. The Interlink Financial Statements have been prepared in accordance
with GAAP and present fairly the financial position of Interlink as of their
respective dates and the results of operations, equity transactions and changes
in financial position of Interlink for the periods indicated, except that the
Interlink Unaudited Financials (i) are subject to normal year-end audit
adjustments, which adjustments will not individually or in the aggregate be
material, and (ii) do not contain all footnotes required under GAAP.
(b) Interlink has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the Interlink Unaudited
Financials, except for those (i) that have been incurred after September 30,
1995, or (ii) that are not required by GAAP to be included in a balance sheet or
the notes thereto. The reserves, if any, reflected on the balance sheet included
in the Interlink Unaudited Financials are adequate in light of the contingencies
with respect to which they are made. Each debt, liability, and obligation of any
nature of Interlink incurred after September 30, 1995, has been incurred in the
ordinary course of Interlink's business.
5.5 Absence of Changes or Events. Since September 30, 1995, Interlink has
----------------------------
conducted its business in the ordinary and usual course, its business has not
suffered any material adverse change, and no action or circumstances has been
taken or occurred which if taken or occurring prior to September 30,
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1995 would have been required under GAAP to be disclosed or included in the
Interlink Financial Statements.
5.6 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or result in a material breach or violation of, any
provision of the Articles of Incorporation or Bylaws of Interlink, as currently
in effect, any material instrument or contract to which Interlink is a party or
by which any such party is bound, or any federal, state or local judgment, writ,
decree, order, statute, rule or regulation applicable to any such person.
Neither the execution and delivery of this Agreement, nor any agreement attached
hereto as an exhibit, nor the consummation of the transactions contemplated
hereby or thereby will directly have a material adverse effect on Interlink.
5.7 Disclosure. No statement by Interlink contained in any Transaction
----------
Document to which Interlink is a party or any certificate furnished or to be
furnished pursuant thereto or in connection with the transactions contemplated
thereby contains or will contain any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Interlink has delivered to counsel for New Era
a true, complete and correct copy of each document referred to in the Interlink
Disclosure Schedule or this Section 5.
5.8 Financial Resources. Interlink has obtained a written commitment from
-------------------
Imperial Bank to provide Interlink with a credit facility that, together with
Interlink's other financial resources, will enable Interlink to pay, at Closing,
the amount of the Initial Payment Note. In addition, based upon Interlink's
financial projec tions, which have been prepared in good faith by Interlink,
Interlink will be able to satisfy the amounts which will become due under the
Deferred Payment Notes.
SECTION 6
COVENANTS OF NEW ERA
--------------------
New Era covenants to and agrees with Interlink as follows:
6.1 Advice of Changes. New Era will promptly notify Interlink in writing
-----------------
of (i) any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of New Era contained in the Agreement, if
made on or as of the date of that event or the Closing Date, untrue or
inaccurate in any material respect, and (ii) any material adverse change in New
Era.
6.2 Conduct of Business. During the period on and from the date of this
-------------------
Agreement to the Closing, New Era will use reasonable commercial efforts to
maintain and preserve intact (i) the business organization, rights and
privileges pertinent to its business, (ii) New Era's credit arrangements with
banks, other financial institutions and its creditors, and (iii) New Era's
relationships with its directors, officers New Era key employees, consultants,
independent contractors, licensors, suppliers, distributors and other customers
and all others with whom it deals, all in accordance with its ordinary and usual
course of business. During the period on and from the date of this Agreement to
the Closing, New Era will not without the prior written consent of Interlink:
(a) borrow funds in excess of CDN$50,000 singly or CDN$150,000 in the
aggregate, or with a term in excess of 120 days;
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(b) incur any other liability other than in the ordinary course of
its business or in connection with the performance or consummation of this
Agreement;
(c) encumber or permit to be encumbered any of its assets, except in
the ordinary course of its business;
(d) fail to maintain the current status on its accounts receivable
(subject to Section 6.2(e) below), long-term debt, or insurance;
(e) dispose of any of its other properties or assets, except as
described in Section 6.11;
(f) enter into any lease or contract for the purchase of any
property, real or personal, except in the ordinary course of its business;
(g) fail to maintain its equipment and other assets and repair
according to the standards it has maintained up to the date of this Agreement,
subject only to ordinary wear and tear;
(h) pay any bonus, increased salary, or special remuneration to any
director, officer or employee, including any amounts for accrued but unpaid
salary or bonuses (other than amounts not in excess of normal payments made on a
regular basis);
(i) change accounting methods;
(j) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock, other than the redemption of 20,000 Class A Preferred Shares in
exchange for an outstanding note payable to New Era in the principal amount of
CDN$165,000, and the redemption of the remaining 50,000 Class A Preferred Shares
for an aggregate cash redemption price of CDN$577,500;
(k) amend or terminate any contract, agreement or license to which it
is a party except in the ordinary course of its business;
(l) loan any money to any person or entity, or enter into any
obligation as a guarantor or surety for any obligation;
(m) waive or release any right or claim, except in the ordinary
course of business;
(n) issue or sell any shares of its capital stock of any class or any
other of its securities, except upon exercise of New Era Options, or issue or
create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments to issue shares of capital stock;
(o) split or combine the outstanding shares of any class or series of
its capital stock or enter into any recapitalization affecting the number of
outstanding shares of any class or series of its capital stock or affecting any
other of its securities;
(p) merge, consolidate or reorganize with any entity;
(q) amend its Articles of Incorporation or By-Laws; or
(r) agree to do any of the things described in the preceding clauses
of this Section 6.2.
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6.3 Risk of Loss. Until the Closing, all risk of loss, damage or
------------
destruction to New Era's properties or assets shall be borne by New Era.
6.4 Access to Information. Until the Closing, New Era will allow
---------------------
Interlink and its agents free access upon reasonable notice and during normal
working hours to its files, books, records, and offices, including, without
limitation, any and all information relating to taxes, commitments, contracts,
leases, licenses, Proprietary Rights, personal property and financial condition.
Until the Closing, New Era shall cause its accountants to cooperate with
Interlink and its agents in making available all financial information
reasonably requested, including, without limitation, the right to examine all
working papers pertaining to New Era in the possession, custody or control of
such accountants.
6.5 Regulatory Approvals. Prior to the Closing, New Era will execute and
--------------------
file, or join in the execution and filing of, any application or other document
that may be necessary in order to obtain the authorization, approval or consent
of any Governmental Entity that may be reasonably required, or that Interlink
may reasonably request, in connection with the consummation of the transactions
contemplated by this Agreement. New Era will use reasonable commercial efforts
to obtain all such authorizations, approvals and consents.
6.6 Satisfaction of Conditions Precedent. New Era will use reasonable
------------------------------------
commercial efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Sections 11.1 and 11.3, to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
6.7 Other Negotiations. Between the date hereof and January 10, 1996,
------------------
and, if Interlink acquires a majority of the voting securities of New Era, from
January 10, 1996 to March 31, 1996 (or the earlier termination of this Agreement
pursuant to Section 12), New Era will not, directly or indirectly, through any
officer, director, employee, agent or otherwise, take any action to solicit,
initiate, seek, encourage or support any inquiry, proposal or offer from,
furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group (other than Interlink)
regarding any acquisition of the capital stock of New Era, any merger or
consolidation with or involving New Era, or any acquisition of any material
portion of the assets of New Era, outside of the ordinary course of business
(any such transaction being referred to herein as an "Acquisition Proposal").
If an Acquisition Proposal is received by, or such information is requested
from, New Era, New Era shall promptly notify Interlink of such fact.
6.8 Publicity. New Era shall not issue any press release or other public
---------
announcement or communication regarding the transactions contemplated by this
Agreement without the prior written consent of Interlink.
6.9 Employee Confidentiality and Proprietary Rights Agreements. New Era
----------------------------------------------------------
will use reasonable commercial efforts to induce each of the New Era employees
to sign and deliver on or before the Closing an employee confidentiality and
proprietary rights agreement in substantially the same form as those signed by
other Interlink employees.
6.10 New Era Key Employees. In addition to the New Era senior managers,
---------------------
who will each sign the Employment Agreement, New Era, prior to the closing, will
use reasonable commercial efforts to assure the retention of the Company's key
employees.
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<PAGE>
6.11 Distribution of Certain Assets. New Era will, prior to the Closing
------------------------------
Date, distribute to its Shareholders, to its Securityholders, to a company owned
by them, or to an entity established for their benefit (i) the long-term account
receivable owed to New Era by New Era Software, Inc. (ii) the associated account
payable of CDN$161,375 (as of August 31, 1995), and (iii) the shares of New Era
Software, Inc. currently held by New Era. New Era covenants and agrees that any
such distributions will have no net adverse financial effect on New Era, such as
requiring New Era to pay any additional money or incur any additional taxes, for
which New Era would be obligated post-Closing.
6.12 Redemption of Class A Preferred. New Era will, prior to the Closing
-------------------------------
redeem all outstanding Class A Preferred Shares on the terms described in
Section 6.2(j) of this Agreement.
6.13 Purchase of Class B Preferred. New Era will, prior to the Closing
-----------------------------
offer to the holders of New Era's Class B Preferred Stock to purchase their
shares of Class B Preferred Stock for an aggregate consideration of $346,500.
SECTION 7
COVENANTS OF THE PRINCIPAL SHAREHOLDERS
---------------------------------------
Each of the Principal Shareholders covenants and agrees with Interlink as
follows:
7.1 Advice of Changes. Such Principal Shareholder shall promptly notify
-----------------
Interlink in writing of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of such Principal
Shareholder contained in this Agreement, if made on or as of the date of that
event or the Closing Date, untrue or inaccurate in any material respect.
7.2 Regulatory Approvals. Prior to the Closing, such Principal
--------------------
Shareholder will execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Entity that may be
reasonably required, or that Interlink may reasonably request, in connection
with the consummation of the transactions contemplated hereby. Such Principal
Shareholder will use such Principal Shareholder's commercially reasonable
efforts to obtain all such authorizations, approvals and consents.
7.3 Satisfaction of Conditions Precedent. Such Principal Shareholder will
------------------------------------
use such Principal Shareholder's commercially reasonable efforts to satisfy or
cause to be satisfied all the conditions precedent that are set forth in
Sections 11.1 and 11.3, and will use such Principal Shareholder's reasonable
commercial efforts to cause the transactions contemplated by this Agreement to
be consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties which may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
7.4 Disposition of Securities; Solicitation; Voting; Etc. Except as
----------------------------------------------------
provided in the lock-up letter of even date herewith, from and after the date
hereof, and unless this Agreement is terminated in accordance with Section 12
hereof, such Principal Shareholder shall:
(a) not transfer, sell or assign to any person or entity, or agree in
any manner to transfer, sell or assign to any person or entity, or pledge,
encumber, deposit in a voting trust or grant a proxy with respect to any New Era
Common Shares currently or hereafter owned or controlled by such Principal
Shareholder without the prior written consent of Interlink;
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<PAGE>
(b) not solicit or enter into any agreement or arrangement with any
person or entity with respect to any transfer, sale or assignment of any New Era
Common Shares, except transfers, sales or assignments specifically contemplated
by this Agreement; and
(c) vote the New Era Common Shares currently or hereafter owned or
controlled by such Principal Shareholder against any merger amalgamation, or
similar transaction, (other than the transactions contemplated under this
Agreement), or any consolidation, sale of assets, reorganization,
recapitalization, liquidation or winding up of the Company in any case, at every
meeting of shareholders of New Era called therefor and at every adjournment or
postponement thereof (or in connection with any written consent in lieu of a
meeting relating to any such transaction).
The parties recognize and acknowledge that a breach by a Principal Shareholder
of this Section 7.4 will cause irreparable and material loss and damage to
Interlink and Sub, the amount of which is not readily determinable and that,
accordingly, each party agrees that, in addition to the reimbursement of all
expenses incurred by Interlink in connection with the preparation for and
consummation of the transactions contemplated hereby and the perfection of their
rights hereunder (including, without limitation, attorneys' and accountants'
fees and disbursements), the issuance of an injunction, an order requiring
specific performance or other equitable remedy shall be an appropriate remedy
for any such breach.
7.5 Other Negotiations. Between the date hereof and the Closing Date (or
------------------
the earlier termination of this Agreement pursuant to Section 12 hereof), such
Principal Shareholder will not, directly or indirectly, through any agent or
otherwise, take any action to solicit, initiate, seek, encourage or support any
inquiry, proposal or offer from, furnish any information to, or participate in
any negotiations with, any corporation, partnership, person or other entity or
group (other than Interlink) regarding any Acquisition Proposal. If an
Acquisition Proposal is received by, or such information is requested from, such
Principal Shareholder, such Principal Shareholder shall promptly notify
Interlink of such fact.
SECTION 8
COVENANTS OF INTERLINK
----------------------
8.1 Advice of Changes. Interlink will promptly notify New Era in writing
-----------------
of any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of Interlink or Sub contained in this
Agreement, if made on or as of the date of that event or the Closing Date,
untrue or inaccurate in any material respect.
8.2 Regulatory Approvals. Prior to the Closing, Interlink will execute
--------------------
and file, or join in the execution and filing of, any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental Entity that may be reasonably required in connection
with the consummation of the transactions contemplated by this Agreement.
Interlink will use commercially reasonable efforts to obtain all such
authorizations, approvals and consents.
8.3 Satisfaction of Conditions Precedent. Interlink will use commercially
------------------------------------
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Sections 11.1 and 11.2, and Interlink will use
commercially reasonable efforts to cause the transactions contemplated by this
Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties which may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
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8.4 Board Representation. Immediately upon the Closing and until December
--------------------
31, 1997, the former New Era Shareholders shall be entitled to one director
position on the board of directors of Interlink, subject to approval by the
Chairman of the board of directors of Interlink, which approval shall not be
unreasonably withheld. Interlink agrees that in order to provide for such
director position, it shall (i) prior to Closing amend its by-laws to add one
additional seat to its board of directors, (ii) fill the vacancy created by such
addition with D. Benedict Dulley (or such other individual as a majority-in-
interest of the former shareholders of New Era shall inform Interlink of in
writing) an individual selected by New Era's Board of Directors prior to the
Closing and approved by Interlink's Chairman, and (iii) continue to nominate or
appoint such individual (or such other individual as a majority-in-interest of
the former shareholders of New Era shall inform Interlink of in writing) to the
additional seat so created, for election at any shareholders meeting to be held
for such purpose on or before December 31, 1997.
SECTION 9
MUTUAL COVENANTS
----------------
9.1 Confidentiality. The parties acknowledge that the Confidentiality
---------------
Agreement is binding upon the parties thereto and in full force and effect,
except to the extent that the provisions of Sections 6.8 and 7.5 hereof
supersede provisions to similar effect contained in the Confidentiality
Agreement. The terms of the Confidentiality Agreement (exclusive of such
superseded provisions) are incorporated in this Agreement by this reference.
9.2 Acquisition Entity. Subject to the consent of New Era, which consent
------------------
shall not be unreasonably withheld, Interlink may have an Alberta subsidiary
effect the transactions contemplated by this Agreement provided the other
parties to this Agreement and the Securityholders tendering their securities
pursuant to the Offer to Purchase are not prejudiced in any material respect by
such a manner of effecting the transactions contemplated hereby; provided any
obligations of such subsidiary shall be guaranteed in full by Interlink. If the
transactions are effected through an Alberta subsidiary of Interlink this
document shall be deemed amended to refer to such subsidiary rather than
Interlink where the context so requires.
SECTION 10
THE CLOSING
-----------
10.1 Time and Place. Subject to termination of this Agreement as provided
--------------
in Section 12 hereof, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Macleod Dixon, 3700
Canterra Tower, 400 Third Avenue S.W., Calgary, Alberta T2P 4H2, at 1:00 p.m. on
Friday, December 29, 1995, or at such other place, time and date as Interlink
and New Era may mutually select (the "Closing Date").
10.2 Delivery of Instruments. At the Closing, each party shall deliver to
-----------------------
the others all documents, certificates, schedules, agreements and other
instruments required by this Agreement to be delivered at such time, such
delivery to be deemed effective on the Closing Date.
10.3 Manner of Closing and Payment to Tendering Securityholders. At the
-----------------------------------------------------------
Closing, Interlink will deposit into an Interlink account with the Depository
funds sufficient to pay the Initial Payment Note
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as to the Securityholders who have properly accepted the Offer to Purchase and
tendered their share certificates, option documents, and other required
documents to the Depository. In addition, Interlink will deliver to the
Depository the appropriate Warrants and Deferred Payment Notes for the
Securityholders who have accepted the Offer to Purchase and tendered their share
certificates, option documents, and other required documents to the Depository.
On January 4, 1996, the Depository shall pay the amount owing on the Initial
Payment Note from an Interlink account established by Interlink with the
Depository under Interlink's name to the Depository account established for the
benefit of the Securityholders who have accepted the Offer to Purchase. The
Depository will then distribute such payments, the Warrants and the Deferred
Payment Notes to the Securityholders who have accepted Interlink's Offer to
Purchase and tendered their share certificates, option documents, and other
required documents to the Depository. In addition, Interlink will deliver the
Note and Warrant referred to in Section 2 to Concord Corporation.
SECTION 11
CONDITIONS TO THE CLOSING
-------------------------
11.1 Conditions to Each Party's Obligations. The respective obligations
--------------------------------------
of each party to effect the transactions to be performed by such party at the
Closing are, at the option of such party, subject to the satisfaction at or
prior to the Closing of the following conditions:
(a) No order shall have been entered, and not vacated, by a court or
administrative agency of competent jurisdiction, in any action or proceeding
which enjoins, restrains or prohibits the acceptance of the tendered
certificates, the consummation of the transactions contemplated by the Offer, or
the consummation of the transactions contemplated by this Agreement.
(b) There shall be no litigation pending or threatened by any
regulatory body or private party in which (i) an injunction is or may be sought
against any of the transactions contemplated by this Agreement, or (ii) relief
is or may be sought against any party hereto as a result of this Agreement and
in which, in the good faith judgment of the Board of Directors of either New Era
or Interlink (relying on the advice of their respective legal counsel), such
regulatory body or private party has the probability of prevailing and such
relief would have a material adverse affect upon such party.
(c) Any and all consents from third parties to New Era's contracts
and other instruments required to allow the consummation of the transactions
contemplated by this Agreement shall have been obtained by New Era.
(d) All authorizations, consents, permits and approvals of all
federal, provincial, state and local governmental agencies and authorities
required to be obtained in order to permit consummation of the transactions
contemplated by this Agreement shall have been obtained.
(e) The Employment Agreements in a form acceptable to Interlink shall
have been executed and delivered by Interlink, New Era, and the following five
senior managers of New Era: D. Benedict Dulley, John D. Eddy, Peter Gailer,
James Godsell, and Allen Saurette.
(f) The New Era Common Shares and Options tendered by the New Era
Securityholders at the Closing Date shall represent ninety-eight percent (98%)
of the outstanding voting shares (including 100% of the Series B Preferred
Stock) and one hundred percent of all options exercisable for or other rights
exercisable for or convertible into New Era Class A Common Shares, so that New
Era will, after such transaction, become a wholly-owned subsidiary of Interlink.
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<PAGE>
11.2 Conditions to Obligations of New Era and the Principal Shareholders.
-------------------------------------------------------------------
The obligations of New Era and the Principal Shareholders to effect the
transactions to be performed by them at the Closing are, at the option of New
Era, subject to the satisfaction at or prior to the Closing of the following
additional conditions:
(a) All of the representations and warranties of Interlink set forth
in Section 5 hereof shall be true in all material respects on and as of the
Closing Date with the same force and effect as if they had been made at the
Closing, except for changes contemplated by this Agreement, and Interlink shall
have delivered to New Era certificates to such effect dated the Closing Date and
signed by corporate officers of Interlink.
(b) All of the terms, covenants and conditions of this Agreement to
be complied with and performed by Interlink at or prior to the Closing shall
have been duly complied with and performed in all material respects, and
Interlink shall have delivered to New Era certificates to such effect dated the
Closing Date and signed by corporate officers of Interlink.
(c) All senior managers of New Era listed in Section 11.1(e) shall
have been offered two-year Employment Agreements with Interlink and New Era.
(d) There shall not have come to New Era's attention, as a result of
the completion of its review of Interlink and its business, financial and legal
affairs, any materially adverse information not disclosed herein or in the
Interlink Disclosure Schedule.
(e) There shall have been no material adverse change in Interlink
from June 30, 1995, through the Closing Date, other than changes disclosed in
the Interlink Disclosure Schedule.
(f) New Era and New Era's Board of Directors shall have received from
Wilson Sonsini Goodrich & Rosati, counsel to Interlink, an opinion dated the
Closing Date in the form and substance satisfactory to New Era.
11.3 Conditions to Obligations of Interlink. The obligation of Interlink
--------------------------------------
to effect the transactions to be performed by it at the Closing are, at the
option of Interlink, subject to the satisfaction at or prior to the Closing of
the following additional conditions:
(a) All the representations and warranties of New Era and the
Principal Shareholders set forth in Sections 3 and 4 shall be true in all
material respects on and as of the Closing Date with the same force and effect
as if they had been made at the Closing, except for changes contemplated by this
Agreement, and New Era and the Principal Shareholders shall have delivered to
Interlink certificates to such effect dated the Closing Date and signed by the
Chief Executive Officer and the Chief Financial Officer of New Era and the
Principal Shareholders, respectively.
(b) All of the terms, covenants and conditions of this Agreement to
be complied with and performed by New Era and the Principal Shareholders at or
prior to the Closing Date shall have been duly complied with and performed in
all material respects, and New Era and the Principal Shareholders shall have
delivered to Interlink certificates to such effect dated the Closing Date and
signed by the Chief Executive Officer and the Chief Financial Officer of New Era
and the Principal Shareholders, respectively.
(c) Imperial Bank shall have provided to Interlink a credit facility
as contemplated under the terms of the commitment letter from Imperial Bank to
Interlink dated December 8, 1995
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<PAGE>
disclosed to New Era prior to the execution of this Agreement, which credit
facility Interlink agrees it will use its commercially reasonable efforts to
obtain.
(d) Interlink shall have received from Macleod Dixon, counsel for New
Era and the Principal Shareholders, an opinion dated the Closing Date in the
form and substance satisfactory to Interlink.
(e) There shall not have come to Interlink's attention, as a result
of the completion of its review of New Era and its business, financial and legal
affairs, any materially adverse information not disclosed herein or in the New
Era Disclosure Schedule.
(f) There shall have been no material adverse change in New Era from
August 31, 1995, through the Closing Date, other than changes disclosed in the
New Era Disclosure Schedule.
(g) Each current employee, consultant and independent contractor of
New Era shall have transferred to New Era any and all right, title or interest
such person may have in any Proprietary Rights used in, relating to or a part of
the New Era Products, free and clear of all Encumbrances or other obligations,
including, without limitation, any obligation to pay royalties or similar fees
with respect thereto and shall have executed and delivered to New Era such
additional documents as may be required, in Interlink's judgment, to effect the
intent of this clause (g).
(h) Interlink shall have received written approval from Western
Economic Diversification that the loan from such entity will continue in New Era
without change in its terms or the payment conditions subject only to amendments
to effect the continuation of the loan after the closing of the transactions
contemplated by this Agreement.
(i) All persons serving as directors or officers of New Era shall
have resigned all such positions effective as of the Closing.
SECTION 12
TERMINATION OF AGREEMENT
------------------------
12.1 Termination by Interlink. This Agreement may be terminated, and the
------------------------
transactions contemplated hereby abandoned, at any time before the Closing by
action of the Board of Directors of Interlink upon written notice to New Era,
specifying the basis for such termination, if (i) the employment with New Era of
any of the New Era key employees shall terminate prior to the Closing for any
reason, with or without cause, (ii) if New Era or any Principal Shareholder
shall have breached in any material respect any of their respective covenants or
agreements contained in this Agreement, or (iii) any representation or warranty
of New Era or any Principal Shareholder contained in this Agreement shall have
been materially inaccurate.
12.2 Termination by New Era. This Agreement may be terminated, and the
----------------------
transactions contemplated hereby abandoned, at any time before the Closing by
action of the Board of Directors of New Era upon written notice to Interlink,
specifying the basis for such termination, if (i) Interlink shall have breached
in any material respect any of its covenants or agreements contained in this
Agreement, or (ii) any representation or warranty of Interlink contained in this
Agreement shall have been materially inaccurate.
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<PAGE>
12.3 Termination by Mutual Consent. This Agreement may be terminated at
-----------------------------
any time before the Closing by the mutual written consent of Interlink and New
Era approved by their respective Boards of Directors.
12.4 Termination by Expiration of Term. This Agreement will terminate if
---------------------------------
the Closing has not occurred on or before January 10, 1996.
12.5 Effect of Termination. Upon any permitted termination of this
---------------------
Agreement pursuant to the provisions of this Section 12, all parties shall be
relieved of all further obligations under this Agreement, except for (i) the
provisions of Section 14.6 regarding the payment of expenses, and (ii) the
continuing obligations of the parties under the Confidentiality Agreement.
SECTION 13
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
13.1 Survival of Representations and Warranties and Covenants. If
--------------------------------------------------------
the Closing occurs, all of the representations and warranties made by New Era,
the Principal Shareholders, and Interlink contained in this Agreement shall
survive the Closing Date until one year from the Closing Date.
13.2 Indemnification by New Era; Limitation of Liability.
---------------------------------------------------
(a) Subject to the provisions and limitations herein contained, New
Era and the Securityholders who accept the consideration set forth in this
Agreement shall indemnify, defend and hold harmless Interlink, its officers,
directors, employees and attorneys, all current and future parents, subsidiaries
and Affiliates of Interlink, and their respective officers, directors, employees
and attorneys (all such persons and entities being collectively referred to as
the "Interlink Group") from and against any and all losses, damages, costs and
expenses (including reasonable legal fees and expenses) which any member of the
Interlink Group may sustain or incur which are occasioned by, caused by or arise
out of: (i) any inaccuracy in or breach of any of the representations,
warranties or covenants made by New Era or a Principal Shareholder in this
Agreement; or (ii) any inaccuracy or misrepresentation in the New Era Disclosure
Schedule in any certificate delivered by New Era or a Principal Shareholder
pursuant to this Agreement.
(b) The liability of New Era and its Securityholders under Section 13
shall be limited as follows: (i) claims shall be limited in the aggregate to
CDN$7,000,000; (ii) with respect to working capital and shareholders equity,
Interlink will conduct a post-closing audit immediately following the Closing,
and if the working capital and shareholders equity accounts together in the
post-closing audit deviate more than CDN$100,000 from the working capital and
shareholders equity accounts together on the New Era Unaudited Financials, then
Interlink shall be able to offset the entire amount of such deviation against
the amount owing on the Deferred Payment Notes; and, (iii) all claims based upon
breaches of representations, warranties, or covenants discovered prior to one
year after the Closing, and Interlink may offset such claims against the two
CDN$3,500,000 payments owing on the Deferred Payment Notes. Offsets against the
Deferred Payment Notes shall be made only against the CDN $7,000,000 of such
notes which are subject to contingency, and then first against amounts due on
January 31, 1998. The parties agree that, should claims by pending under this
Section 13 at the time any payment under the Deferred Payment Notes is due, such
payment shall be delayed to the extent of the amount of the claim only until
such time as that claim or claims is resolved. As provided in Section 13.5
hereof, offset against the Deferred Payment Notes shall be Interlink's sole
remedy under this Section 13.
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<PAGE>
Notwithstanding the foregoing, nothing in this Section 13 shall limit, in any
manner, any remedy at law or in equity to which Interlink shall be entitled
against New Era or any Principal Shareholder as a result of wilful fraud or
intentional misrepresentation by New Era, such Principal Shareholder or any of
their representatives or agents.
13.3 Claims for Indemnification. The party seeking indemnification (the
--------------------------
"Indemnified Party") shall give each party from whom indemnification is
sought under this Section 13 (each an "Indemnifying Party") a written notice
("Notice of Claim") within 60 days following the discovery of any loss,
liability, claim or expense in respect of which the right to indemnification may
be claimed, but not later than 60 days after the first anniversary of the
Closing Date; provided, however, that the failure to give such notice within
such 60-day period shall not result in the waiver or loss of any right to bring
such claim hereunder after such period or relieve an Indemnifying Party from any
liability hereunder unless, and only to the extent that, an Indemnifying Party
is actually prejudiced by such failure. In the event a claim is pending or
threatened or the Indemnified Party has a reasonable belief that there is a
valid basis for such a claim, the Indemnified Party may give written notice (a
"Notice of Possible Claim") of such claim to each Indemnifying Party, regardless
of whether a loss has arisen from such claim. Any Notice of Claim or Notice of
Possible Claim shall set forth the representations, warranties, covenants and
agreements with respect to which the claim is made, the specific facts giving
rise to an alleged basis for the claim and the amount of liability asserted or
anticipated to be asserted by reason of the claim.
13.4 Defense. In the event that a claim for indemnification hereunder is
-------
based upon a claim by a third party asserted against the Indemnified Party, the
Indemnifying Party or Parties shall be entitled to control the defense thereof
and to settle any such action on such terms as it or they shall see fit so long
as (i) the Indemnified Party shall be released from any liability by reason of
such settlement, and (ii) such settlement does not restrict the business of New
Era or of Interlink; provided, however, that the Indemnified Party shall have
the right to approve counsel retained with respect to such defense (which
consent shall not unreasonably be withheld) and the right to participate in the
defense of such action at its own expense. The Indemnifying Party or Parties
shall receive full cooperation and access to all relevant and non-privileged
records of the Indemnified Party or Parties entitled to indemnification.
13.5 Manner of Indemnification. All indemnification by New Era under this
-------------------------
Section 13 shall be made exclusively by means of a claim against, the
withholding of, and the payment to Interlink of, an appropriate amount which
otherwise would have been paid to pay the principal or interest on the Deferred
Payment Notes.
SECTION 14
MISCELLANEOUS
-------------
14.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of California, as such laws are applied to
agreements entered into and to be performed entirely within California by
California residents.
14.2 Assignment; Binding upon Successors and Assigns. None of the parties
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other parties. This Agreement will be binding upon and inure to
the benefit of the parties and their respective heirs, legal representatives,
successors and permitted assigns.
-31-
<PAGE>
14.3 Severability. If any provision of this Agreement, or the application
------------
thereof, shall for any reason and to any extent be held to be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall be interpreted so as best to
reasonably effect the intent of the parties. The parties further agree to
replace such invalid or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the invalid or unenforceable provision.
14.4 Entire Agreement. This Agreement, the exhibits hereto, the documents
----------------
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto, including, without
limitation, the letter agreement dated December 1, 1995, as amended, between
Interlink and New Era, which is terminated and of no further force or effect.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof.
14.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original but all of which
together shall constitute one and the same instrument.
14.6 Expenses. Except as otherwise provided herein, the parties shall each
--------
pay their own legal, accounting and financial advisory fees and other out-of-
pocket expenses incurred incident to the negotiation, preparation and carrying
out of this Agreement and the transactions herein contemplated.
14.7 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy shall not preclude the exercise of any other.
14.8 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
14.9 Waiver. Any party hereto may, by written notice to the others: (i)
------
waive any of the conditions to its obligations hereunder or extend the time for
the performance of any of the obligations or actions of the others, (ii) waive
any inaccuracies in the representations of the others contained in this
Agreement or in any documents delivered pursuant to this Agreement, (iii) waive
compliance with any of the covenants of the others contained in this Agreement,
or (iv) waive or modify performance of any of the obligations of the others. No
action taken pursuant to this Agreement, including without limitation any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, condition or agreement contained herein. Waiver of the breach of any
one or more provisions of this Agreement shall not be deemed or construed to be
a waiver of other breaches or subsequent breaches of the same provisions.
14.10 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees on
any appeal). The prevailing party shall be the party entitled to recover its
costs of suit,
-32-
<PAGE>
regardless of whether such suit proceeds to final judgment. A party not entitled
to recover its costs shall not be entitled to recover attorneys' fees. No sum
for attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining if a party is entitled to recover costs or attorneys'
fees.
14.11 Jurisdiction of Disputes. The parties hereto agree that all disputes
------------------------
arising from this Agreement shall be adjudicated in the provincial courts of the
province of Alberta, Canada.
14.12 Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given (i) upon receipt if delivered personally (or if
mailed by registered or certified mail), (ii) the day after dispatch if sent by
overnight courier, or (iii) upon dispatch if transmitted by facsimile (and
confirmed by a copy delivered in accordance with clause (i) or (ii)), addressed
to the parties at the following addresses:
New Era: New Era Systems Services Inc.
Esso Plaza East Tower
425 First Street, S.W.
Suite 710
Calgary, Alberta T2P 3L8
Facsimile: (403) 266-6767
Telephone: (403) 231-9800
Attention: Ben Dulley, President
with a copy (which will not Macleod Dixon
constitute notice) to: 400 Third Avenue S.W.
Suite 3700
Calgary, Alberta
Canada T2P 4H2
Facsimile: (403) 264-5973
Telephone: (403) 267-8222
Attention: John Ramsay, Esq.
The Principal Shareholders: To the addresses set forth under their
respective signatures.
Interlink or Sub: Interlink Computer Sciences, Inc.
47370 Fremont Boulevard
Fremont, CA 94538
Facsimile: (510) 659-6381
Telephone: (510) 659-9800
Attention: Charles Jepson, President
and CEO
with a copy (which will not Wilson Sonsini Goodrich & Rosati
constitute notice) to: 650 Page Mill Road
Palo Alto, California 94301
Facsimile: (415) 496-6811
Telephone: (415) 493-9300
Attention: Thomas C. DeFilipps, Esq.
Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section 14.12.
-33-
<PAGE>
14.13 Construction and Interpretation of Agreement.
--------------------------------------------
(a) This Agreement has been negotiated by the parties and their
respective attorneys, and the language hereof shall not be construed for or
against any party. The titles and headings herein are for reference purposes
only and shall not in any manner limit the construction of this Agreement, which
shall be considered as a whole.
(b) As used in this Agreement, any reference to any state of facts,
event, change or effect being "material" with respect to any entity means a
state of facts, event, change or effect, as the case may be, that is material to
the current or expected condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects of such entity.
(c) As used in this Agreement, the term "New Era's knowledge" means
the actual knowledge of any of the New Era officers after due inquiry of those
New Era employees, consultants, agents and advisors who might reasonably be
expected to have information relating to the subject matter of the particular
representation.
14.14 No Joint Venture. Nothing contained in this Agreement shall be deemed
----------------
or construed as creating a joint venture or partnership between or among any of
the parties. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party shall have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 14.14.
14.15 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby and to carry into effect the intents and purposes of
this Agreement.
14.16 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein.
-34-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of
Business Acquisition, on December 13, 1995.
INTERLINK COMPUTER SCIENCES, INC.
By:
-------------------------------------
Title:
-----------------------------------
NEW ERA SYSTEMS SERVICES LTD.
By:
-------------------------------------
Title:
-----------------------------------
PRINCIPAL SHAREHOLDERS:
------------------------------------------
D. Benedict Dulley
Address: Suite 106, 1124 14th Avenue S.W.
Calgary, Alberta
T2R 0P2 CANADA
------------------------------------------
John D. Eddy
Address: 335 Mount Victoria Place S.E.
Calgary, Alberta
T2Z 1S1 CANADA
-35-
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF ACQUISITION
The Agreement and Plan of Acquisition dated December 13, 1995, by and among
the undersigned parties (the "Agreement") is hereby amended pursuant to Section
14.8 of the Agreement, as follows:
1. Section 2.3(a) of the Agreement is amended to read in full as follows:
"(a) The Initial Payment Note. Interlink will issue a promissory
------------------------
note due January 4, 1996 in the form attached to this Agreement as Exhibit
B (the "Initial Payment Note"). The Initial Payment Note will be a single
note for the benefit of all tendering Shareholders and Optionholders which
such holders shall own beneficially in the following proportions (subject
to Section 6.11 hereof):
(i) New Era Common. The tendering holders of New Era Common
--------------
shall be entitled to receive out of the Initial Payment Note
an amount equal to the Gross Initial Payment (as defined
below) divided by the total number of shares of New Era
Common and Class A Common Shares issuable upon exercise of
New Era Options, and multiplied by the number of shares of
New Era Common held by such holder.
(ii) New Era Options. The tendering holders of New Era Options
---------------
shall be entitled to receive out of the Initial Payment Note
an amount equal to: (A) the Gross Initial Payment (as
defined below) divided by the total number of New Era Common
and Class A Common Shares issuable upon exercise of New Era
Options, minus (B) $15.00, then multiplied by (C) the number
of Class A Common Shares of New Era issuable upon exercise
of such New Era Option.
The principal amount of the Initial Payment Note shall equal the sum
total of all the beneficial interests, set forth in Sections 2.3(a)(i) and
2.3(a)(ii) above, of the tendering holders of New Era Common and New Era
Options.
The Depository will be instructed to make payment to the tendering
Shareholders and Optionholders on January 4, 1996 of the amounts due under
the Initial Payment Note from amounts deposited by Interlink with the
Depository at Closing, provided, however, that the Depository will be
instructed to pay to New Era out of each Shareholder payment any amounts of
principal and accrued interest on any obligations to New Era incurred for
the purchase of such shares outstanding at Closing.
<PAGE>
The "Gross Initial Payment" shall equal CDN $15,000,000, minus
$384,000 to be paid at the Closing by Interlink to Concord Corporation as
part of the Fees, minus an aggregate of $150,000 for the estimated fees of
the Depository, Ernst & Young as accountants for New Era, and Macleod Dixon
as counsel to New Era, which will be paid when due by Interlink, minus the
amount paid by New Era prior to the Closing in redemption of 50,000 shares
of New Era Class A Preferred Stock outstanding as of the date of this
Agreement (the remaining 20,000 shares of New Era Class A Preferred Stock
are also to be redeemed prior to Closing in exchange for an outstanding
note payable to New Era), minus the amount paid by Interlink at or prior to
the Closing to purchase 30,000 shares of New Era Class B Preferred Stock
outstanding as of the date of this Agreement, and plus the aggregate
exercise price of all New Era Options outstanding as of the Closing."
2. Section 6.11 of the Agreement is amended to add the following sentence
at the end of such Section:
"In the event that New Era sells these assets prior to the Closing Date,
but the proceeds of such sale are not distributed to the Shareholders and
Securityholders by the Closing Date, Interlink will adjust the principal
amount of the Initial Payment Note by the net value of the proceeds from
the sale of these assets as agreed in writing by Interlink and New Era
prior to closing, and the price per Class A Common Share and the price per
New Era Option paid under the Initial Payment Note will be adjusted
accordingly."
3. Section 6.13 of the Agreement is amended to read in full as follows:
"Purchase of Class B Preferred. Interlink will, prior to the Closing,
-----------------------------
offer to purchase all 30,000 outstanding shares of New Era Class B
Preferred Stock for an aggregate consideration of $346,500."
4. Section 11.3(h) of the Agreement shall be deleted and Section 11.3(i)
shall be redesignated as Section 11.3(h).
5. The following new Section 3.27 shall be added to Section 3:
"3.27 Western Economic Diversification Consent. To the extent that, as of
----------------------------------------
the Closing Date, New Era shall not have obtained written approval from
Western Economic Diversification that the loan from such entity will
continue in New Era without change in its terms or payment conditions, New
Era represents and warrants that the lack of such consent will not have an
adverse effect on the post-closing financial condition of New Era. An
adverse effect on financial condition shall include but not be limited to
the amounts paid to replace such loan on similar economic terms should
payment of the loan be accelerated for failure to obtain such consent."
-2-
<PAGE>
This amendment may be executed in one or more counterparts, each of which
shall constitute an original, but all of which together shall constitute one in
the same instrument.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Agreement and Plan of Acquisition on December 29, 1995.
INTERLINK COMPUTER SCIENCES, INC.
By: /s/
--------------------------------
Title:
--------------------------------
NEW ERA SYSTEMS SERVICES LTD.
By: /s/
--------------------------------
Title:
--------------------------------
PRINCIPAL SHAREHOLDERS:
/s/
---------------------------------------
D. BENEDICT DULLEY
/s/
---------------------------------------
JOHN D. EDDY
-3-
<PAGE>
[LETTERHEAD OF INTERLINK COMPUTER SCIENCES]
EXHIBIT 10.11
June 2, 1994
Mr. Donald R. Gammon
7 Misty Acres Road
Rolling Hills Estates, CA 90274
Dear Don,
On behalf of Interlink Computer Sciences Inc., it gives me great pleasure to
extend you an offer for the position of Vice President, Marketing. In this
position you will be an officer of the company and a member of our senior
management team.
As a full-time, salaried employee of Interlink, you will be eligible for a full
range of benefits including Company paid life, health, dental and vision
insurances.
Your compensation will consist of the items below:
Base Salary: $11,667 per month, payable semi-monthly
Stock Options: Upon approval by the Board of Directors, you will be
granted an option to purchase 75,000 shares of the
company's common stock at the option price that is
effective at the time of grant. The current option price
is $.55 per share. These options will vest at 1/48 per
month with a 9 month cliff vesting waiting period. In the
tenth month of your employment you will vest 10/48 of
your option.
Bonuses: You will be eligible to receive a bonus up to 20% of your
annual base salary based upon achievement of Worldwide
Marketing milestones. This bonus is payable once the
Company's FY 95 audited financial statements are
available. You will receive a signing bonus of $7,000
upon beginning employment with Interlink.
Transportation: The Company will pay for coach class air fare to relocate
you and your dependents to the Bay Area.
Moving and storage of
personal effects: The Company will pay freight and insurance charges for
the transportation of your personal, household and
miscellaneous items based upon an approved estimate of
<PAGE>
Donald R. Gammon
June 2, 1994
Page two
charges for relocation of such goods. The Company will
also pay for up to 60 days storage of personal goods
while securing a residence in the Bay area.
Temporary Living: The Company will pay up to three (3) months temporary
housing costs while you and your family transition
between your primary residence and the Bay Area.
Relocation costs: In addition to the above covered expenses, the Company
will assist you with the costs associated with relocating
your family to the Bay Area in the amount of $30,000.
Househunting Trips: The company will reimburse your costs for up to two
househunting trips to the Bay Area for you and Bonnie.
Because Interlink's proprietary and confidential information are among the
Company's most important assets, we must ask, as a condition of your employment
with Interlink, that you sign the enclosed Non-Disclosure Agreement and return
it along with a signed copy of this letter to me as soon as possible. Also
attached is an I-9 form. Please complete section 1 and bring it as well as the
appropriate documents as listed in Section 2 with you on your first day of work.
Section 2 of the form will be completed by the Personnel Department. This form
is required for employment by the Immigration & Naturalization Service.
Employment at Interlink is at the mutual consent of the employee and the
Company. Accordingly, either you or the Company can terminate the employment
relationship at will, without cause. In the event of such a termination, other
than voluntary resignation, you will receive a severance package equal to six
month's base salary including health benefits, unless you find other employment.
Don, the management team and I are very enthusiastic about what you can bring
to Interlink. Your confidence, your leadership abilities and your winning
attitude are key to our building a great company and achieving our goals.
Don, I sincerely hope you join our Company. We offer you an extraordinary
opportunity to be a key executive who can take the Company to the next stage of
development--a successful IPO.
<PAGE>
Donald R. Gammon
June 2, 1994
Page three
Please sign this letter to indicate your acceptance. You should plan your start
date to be as soon as possible, preferably the week of June 22, 1994. As you
requested, this offer is valid until Friday, June 3, 1994.
Sincerely,
INTERLINK COMPUTER SCIENCES, INC.
/s/ Charles W. Jepson
Charles W. Jepson
President & CEO
Agreed to and accepted by:
/s/ Donald R. Gammon
----------------------------
Donald R. Gammon
Date: 6/4/94
<PAGE>
EXHIBIT 10.12
[LOGO OF INTERLINK]
January 18, 1996
Ms. Gloria Purdy
669 Waverly
Palo Alto, CA 94301
Dear Gloria,
On behalf of Interlink Computer Sciences Inc., it gives me great pleasure to
extend you an offer for the position of Vice President, Finance and CFO. In
this position you will continue to be an officer of the company and a member of
our senior management team.
Your compensation will consist of the items below:
Base Salary: $12,500 per month, payable semi-monthly
Bonuses: You will be eligible to receive bonuses for the
remainder of FY96 (through July 31, 1996) for completion
of specific objectives. These bonuses are payable
according to the following:
Meet or exceed Q3 operating plan (for old ICS) - $5,250
Meet or exceed Q4 operating plan (for old ICS) - $5,250
Receive Board approval on a plan to grow the Company
by 35% from FY96 plan for revenue in FY97 - $10,500
Exceed operating plan by 10% - $7,500
These bonuses are payable quarterly upon achievement of
the objectives.
Stock Options: You will receive 15,000 stock options if the Company
meets the FY96 operating plan and 15,000 stock options
if the plan to grow the Company by 35% in FY97 is
approved by the Board.
Termination and
Severance: Your term of employment commences January each year
and is subject to the following termination provisions.
Your employment will be automatically renewed annually
as of January 1 and each January 1 thereafter, provided
neither party has given written notice to the other
party of its or her intent not to renew at least 9O days
prior to the renewal date. If your employment is
<PAGE>
terminated and after the 9O day notice period has
expired, you will be entitled to receive payment as
outlined below.
Employee's employment with the Company shall be
terminated (i) by reason of Employee's death, (2) by
reason of Employee becoming permanently disabled as
defined in Paragraph 7, or (3) for cause. For purposes
of the preceding sentence, "cause" shall be deemed to
exist if, and only if; (I) Employee willfully refuses to
perform services hereunder; (ii) Employee engages in
acts of dishonesty or fraud in connection with her
services hereunder; or (iii) Employee engages in other
serious misconduct of such a nature that continued
employment of Employee may reasonably be expected to
adversely affect the business or properties of the
Company.
If the Company determines that a reason constituting
cause for termination has occurred, it shall give
Employee written notice of at least 30 days prior to the
proposed date of termination of employment. In the event
of termination of employment pursuant to this
subparagraph (a), all obligations of the Company shall
hereunder terminate.
If Employee's employment with the Company shall
terminate other than for cause, voluntary termination,
permanent disability, death or retirement on or after
age 65, Employee shall be entitled to severance pay
equal to six months base salary at the then current
rate. Notwithstanding the foregoing, in the event
Employee's employment is terminated within 12 months
following a merger, sale of assets or sale of shares as
specified in subparagraph (d) below, Employee shall be
entitled to receive severance pay equal to the greater
of (I) a number of months of base salary continuance at
the then current rate equal to 12 minus the number of
months elapsed from the closing date of such merger,
sale of assets or sale of shares, and (ii) 6 months base
salary at the then current rate.
If Employee's employment with the company shall
terminate for cause, or due to death, disability,
voluntary termination or retirement on or after age 65,
any portion of her fixed salary which is earned but
unpaid as of the date of death or retirement shall be
paid to Employee, or her designated beneficiary in the
event of her death, or if
<PAGE>
none to her then living Spouse, or if none, to the duly
appointed personal representative of her estate.
If Employee's employment with the Company shall
terminate within 12 months following the acquisition of
the Company by merger, sale of assets or sale of shares
pursuant to which the shareholders of the company retain
or receive in such transaction less than 50% of the
outstanding voting equity securities of the surviving
corporation (but specifically excluding any financings
involving Shareholders of the Company), Employee shall
be entitled to receive 100% acceleration of unvested
stock options or with mutual agreement, the Board may
offer equivalent compensation. If the accelerated
vesting of options or granting of equivalent
compensation precludes a pooling treatment of the
acquisition, the Board must act in the interest of the
Company and perfect this compensation through alternate
solutions to the Employee.
This offer letter supersedes all other offer letters and compensation plans.
This does not Supersede the Management and Key Employee Cash Bonus Agreement,
the Employee Non-Disclosure Agreement and Indemnification Agreement's previously
signed.
Please sign this letter to indicate your acceptance of this new position
effective February 1, 1996.
Sincerely,
INTERLINK COMPUTER SCIENCES, INC.
/s/ Charles W. Jepson
Charles W. Jepson
President & CEO
Agreed and accepted by:
/s/ Gloria Purdy
--------------------------------
Gloria Purdy
--------------------------------
Date
<PAGE>
EXHIBIT 10.13
[LETTERHEAD OF INTERLINK COMPUTER SCIENCES, INC.]
December 9, 1994
Mr. A. J. Berkeley
9206 NW Kaiser Road
Portland, OR 97231
Dear A. J.,
On behalf of Interlink Computer Sciences Inc., it gives me great pleasure to
extend you an offer for the position of Vice President, North American Sales. In
this position you will be an officer of the company, a member of the senior
management team and will be directly responsible for the management of our
United States sales people including Regional Managers, Account Executives,
Systems Engineers and the management of our resellers and distributors in this
territory.
Your compensation plan until June 30, 1995 will consist of the items below:
Base Salary: $8,334 per month, payable semi-monthly
Auto Allowance: $275.00 per month, plus $.15 per business mile
Commission: To facilitate your transition into the Company, you will
receive a non-recoverable commission draw of $5,000 per
month through June 30, 1995 or .85% commission on product
revenue per month whichever is greater. If product revenue
is above quota for Q3 FY95 or Q4 FY95, you will receive 3%
commission on the product revenue amount over quota. Quota
for Q3 and Q4 FY95 are $2.5M and $3.0M respectively.
Bonuses: At 120% of quota achievement for Q3 FY95 and 120% of quota
achievement for Q4 FY95, you can receive a bonus. The value
of each bonus is $10,000.
Stock Options: Upon approval by the Board of Directors, you will be granted
an option to purchase 90,000 shares of the company's common
stock at the option price that is effective at the time of
grant. The current option price is $.55 per share. These
options will vest at 1/48 per month with a 9 month cliff
vesting waiting period. In the tenth month of your
employment you will vest 10/48 of your option.
<PAGE>
A. J. Berkeley Letter
December 9, 1994
Page two
Moving and Storage
of personal effects: The Company will pay freight and insurances charges for
the transportation of your personal, household and
miscellaneous items as well as up to 60 days storage of
personal goods while securing a residence in the Bay
Area. The Company will pay up to $10,000 for these
relocation and storage costs based on an approved
estimate of charges for relocation and storage of such
goods. The Human Resources Department will work with you
to provide you with an approved carrier for relocation.
Miscellaneous Costs
associated with
Relocation: The Company will reimburse you up to $5,000 for
miscellaneous costs directly associated with your
relocation to the Bay Area that you incur within six
months of your hire date. These costs should be
submitted and approved via a Company Expense Report with
receipts attached.
Your employment at Interlink is on an at will basis and you may be terminated at
any time, either with or without cause. In the event of such a termination,
other than voluntary resignation, you would receive a severance package equal to
three month's base salary, unless you find other employment.
As an officer of the Company you will be covered by an Indemnification
Agreement. Please read, sign and return the enclosed Agreement.
A. J., the management team and I are very enthusiastic about what you bring to
Interlink. Your confidence, your leadership abilities and your business acumen
are key to our building a great company and achieving our goals.
A. J., I sincerely hope you give accept this offer for it offers you an
extraordinary opportunity to be an executive of a growing, independent company,
to work in a exciting market segment; to work with a management team who is
committed to the company and the success of each of the team members, and when
we are successful, you will have the opportunity to earn substantial financial
rewards.
<PAGE>
Letter to A. J. Berkeley
December 9, 1994
Page three
Please sign this letter to indicate your acceptance. You should plan your start
date to be as soon as possible, preferably January 3, 1995. This offer is valid
until Friday, December 16, 1994.
Sincerely,
INTERLINK COMPUTER SCIENCES, INC.
/s/ Charles W. Jepson
Charles W. Jepson
President & CEO
Agreed to and accepted by:
/s/ A. J. Berkeley
------------------------------
1-5-95
------------------------------
Date
<PAGE>
[LETTERHEAD OF INTERLINK COMPUTER SCIENCES, INC.]
December 14, 1994
Mr. A. J. Berkeley
9206 NW Kaiser Road
Portland,OR 97231
Dear A.J.:
This letter is an addendum to our offer letter to you dated December 9, 1994 and
outlines provisions for the Company to pay temporary housing costs associated
with your relocation to the Bay Area.
The Company will reimburse you or pay on your behalf the costs associated with
temporary housing for up to three months from your hire date. These covered
costs will include a furnished apartment or comparable accommodations including
utilities, costs for laundry services excluding dry cleaning and costs of a
rental car and gasoline until your personal auto is available. The Company does
not provide for reimbursement of meals other than those for business purposes.
Our Human Resources Department will assist you in securing your temporary living
accommodations. Please feel free to call Linda Keala our Human Resources
Director at (510)249-6111.
Sincerely,
/s/ Charles W. Jepson
Charles W. Jepson
President and CEO
<PAGE>
EXHIBIT 10.14
[LOGO OF INTERLINK]
January 16, 1996
Ms. Barbara Booth-Ross
46035 Konohiki Street, #3862
Kaneohe, HI 96744
Dear Barb,
On behalf of Interlink Computer Sciences Inc., it gives me great pleasure to
extend you an offer for the position of Vice President, R&D and Customer
Services. In this position you will be an officer of the company and a member of
our senior management team. You will be covered by an Indemnification
Agreement and a Management and Key Employee Cash Bonus Agreement. Both these
documents are attached.
As a full-time, salaried employee of Interlink, you will be eligible for a full
range of benefits including Company paid life, health, dental and vision
insurances.
Your compensation will consist of the items below:
Base Salary: $11,667 per month, payable semi-monthly
Stock Options: Upon approval by the Board of Directors, you will be
granted an option to purchase 85,000 shares of the
company's common stock at the option price that is
effective at the time of grant. These options will vest
at 1/48 per month with a 9 month cliff vesting waiting
period. In the tenth month of your employment you will
vest 10/48 of your option.
Bonuses: You will be eligible to receive bonuses for the
remainder of FY96 (through July 31, 1996) for completion
of specific objectives. These bonuses are payable
according to the following:
Meet or exceed Q3 operating plan - $3,267
Meet or exceed Q4 operating plan - $4,900
Exceed operating plan by 10% - $3,500
These bonuses are payable quarterly upon achievement of
the objectives.
<PAGE>
Transportation: The Company will pay for coach class air fare to
relocate you and your dependents to the Bay Area.
Relocation Costs: The Company will pay relocation costs up to $10,000 to
assist you in moving to the Bay Area. You will need to
sign the enclosed Employee Relocation Agreement.
Because interlink's proprietary and confidential information are among the
Company's most important assets, we must ask, as a condition of your employment
with Interlink, that you sign the enclosed Non-Disclosure Agreement and return
it along with a signed copy of this letter to me as soon as possible. Also
attached is an I-9 form. Please complete section 1 and bring it as well as the
appropriate documents as listed in Section 2 with you on your first day of
work. Section 2 of the form will be completed by the Personnel Department. This
form is required for employment by the Immigration & Naturalization Service.
Employment at Interlink is at the mutual consent of the employee and the
Company. Accordingly, either you or the Company can terminate the employment
relationship at will, without cause. In the event of such a termination, other
than voluntary resignation, you will receive a severance package equal to three
month's base salary, unless you find other employment.
Please sign this letter to indicate your acceptance. You should plan your start
date to be determined week of February 7th.
Sincerely,
INTERLINK COMPUTER SCIENCES, INC.
/s/ Charles W. Jepson
Charles W. Jepson
President & CEO
Agreed to and accepted by:
/s/ Barbara Booth-Ross
----------------------------------
Barbara Booth-Ross
----------------------------------
Date
<PAGE>
EXHIBIT 10.15
[LOGO OF INTERLINK]
October 28, 1992
Mr. Charles W. Jepson
21090 Chiquita Way
Saratoga, California 95070
Dear Chuck:
On behalf of the Board of Directors of Interlink Computer Sciences, Inc.,
I am pleased to offer you the position of President and Chief Executive Officer
of the Company, and a member of its Board. As you are aware, the financing
closed on October 20 and therefore your full-time employment at Interlink is
effective October 21, 1992. Your salary in this position will be $12,500 per
month, payable semi-monthly.
As was stated in my letter to you dated May 14, 1992, you will be granted
an option to purchase 285,015 shares of Common Stock. The option price will be
$0.35 per share. These options will have a four-year vesting period and will
vest 1/48th per month. The vesting of these options will start June 1, 1992. You
will also be granted options to purchase another 57,000 shares pending an agreed
upon set of milestones that must be achieved, as outlined by the Board.
You will also participate in the Company executive bonus program.
Your employment at Interlink is on an at-will basis and you may be
terminated at any time, either with or without cause. In the event of such a
termination, you will receive a severance package equal to six months base
salary.
As a full-time, salaried employee of Interlink, you and your dependents
will be eligible for a full range of benefits including Company paid life,
health, dental and vision insurances.
Because Interlink's proprietary and confidential information are among
the Company's most important assets, we must ask, as a condition of your
employment with Interlink, that you sign the attached Non-Disclosure
Agreement. As an employee you will also be asked to complete an I-9 form which
is required for employment by the Immigration & Naturalization Service.
On behalf of the board and the employees of Interlink, I want to welcome
you aboard and we look forward to building the Company as a team.
<PAGE>
Mr. Charles W. Jepson Page Two
October 28, 1992
Please indicate your acceptance of this offer by signing in the space
below and returning a copy of this letter to me.
Very truly yours,
/s/ Thomas H. Bredt
Thomas H. Bredt
Enclosure
Accepted:
/s/ Charles W. Jepson
- ----------------------------------
Charles W. Jepson
11/3/92
- ----------------------------------
Date
<PAGE>
[LOGO OF INTERLINK]
January 6, 1993
Ms. Gloria Purdy
669 Waverly
Palo Alto, CA 94301
Dear Gloria:
It gives me great pleasure to offer you the position of Chief Financial Officer
and Vice President of Finance and an officer of Interlink Computer Sciences,
Inc. reporting to me. Your monthly salary will be $10,833 and we would like you
to begin work on February 1, 1993 or sooner.
We are still waiting for final approval from the State of California on our
Stock Option Program. Assuming the plan is approved as submitted, as an employee
of Interlink you will be granted a stock option on 60,000 shares of the
company's stock. Your option price will be $0.35 per share. This option will
vest monthly over 48 months starting with your hire date.
As a full-time, salaried employee of Interlink, you will be eligible for a full
range of benefits including Company paid life, health, dental and vision
insurances.
Because Interlink's proprietary and confidential information are among the
Company's most important assets, we must ask, as a condition of your employment
with Interlink, that you sign the enclosed Non-Disclosure Agreement and return
it along with a signed copy of this letter to me as soon as possible. Also
attached is an I-9 form. Please complete section 1 and bring it as well as the
appropriate documents as listed in Section 2 with you on your first day of work.
Section 2 of the form will be completed by the Personnel Department. This form
is required for employment by the Immigration & Naturalization Service.
Employment at Interlink is at the mutual consent of the employee and the
Company. Accordingly, either you or the Company can terminate the employment
relationship at will, without cause.
Gloria, I believe that you and I and the rest of the management team at
Interlink have a unique opportunity to build a great company. We have great
customers, products, and people and you can help supply the missing ingredient:
leadership. I look forward to working with you again.
Sincerely,
/s/ Charles Jepson
Charles Jepson
Chief Executive Officer
enclosures ACCEPTED BY:
/s/ Gloria Purdy
-------------------------------
Signature
1-6-93
-------------------------------
Date
<PAGE>
EXHIBIT 10.16
NEITHER THIS WARRANT NOR THE UNDERLYING COMMON STOCK HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"). SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT WITHOUT THE HOLDER HEREOF DELIVERING TO THE ISSUER
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
INTERLINK COMPUTER SCIENCES, INC.
COMMON STOCK PURCHASE WARRANT
Issuance Date: December 15, 1993
Void After: December 15, 1998
1. Number and Price of Shares Subject to Warrant. Subject to the
---------------------------------------------
terms and conditions of this Warrant, Menlo Ventures IV, L.P. (the "Holder"),
whose address is 3000 Sand Hill Road, Bldg. 4, Ste. 100, Menlo Park, California
94025 (fax no. (415) 854-7059), shall be entitled to purchase from Interlink
Computer Sciences, Inc., a California corporation (the "Company"), up to Thirty-
one Thousand Six Hundred Sixty-Seven (31,667) fully paid and non-assessable
shares of the Company's Common Stock (the "Shares"), at an exercise price of
$0.45 per share (which number of Shares and purchase price are subject to
adjustment as described below). The purchase price of one share of Common Stock
payable from time to time upon the exercise of this Warrant (whether such price
be the price specified above or an adjusted price determined as hereinafter
provided) is referred to herein as the "Exercise Price."
2. Expiration Date. This Warrant shall expire on the earlier to
---------------
occur of (i) December 15, 1998; (ii) the closing of an initial public offering
of shares of the Company's Common Stock provided that (a) the per share initial
public offering price is equal to or greater than the minimum per share price
necessary to include the Company's Common Stock on the NASDAQ National Market
System as in effect at the time of the public offering and (b) that the gross
proceeds to the Company from the offering (before deduction or underwriting
discounts and commissions and expenses of the offering) are at least $10
million; or (iii) the closing of a merger or reorganization of the Company
unless the pre-merger/reorganization holders of the Company's voting securities
own, immediately following such merger or reorganization, at least a majority of
the outstanding voting securities of the Company or its successor, it being
understood that the Holder shall have the opportunity, by giving conditional
notice of exercise, to exercise this Warrant concurrent with the closing of a
transaction described in this clause (iii). The earlier to occur of such dates
is referred to herein as the "Expiration Date."
<PAGE>
3. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by Holder in whole or in part
at any time prior to the Expiration Date by the surrender of this Warrant
together with a completed and signed Notice of Exercise and payment in full of
the Exercise Price as to the shares being purchased at the principal office of
the Company. Payment of the Exercise Price shall be made by cash, by bank or
certified check or, in lieu or exercising this Warrant for cash or check, Holder
may elect to receive shares equal to the value of this Warrant (or the portion
thereof being exercised) in which event the Company shall issue to Holder a
number of Shares computed using the following formula:
X = Y (A-B)
-------
A
Where: X = The number of Shares to be issued to Holder;
Y = The gross number of Shares purchasable under this Warrant or, in
the event of a partial exercise, the gross number of shares as to
which this Warrant is being exercised;
A = The fair market value of one Share; and
B = Exercise Price (as adjusted to the date of such calculations).
For purposes of this Section, fair market value of the Company's
Common Stock shall mean the average of the closing bid and asked prices of the
Company's Common Stock quoted in the Over-The-Counter Market Summary, or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
---------------
Journal for the ten trading days prior to the date of determination of fair
- -------
market value. If the Common Stock is not traded Over-The-Counter or on an
exchange, the fair market value shall be the price per share which the Company
could obtain from a willing buyer for shares sold by the Company from authorized
but unissued shares, as such price shall be agreed by the Company and the
Holder.
(b) The Company shall, within ten (10) days after exercise of
this Warrant, prepare a certificate for the shares of Common Stock purchased in
the name of the Holder of this Warrant, or as such Holder may direct (subject to
the restrictions upon transfer contained herein and upon payment by such holder
hereof of any applicable transfer taxes). Shares issuable upon exercise hereof
shall be deemed issued on the date on which the Notice of Exercise, together
with payment of the Exercise Price of the Shares purchased (if applicable) are
-2-
<PAGE>
delivered to the Company notwithstanding any delay issuing certificates
therefor.
(c) Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by the
Company to the registered holder for the number of Shares with respect to which
this Warrant shall not have been exercised.
4. Adjustments.
-----------
(a) Adjustments for Combinations or Subdivisions of Common
------------------------------------------------------
Stock. In the event the Company at any time or from time to time after the
- -----
date hereof shall declare or pay any dividend on the Common Stock payable in
Common Stock or in any right to acquire Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise), or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Exercise Price in effect and the number of Shares
subject to this Warrant immediately prior to such event shall, concurrently with
the effectiveness of such event, be proportionately decreased or increased, as
appropriate.
(b) Adjustments for Reorganizations, Mergers, Etc. In case of
---------------------------------------------
any reorganization or any reclassification of the capital stock of the Company,
any consolidation or merger of the Company with or into another entity or
entities, or the conveyance of all or substantially all of the assets of the
Company to another corporation, this Warrant shall thereafter be exercisable for
the number of shares of stock or other securities or property (including cash)
to which a holder of the number of Shares deliverable upon exercise of this
Warrant would have been entitled upon the record date of (or date of, if no
record date is fixed) such reorganization, reclassification, consolidation,
merger or conveyance; and, in any case, appropriate adjustment (as determined by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holder(s) of this Warrant, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as equivalent as is practicable, in relation
to any shares of stock or the securities or property (including cash) thereafter
deliverable upon the exercise of this Warrant.
(c) Certificates as to Adjustments. Upon the occurrence of
------------------------------
each adjustment or readjustment of the Exercise Price or the number of Shares
subject to this Warrant pursuant to this Section 4, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
-3-
<PAGE>
adjustment or readjustment is based. The Company shall, upon the written request
at any time of any Holder, furnish or cause to be furnished to such Holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Exercise Price at the time in effect, and (iii) the number or Shares subject to
this Warrant and the amount, if any, or other property which at the time would
be received upon exercise of this Warrant.
5. No Fractional Shares. No fractional shares of Common Stock will
--------------------
be issued in connection with any exercise of this Warrant. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the fair market value of one
share of Common Stock on the date of exercise, as determined in good faith by
the Company's Board of Directors.
6. Transfer of Warrant. Subject to the 1imitations provided for
-------------------
in Section 7 herein, this Warrant and all rights hereunder may be transferred in
whole or in part by the Holder.
7. Compliance with Securities Laws.
-------------------------------
(a) Holder acknowledges that it understands that this Warrant
and the Shares have not been registered under the Act and accordingly must be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. Holder represents and warrants
that this Warrant is being acquired for investment, for Holder's own account,
and without any present intention to sell or distribute this Warrant or the
Shares.
(b) It shall be a condition to any transfer or exercise of this
Warrant that the Company shall have received, at the time of such transfer or
exercise, a representation in writing that this Warrant (or portion hereof
transferred) or the shares of Common Stock being issued upon such exercise, as
the case may be, are being acquired for investment and not with a view to any
sale or distribution thereof, or a statement of the pertinent facts covering
any proposed distribution thereof.
(c) It shall be a further condition to any transfer of this
Warrant or of any or all of the shares of Common Stock issued upon exercise of
this Warrant, other than a transfer registered under the Act (as defined below),
that the Company shall have received a legal opinion, in form and substance
satisfactory to the Company and its counsel, reciting the pertinent
circumstances surrounding the proposed transfer and stating that such transfer
is exempt from the prospectus and the registration requirements of the Act.
(d) Each certificate evidencing the shares of Common Stock
issued upon exercise of this Warrant, or upon any transfer of such
-4-
<PAGE>
the Company and its counsel, restricting the transfer of such shares to sales or
other dispositions exempt from the requirements of the Act.
(e) It shall be a further condition to any transfer of this
Warrant that the transferee shall receive and accept a Warrant, of like tenor
and date, executed by the Company.
8. No Stockholder Rights. This Warrant shall not entitle Holder to
---------------------
any of the rights of a shareholder of the Company.
9. Registration Rights. Holder shall be entitled, with respect to
-------------------
the Shares, to registration rights substantially as set forth in that certain
Shareholders' Agreement dated as of October 20, 1992, between the Company,
Holder and certain other parties as the same may be amended from time to time.
10. Miscellaneous.
-------------
(a) This Warrant shall be governed by and construed in accordance
with the laws of the State of California.
(b) The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof.
(c) Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the Company and the registered holder hereof.
(d) All notices under this Warrant shall be in writing and shall be
deemed to have been duly "given" on the date of delivery, if delivered
personally or by telegram or facsimile to the party to whom notice is to be
given, or on the third business day after mailing if mailed by first class
mail, registered or certified, postage prepaid and properly addressed to the
address (i) if to the Company, to Interlink Computer Sciences, Inc., 47370
Fremont Blvd., Fremont, California 94538, Attn: Chief Financial Officer (fax
no. (510) 659-6381) and (ii) if to the Holder, at the address shown on the
first page hereof. Either party may change its address for purposes of this
section by giving the other party written notice of the new address in the
manner set forth above.
INTERLINK COMPUTER SCIENCES, INC.
By: /s/ Charles W. Jepson
-------------------------------
Charles W. Jepson
President and Chief
Executive Officer
-5-
<PAGE>
EXHIBIT 10.17
NEITHER THIS WARRANT NOR THE UNDERLYING COMMON STOCK HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). SUCH SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT WITHOUT THE HOLDER HEREOF DELIVERING TO THE ISSUER AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
INTERLINK COMPUTER SCIENCES, INC.
COMMON STOCK PURCHASE WARRANT
Issuance Date: December 15, 1993
Void After: December 15, 1998
1. Number and Price of Shares Subject to Warrant. Subject to the terms
---------------------------------------------
and conditions of this Warrant, Menlo Evergreen V, L.P. (the "Holder"), whose
address is 3000 Sand Hill Road, Bldg. 4, Ste. 100, Menlo Park, California 94025
(fax no. (415) 854-7059), shall be entitled to purchase from Interlink Computer
Sciences Inc., a California corporation (the "Company"), up to Thirty-one
Thousand Six Hundred Sixty-Seven (31,667) fully paid and non-assessable shares
of the Company's Common Stock (the "Shares"), at an exercise price of
$0.45 per share (which number of Shares and purchase price are subject to
adjustment as described below). The purchase price of one share of Common Stock
payable from time to time upon the exercise of this Warrant (whether such price
be the price specified above or an adjusted price determined as hereinafter
provided) is referred to herein as the "Exercise Price."
2. Expiration Date. This Warrant shall expire on the earlier to occur
---------------
of (i) December 15, 1998; (ii) the closing of an initial public offering of
shares of the Company's Common Stock provided that (a) the per share initial
public offering price is equal to or greater than the minimum per share price
necessary to include the Company's Common Stock on the NASDAQ National Market
System as in effect at the time of the public offering and (b) that the gross
proceeds to the Company from the offering (before deduction of underwriting
discounts and commissions and expenses of the offering) are at least $10
million; or (iii) the closing of a merger or reorganization of the Company
unless the pre-merger/reorganization holders of the Company's voting securities
own, immediately following such merger or reorganization, at least a majority of
the outstanding voting securities of the Company or its successor, it being
understood that the Holder shall have the opportunity, by giving conditional
notice of exercise, to exercise this Warrant concurrent with the closing of a
transaction described in this clause (iii). The earlier to occur of such dates
is referred to herein as the "Expiration Date."
<PAGE>
3. Exercise of warrant.
-------------------
(a) This Warrant may be exercised by Holder in whole or in part at
any time prior to the Expiration Date by the surrender of this Warrant together
with a completed and signed Notice of Exercise and payment in full of the
Exercise Price as to the shares being purchased at the principal office of the
Company. Payment of the Exercise Price shall be made by cash, by bank or
certified check or, in lieu of exercising this Warrant for cash or check, Holder
may elect to receive shares equal to the value of this Warrant (or the portion
thereof being exercised) in which event the Company shall issue to Holder a
number of Shares computed using the following formula:
X = Y(A-B)
------
A
Where: X = The number or Shares to be issued to Holder:
Y = The gross number of Shares purchasable under this Warrant or,
in the event of a partial exercise, the gross number of shares as
to which this Warrant is being exercised;
A = The fair market value of one Share; and
B = Exercise Price (as adjusted to the date of such calculations).
For purposes of this Section, fair market value of the Company's
Common Stock shall mean the average of the closing bid and asked prices of the
Company's Common Stock quoted in the Over-The-Counter Market Summary, or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
---------------
Journal for the ten trading days prior to the date of determination of fair
- -------
market value. If the Common Stock is not traded Over-The-Counter or on an
exchange, the fair market value shall be the price per share which the Company
could obtain from a willing buyer for shares sold by the Company from authorized
but unissued shares, as such price shall be agreed by the Company and the
Holder.
(b) The Company shall, within ten (10) days after exercise of this
Warrant, prepare a certificate for the shares of Common Stock purchased in
the name of the Holder of this Warrant, or as such Holder may direct (subject to
the restrictions upon transfer contained herein and upon payment by such holder
hereof of any applicable transfer taxes). Shares issuable upon exercise hereof
shall be deemed issued on the date on which the Notice of Exercise, together
with payment of the Exercise Price of the Shares purchased (if applicable) are
-2-
<PAGE>
delivered to the Company notwithstanding any delay in issuing certificates
therefor.
(c) Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by the
Company to the registered holder for the number of Shares with respect to which
this Warrant shall not have been exercised.
4. Adjustments.
-----------
(a) Adjustments for Combinations or Subdivisions of Common Stock.
------------------------------------------------------------
In the event the Company at any time or from time to time after the date hereof
shall declare or pay any dividend on the Common Stock payable in Common Stock or
in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, then the Exercise Price in effect and the number of Shares subject to
this Warrant immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate.
(b) Adjustments for Reorganizations, Mergers. Etc. In case of any
---------------------------------------------
reorganization or any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another entity or entities,
or the conveyance of all or substantially all of the assets of the Company to
another corporation, this Warrant shall thereafter be exercisable for the number
of shares of stock or other securities or property (including cash) to which a
holder of the number of Shares deliverable upon exercise of this Warrant would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holder(s) of
this Warrant, to the end that the provisions set forth herein shall thereafter
be applicable, as nearly as equivalent as is practicable, in relation to any
shares of stock or the securities or property (including cash) thereafter
deliverable upon the exercise of this Warrant.
(c) Certificates as to Adjustment. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Exercise Price or the number of Shares subject
to this Warrant pursuant to this Section 4, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
-3-
<PAGE>
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Holder, furnish or cause to be furnished to such
Holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Exercise Price at the time in effect, and (iii) the number of Shares
subject to this Warrant and the amount, if any, or other property which at the
time would be received upon exercise of this Warrant.
5. No Fractional Shares. No fractional shares of Common Stock will be
--------------------
issued in connection with any exercise of this Warrant. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the fair market value of
one share of Common Stock on the date of exercise, as determined in good faith
by the Company's Board or Directors.
6. Transfer of Warrant. Subject to the limitations provided for in
-------------------
Section 7 herein, this Warrant and all rights hereunder may be transferred in
whole or in part by the Holder.
7. Compliance with Securities Laws.
-------------------------------
(a) Holder acknowledges that it understands that this Warrant and the
Shares have not been registered under the Act and accordingly must be held
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. Holder represents and warrants
that this Warrant is being acquired for investment, for Holder's own account,
and without any present intention to sell or distribute this Warrant or the
Shares.
(b) It shall be a condition to any transfer or exercise of this
Warrant that the Company shall have received, at the time of such transfer or
exercise, a representation in writing that this Warrant (or portion hereof
transferred) or the shares of Common Stock being issued upon such exercise, as
the case may be, are being acquired for investment and not with a view to any
sale or distribution thereof, or a statement of the pertinent facts covering any
proposed distribution thereof.
(c) It shall be a further condition to any transfer of this Warrant
or of any or all of the shares of Common Stock issued upon exercise of this
Warrant, other than a transfer registered under the Act (as defined below), that
the Company shall have received a legal opinion, in form and substance
satisfactory to the Company and its counsel, reciting the pertinent
circumstances surrounding the proposed transfer and stating that such transfer
is exempt from the prospectus and the registration requirements of the Act.
(d) Each certificate evidencing the shares of Common Stock issued
upon exercise of this Warrant, or upon any transfer of such
-4-
<PAGE>
the Company and its counsel, restricting the transfer of such shares to sales or
other dispositions exempt from the requirements of the Act.
(e) It shall be a further condition to any transfer of this Warrant
that the transferee shall receive and accept a Warrant, of like tenor and date,
executed by the Company.
8. No Stockholder Rights. This Warrant shall not entitle holder to any
---------------------
of the rights of a shareholder of the Company.
9. Registration Rights. Holder shall be entitled, with respect to the
-------------------
Shares, to registration rights substantially as set forth in that certain
Shareholders' Agreement dated as of October 20, 1992, between the Company,
Holder and certain other parties as the same may be amended from time to time.
10. Miscellaneous.
-------------
(a) This Warrant shall be governed by and construed in accordance
with the laws of the State of California.
(b) The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof.
(c) Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the Company and the registered holder hereof.
(d) All notices under this warrant shall be in writing and shall be
deemed to have been duly "given" on the date of delivery, if delivered
personally or by telegram or facsimile to the party to whom notice is to be
given, or on the third business day after mailing if mailed by first class mail,
registered or certified, postage prepaid and properly addressed to the address
(i) if to the Company, to Interlink Computer Sciences, Inc., 47370 Fremont
Blvd., Fremont, California 94538, Attn: Chief Financial Officer (fax no. (510)
659-6381) and (ii) if to the Holder, at the address shown on the first page
hereof. Either party may change its address for purposes of this section by
giving the other party written notice of the new address in the manner set forth
above.
INTERLINK COMPUTER SCIENCES, INC.
By: /s/ Charles W. Jepson
--------------------------------
Charles W. Jepson
President and Chief
Executive Officer
-5-
<PAGE>
EXHIBIT 10.18
IMPERIAL BANK
Member FDIC
226 Airport Parkway
San Jose, California
April 25, 1996
Borrower: Interlink Computer Sciences, Inc.
Subject: Credit Terms and Conditions ("Agreement")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS.
Borrower is a corporation. Borrower is duly organized and existing and in good
standing under the laws of the State of California and is authorized and in good
standing to do business in the State of California. Borrower has powers and
adequate authority, rights and franchises to own its property and to carry on
its business as now conducted, and is duly qualified and in good standing in
each State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary, and Borrower has the
power and adequate authority to make and carry out this Agreement. Borrower has
no investment in any other business entity, except as previously disclosed to
Bank.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 2/29/96, and
the related profit and loss statement for the 1 month ended on that date, a copy
of which has heretofore been delivered to you by Borrower, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of the operations of Borrower for the period
covered thereby, and in all material respects, have been prepared in accordance
with generally accepted accounting principles on a basis consistently
maintained. Since such date there have been no materially adverse changes in the
financial condition or business of Borrower. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said balance
sheet, and Borrower has not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet, other than in the
ordinary and normal course of its business, which may have a materially adverse
effect upon its financial condition, operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to purchase
or carry margin stock (as defined with Regulation U of the Board of Governors of
the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings
in such manners as not to cause any materially adverse effect upon its
financial condition or the loss of any right of redemption from any sale
thereunder, and
(b) it shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate
with respect thereto.
4. RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit your representatives to have access to, and to
examine its properties, books and records at all reasonable times; and
notwithstanding anything in the Security and Loan Agreement to the
contrary furnish you:
(a) As soon as available, and in any event within 25 days after the close of
each month of each fiscal year of Borrower, commencing with the month next
ending, a balance sheet, profit and loss statement and reconciliation of
Borrower's capital accounts as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the last day
of such period, all in reasonable detail and stating in comparative form
the figures for the corresponding date and period in the previous fiscal
year, prepared in accordance with generally accepted accounting principles
on a basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower, subject, however, to year-end audit
adjustments;
(b) As soon as available, and in any event within 90 days after the close of
each fiscal year of Borrower, a report of audit of Company as of the close
of and for such fiscal year, all in reasonable detail and stating in
comparative form the figures as of the close of and for the
<PAGE>
previous fiscal year, with the unqualified opinion of accountants
satisfactory to you.
(c) Within 25 days after the close of each month of each fiscal year of
Borrower, a certificate by chief financial officer or partner of Borrower,
stating that Borrower has performed and observed each and every covenant
contained in this Letter of Inducement to be performed by it and that no
event has occurred and no condition then exists which constitutes an event
of default hereunder or would constitute such an event of default upon the
lapse of time or upon the giving of notice and the lapse of time specified
herein, or, if any such event has occurred or any such condition exists,
specifying the nature thereof;
(d) Promptly after the receipt thereof by Borrower, copies of any detailed
audit reports submitted to Borrower by independent accountants in
connection with each annual or interim audit of the accounts of Borrower
made by such accountants;
(e) Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Borrower shall send to its
stockholders, if any, and copies of all reports which Borrower may file
with the Securities and Exchange Commission or any governmental authority
at any time substituted therefor; and
(f) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(g) Notice of Default. Promptly notify the Bank in writing of the occurrence of
any event of default hereunder or any event which upon notice and lapse of
time would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its executive management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in financial statement dated 2/29/96, excluding (i) those
being refinanced by your bank, (ii) indebtedness expressly subordinated in
payment of principal and interest in form acceptable to Bank and (iii) equipment
leases having a term three years or greater; or sell or transfer, either with or
without recourse, any accounts or notes receivable or any moneys due to become
due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
permitted liens (as defined in the Security and Loan Agreement dated as of the
date hereof).
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same.
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock.
D. The occurrence and continuance of any one of the following events of
default (an "Event of Default") shall, at your option, terminate your commitment
to lend and make all sums of principal and interest then remaining unpaid on all
Borrrower's indebtedness to you immediately due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or
of interest on any indebtedness of Borrower to you and such failure shall
continue for three business days.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower for more than 10 days.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect at the time made or deemed made.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or any
of its assets and shall remain unvacated unbonded or unstayed for a period of 10
days or in any event later than five days prior to the date of any proposed sale
thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted
E. MISCELLANEOUS PROVISIONS.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
your Bank or any holder of Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this agreement or any note issued in
connection with a loan that your Bank may make hereunder, are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
The terms and conditions of the section entitled "Covenants" of the attached
Amendment Letter dated April 25, 1996 are hereby incorporated. In the event of a
conflict between this Agreement and the incorporated provisions of the Amendment
Letter, those terms in the Amendment Letter shall prevail.
Interlink Computer Sciences, Inc.
By /s/ Charles W. Jepson
--------------------------------
(Authorized Signature and Title)
<PAGE>
[LETTERHEAD OF IMPERIAL BANK]
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between INTERLINK COMPUTER SCIENCES, INC., a
California corporation (herein called "Borrower") and IMPERIAL BANK (herein
called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment on November 30,
1996 as hereinafter provided, to make loans to Borrower from time to time
in such amounts as may be determined by Bank up to, but not exceeding in
the aggregate unpaid principal balance, the following Borrowing Base:
80% of Eligible Domestic Accounts
60% of Eligible Foreign Accounts up to a $1,000,000 maximum.
and in no event more than $5,000,000.
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on November 29, 1996 and (b) on or
before the tenth day of each month, interest on the average daily unpaid
balance of the Loan Account during the immediately preceding month at the
rate of One & 500/lOOOths percent (1.50%) per annum in excess of the rate
of interest which Bank has announced as its prime lending rate ("Prime
Rate") which shall vary concurrently with any change in such Prime Rate.
Interest shall be computed at the above rate on the basis of the actual
number of days during which the principal balance of the loan account is
outstanding divided by 360, which shall for interest computation purposes
be considered one year. Bank at its option may demand payment of any or all
of the amount due under the Loan Account including accrued but unpaid
interest at any time. Such notice may be given verbally or in writing and
should be effective upon receipt by Borrower. In the event of a default the
interest rate shall be increase to the rate which is five (5) percent in
excess of the above rate. The amount of interest payable each month by
Borrower shall not be less than a minimum monthly charge of $300.00. If any
payment of interest or principal due hereunder is ten or more days
delinquent, Borrower shall pay to Bank a late charge of five percent (5%)
of the payment so due and unpaid, in addition to the payment. Bank is
hereby authorized to charge Borrower's deposit account(s) with Bank, if
amounts due are on deposit in collected funds, for all sums due Bank under
this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
Page 1 of 7
<PAGE>
A. "Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered no matter
how evidenced, including accounts receivable, contract rights, chattel
paper, instruments, purchase orders, notes, drafts, acceptances, general
intangibles and other forms of obligations and receivables,
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now
has or hereafter acquires a security interest.
C. "Eligible Domestic Accounts" means all of Borrower's Accounts from account
debtors in the United States and Canada excluding, however, (1) all
Accounts under which payment is not received within 9O days from any
invoice date, (2) all Accounts against which the account debtor or any
other person obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability represented by
the Account and (3) any Accounts if the account debtor or any other person
liable in connection therewith is insolvent, subject to bankruptcy or
receivership proceedings or has made an assignment for the benefit of
creditors or whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such accounts as
Bank in its sole discretion shall determine are eligible from time to time.
D. "Eligible Foreign Accounts" means all of Borrowers Accounts from account
debtors that do not maintain their primary business locations within the
United States and Canada but are otherwise Eligible as provided in C above.
E. "Permitted Liens" means any of the following:
(a) liens arising from attachments or similar proceedings, whose
validity or amount is being contested in good faith by appropriate
proceedings for which adequate reserves have been established and are
maintained in accordance with generally accepted accounting principles
("GAAP") or taxes and assessments which are not yet due or which are being
contested in good faith via appropriate proceedings, with adequate reserves
established therefor in accordance with GAAP;
(b) deposits or pledges made in connection with, or to secure payment
of, worker's compensation unemployment insurance, old age pensions or other
social security or similar obligations;
(c) liens in respect of non-material judgments or awards;
(d) liens of carriers, mechanics and materialpersons and other like
liens, in existence less than 120 days from the date of creation thereof in
respect of obligations not overdue;
(e) such minor defects, irregularities, encumbrances, easements,
rights of way, and clouds on title that normally exist with respect to
similar properties which do not, individually or in the aggregate,
materially impair the property affected thereby for the purpose of which it
was acquired;
(f) liens of landlords or lessors of real property under leases
arising by contract or operation of law junior to any security interest of
Bank;
Page 2 of 7
<PAGE>
(g) liens arising from purchase money obligations for tangible personal
property used in Borrower's business, and the rights of lessors under capital
leases; provided that no such liens shall extend to any assets of Borrower other
than those financed by such purchase money obligation or capital lease (and the
proceed thereof);
(h) licenses granted to third parties, the granting of which does not
result in a material adverse effect on the business of Borrower;
(i) liens in favor of customs and revenue authorities which secure payment
of customs duties in connection with the importation of goods;
(j) liens securing reimbursement obligations of Borrower under documentary
letters of credit; provided, that such liens shall attach only to documents
relating to such letters of credit, goods covered thereby and product and
proceeds thereof;
(k) liens which constitute rights of set-off of a customary nature or
bankers' liens on amounts on deposit whether arising by contract or by operation
of law, in connection with arrangements entered into with depositor institutions
in the ordinary course of business; and
(1) liens in favor of Bank and subordinated liens in favor of other
lenders which Bank shall have approved in writing.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security
therefor, and hereby grants to Bank a continuing security interest in all
moneys in the Collateral Account referred to in Section 6 hereof as
security for any and all obligations of Borrower to Bank, whether now owing
or hereafter incurred and whether direct, indirect, absolute or contingent.
So long as Borrower is indebted to Bank or Bank is committed to extend
credit to Borrower, Borrower will execute and deliver to Bank such
assignments, including Bank's standard forms of Specific or General
Assignment covering individual Accounts, notices, financing statements, and
other documents and papers as Bank may require in order to affirm,
effectuate or further assure the assignment to Bank of the Collateral or to
give any third party, including the account debtors obligated on the
Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's Accounts,
provided that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts
by Borrower, whether in the form of cash, checks, notes, or other
instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other
funds and property so as to be capable of identification as the property
of Bank and deliver said collections daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be
applied by Bank directly to the payment of Borrower's Loan Account or any
other obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection. Returned
items at Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and such
other information as Bank may request.
Page 3 of 7
<PAGE>
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
on request notify Bank of all cases involving returns, repossessions, and
loss or damage of or to merchandise represented by the Accounts included in
the Borrowing Base and of any credits, adjustments or disputes arising in
connection with the goods or services represented by the Accounts and, in
any of such events, Borrower will immediately pay to Bank from its own
funds (and not from the proceeds of Accounts included in the Borrowing
Base or Inventory) for application to Borrower's Loan Account or any other
obligation secured hereby the amount of any credit for such returned or
repossessed merchandise and adjustments made to any of the Accounts
included in the Borrowing Base.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected and
such conflict would have a material adverse affect; (ii) Borrower is, or at
the time the collateral becomes subject to Bank's security interest will
be, the true and lawful owner of and has, or at the time the Collateral
becomes subject to Bank's security interest will have, good and clear title
to the Collateral, subject only to Bank's rights therein and any Permitted
Liens; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for
either merchandise sold or delivered (or being held subject to Borrower's
delivery instructions) to, or services rendered, performed and accepted by,
the account debtor; (iv) That there are or will be no defenses,
counterclaims, or setoffs which may be asserted against the Accounts
included in the Borrowing Base; and (v) any and all financial information,
including information relating to the Collateral, submitted by Borrower to
Bank, whether previously or in the future, is or will be true and correct
in all material respects.
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and at such times as Bank may
reasonably require, statements showing aging and reconciliation of the
Accounts and collections thereon; (iii) Permit representatives of Bank to
inspect Borrower's books and records relating to the Collateral and make
extracts therefrom at any reasonable time and to arrange for verification
of the Accounts, under reasonable procedures, acceptable to Bank, directly
with the account debtors or otherwise at Borrower's expense; (iv) Promptly
notify Bank of any attachment or other legal process levied against any of
the Collateral and any information received by Borrower relative to the
Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of
the Collateral or the rights and remedies of Bank in respect thereto;
(v) Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other expense incurred in collecting any
sums payable by Borrower under Borrower's Loan Account or any other
obligation secured hereby, enforcing any term or provision of this Security
Agreement or otherwise or in the checking, handling and collection of the
Collateral and the preparation and enforcement of any agreement relating
thereto; (vi) Notify Bank of each location and of each office of Borrower
at which records of Borrower relating to the Accounts are kept;
(vii) Provide, maintain and deliver to Bank policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms
and companies as Bank may reasonably require and with Lenders Loss payee
endorsement to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies and any unearned or returned
premium thereon shall at the option of Bank become the sole property of
Bank, such policies and the proceeds of any other insurance covering or in
any way relating to the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; and (viii) In the event the unpaid
balance of Borrower's Loan
Page 4 of 7
<PAGE>
Account shall exceed the maximum amount of outstanding loans to which
Borrower is entitled under Section 1 hereof, Borrower shall immediately pay
to Bank, from its own funds and not from the proceeds of Accounts included
in the Borrowing Base, for credit to Borrower's Loan Account the amount of
such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account debtors,
and Borrower does hereby make, constitute and appoint Bank its irrevocable,
true and lawful attorney with power to receive, open and dispose of all
mail addressed to Borrower, to endorse the name of Borrower upon any checks
or other evidences of payment upon the occurrence, and during the
continuance, of an Event of Default (as defined in the Credit Terms and
Conditions) that may come into the possession of Bank upon the Accounts; to
endorse the name of the undersigned upon any document or instrument
relating to the Collateral; in its name or otherwise, to demand, sue for,
collect and give acquittances for any and all moneys due or to become due
upon the Accounts; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary and
proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank other
than Permitted Liens, or execute any financing statements covering the
Collateral in favor of any secured party or person other than Bank.
12. Upon the occurrence, and during the continuance, of an Event of Default (as
defined in the Credit Terms and Conditions) then in any such event, Bank
may, at its option and without demand first made and with written notice to
Borrower, do any one or more of the following: (a) Terminate its obligation
to make loans to Borrower as provided in Section 1 hereof; (b) Declare all
sums secured hereby immediately due and payable; (c) Immediately take
possession of the Collateral wherever it may be found, using all necessary
force so to do, or require Borrower to assemble the Collateral and make it
available to Bank at a place designated by Bank which is reasonably
convenient to Borrower and Bank, and Borrower waives all claims for damages
due to or arising from or connected with any such taking; (d) Proceed in
the foreclosure of Bank's security interest and sale of the Collateral in
any manner permitted by law, or provided for herein; (e) Sell, lease or
otherwise dispose of the Collateral at public or private sale, with or
without having the Collateral at the place of sale, and upon terms and in
such manner as Bank may determine, and Bank may purchase same at any such
sale; (f) Retain the Collateral in full satisfaction of the obligations
secured thereby; (g) Exercise any remedies of a secured party under the
Uniform Commercial Code. Prior to any such disposition, Bank may, at its
option, cause any of the Collateral to be repaired or reconditioned in such
manner and to such extent as Bank may deem advisable, and any sums expended
therefor by Bank shall be repaid by Borrower and secured hereby. Bank shall
have the right to enforce one or more remedies hereunder successively or
concurrently, and any such action shall not estop or prevent Bank from
pursuing any further remedy which it may have hereunder or by law. If a
sufficient sum is not realized from any such disposition of Collateral to
pay all obligations secured by this Security Agreement, Borrower hereby
promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured
hereby and all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
Page 5 of 7
<PAGE>
14. Borrower authorizes Bank to destroy any copies of all invoices, delivery
receipts, reports and other types of documents and records submitted to
Bank in connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
16. This Loan and Security Agreement is subject to conditions and limitations
contained in the Credit Terms and Conditions dated April 25, 1996.
Executed on April 25, 1996.
IMPERIAL BANK INTERLINK COMPUTER SCIENCES. INC.
-----------------------------------
(Name of Borrower)
By: /s/ Lender By: /s/ Charles W. Jepson
------------------------------ ---------------------------
Title: Commercial Loan Officer Title: President & CEO
--------------------------- -------------------------
By: /s/ Gloria Purdy
-------------------------------
Title: Chief Financial Officer
----------------------------
Page 6 of 7
<PAGE>
[LETTERHEAD OF IMPERIAL BANK]
NOTE
$3,000,000.00 San Jose, California, April 25, 1996
On December 30, 1998, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Santa Clara Valley Regional office, the principal
sum of $3,000,000.00 or such sums up to the maximum if so stated, as the Bank
may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A, whichever is later, on the unpaid principal balance [_] at
the rate of ________ % per year [X] at the rate of 2.500% per year in excess of
the rate of interest which Bank has announced as its prime lending rate (the
"Prime Rate"), which shall vary concurrently with any change in such Prime Rate,
or $250.00, whichever is greater. Interest shall be computed at the above rate
on the basis of the actual number of days during which the principal balance is
outstanding, divided by 360, which shall, for interest computation purposes, be
considered one year.
Interest shall be payable [X] monthly [_] quarterly [_] included with principal
[X] in addition to principal [_] beginning May 30, 1996, and if not so paid
shall become a part of the principal. All payments shall be applied first to
interest, and the remainder, if any, on principal. [X] (If checked), Principal
shall be payable in installments of $250,000.00, or more, each installment on
the 30th day of each quarter, beginning June 30, 1996. Advances not to exceed
any unpaid balance owing at any one time equal to the maximum amount specified
above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal or
interest when due, or in the performance or observance, when due, of any item,
covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest then remaining unpaid shall
(a) become immediately due and payable, and (b) thereafter bear interest, until
paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of any
attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
[_] If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the amount
of 5% of the payment so due and unpaid, in addition to the payment; but nothing
in this paragraph is to be construed as any obligation on the part of the holder
of this note to accept payment of any installment past due or less than the
total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorney's fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at or after maturity; consents to
the acceptance, release or substitution of security for this note; and waives
demand and protest and the right to assert any statute of limitations. Any
married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or of any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.
/s/ Initialed INTERLINK COMPUTER SCIENCES, INC.
- ---------------------------------- -----------------------------------
BY: /s/ Charles W. Jepson
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
<PAGE>
EXHIBIT 11.1
INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (1)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
------------------------ -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Primary and Fully Diluted:
Weighted average shares:
Common 3,584 4,749 4,856 4,845 4,889
Preferred 1,110 2,459
Common equivalent shares from stock options
and warrants 396 952
Common and common equivalent shares pursuant
to Staff Accounting Bulletin No. 83 1,361 1,361 1,361 1,361 1,361
------ ------ ------ ------- -------
Shares used in per share calculation 4,945 7,616 9,628 6,206 6,250
====== ====== ====== ======= =======
Income (loss) before extraordinary items $1,827 $ 347 $1,647 $(1,356) $(7,897)
Extraordinary items:
Utilization of net operating loss carryforward 1,075
Gain on debt restructuring, net of income taxes 1,320
------ ------ ------ ------- -------
Net income (loss) $2,902 $1,667 $1,647 $(1,356) $(7,897)
====== ====== ====== ======= =======
Income (loss) per share:
Income (loss) before extraordinary items $ 0.37 $ 0.05 $ 0.17 ($ 0.22) ($ 1.26)
Extraordinary items:
Utilization of net operating loss carryforward 0.22
Gain on debt restructuring, net of income taxes 0.17
------ ------ ------ ------- -------
Net income (loss) per share $ 0.59 $ 0.22 $ 0.17 ($ 0.22) ($ 1.26)
====== ====== ====== ======= =======
</TABLE>
(1) There is no difference between primary and fully diluted net income (loss)
per share for all periods presented.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Interlink France S.A.R.I. France
Interlink Deutschland GmbH Germany
Interlink Iberica S.A. Spain
Interlink (Switzerland) S.A. Switzerland
Interlink Computer Sciences, Ltd. United Kingdom
New Era Systems Services, Ltd. Alberta, Canada
Era Nua Teoranta, Ltd. Ireland
Interlink Computer Sciences (Barbados) Inc. Barbados
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FISCAL 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 4,148
<SECURITIES> 2,525
<RECEIVABLES> 8,237
<ALLOWANCES> 279
<INVENTORY> 683
<CURRENT-ASSETS> 16,619
<PP&E> 7,681
<DEPRECIATION> 6,230
<TOTAL-ASSETS> 20,000
<CURRENT-LIABILITIES> 16,802
<BONDS> 0
0
6,310
<COMMON> 14,167
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,000
<SALES> 15,818
<TOTAL-REVENUES> 27,079
<CGS> 3,316
<TOTAL-COSTS> 6,609
<OTHER-EXPENSES> 20,366
<LOSS-PROVISION> 67
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23
<INCOME-TAX> (1,624)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,647
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
NINE MONTHS ENDED MARCH 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 5,910
<SECURITIES> 0
<RECEIVABLES> 8,740
<ALLOWANCES> 600
<INVENTORY> 639
<CURRENT-ASSETS> 17,410
<PP&E> 8,883
<DEPRECIATION> 7,439
<TOTAL-ASSETS> 24,158
<CURRENT-LIABILITIES> 23,730
<BONDS> 0
0
6,310
<COMMON> 14,580
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,158
<SALES> 13,196
<TOTAL-REVENUES> 23,702
<CGS> 2,283
<TOTAL-COSTS> 5,602
<OTHER-EXPENSES> 25,844
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 356
<INCOME-PRETAX> (7,964)
<INCOME-TAX> (67)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,987)
<EPS-PRIMARY> (1.26)
<EPS-DILUTED> 0
</TABLE>
