<PAGE>
CONFORMED COPY WITH EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1995 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Act of 1934
COMMISSION FILE NO. 0-17754
CONSILIUM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2523965
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
485 CLYDE AVENUE, MOUNTAIN VIEW, CA 94043
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (415) 691-6100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on January 18,
1996 as reported on the NASDAQ National Market System, was approximately
$43,454,999. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of January 18, 1996, Registrant had 7,710,812 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting to be held on March 19,
1996 is incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
--------
Consilium is the leading supplier of enterprise-wide, integrated
manufacturing execution systems (MES) software and services. MES software tracks
the five essential elements of the manufacturing plant floor -- materials,
equipment, personnel, specifications/work instructions and facility conditions
in real time -- and correlates the data for true visibility and control of
manufacturing operations. This access to comprehensive, up-to-date information
about the production process enables manufacturers to identify and implement
manufacturing Best Practices in the areas of cost, quality, service, compliance
and speed. Such continuous improvement in the area of production thus enables
companies to use their manufacturing operations for strategic competitive
advantage, and to optimize performance of the business as a whole.
The Company develops, markets and sells two distinct software product
lines, aimed at different manufacturing industries. The Company's WorkStream DFS
(Distributed Factory System) product line is targeted at manufacturers who
produce their products in discrete lots or batches, particularly those in the
semiconductor, electronics, and aerospace industries. The Company's FlowStream
product line is targeted at for industries that employ batch process
manufacturing such as pharmaceuticals, medical devices and specialty chemicals.
A comprehensive range of services complement these products, including a
Customer Response Center, training classes and both pre- and post-implementation
consulting services.
The Company's WorkStream DFS product line includes multiple software
products, WorkStream and WorkStream Open, as well as a set of new application
servers and a connecting message "bus," or network which, when used with
WorkStream or WorkStream Open, form a WorkStream DFS system. WorkStream consists
of 24 integrated software modules sharing a common database and graphical user
interface. WorkStream monitors and controls discrete manufacturing operations,
where product lots or batches are kept intact throughout the production process.
WorkStream also provides tools to enhance productivity in indirect labor
functions such as quality control, production planning and facilities
maintenance. Discrete manufacturers most commonly use WorkStream systems to:
. reduce cycle times and meet just-in-time deliveries
. lower indirect labor costs
. reduce scrap and rework; increase yield
. increase utilization of capital equipment
. improve quality
. reduce regulatory compliance costs
. shorten response times to equipment breakdowns and
other manufacturing problems
The WorkStream system's modular design allows customers to license only
those functions necessary for their current business needs and to add functions
as their requirements evolve.
WorkStream software was initially developed to run on Digital Equipment
Corporation's line of VAX(R) computers, using Digital's proprietary VMS
operating system. For many years, Digital has been the leader in hardware
systems for the manufacturing floor, largely because of its secure and
expandable environment for computing. In the late 1980s, standards-based, open
systems computing environments also began to achieve success in the
manufacturing market. In 1992, WorkStream was
Consilium, WorkStream, and FlowStream are registered trademarks and WorkStream
Open and WorkStream DFS are trademarks of Consilium, Inc.
1
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ported to its first open systems platform, Hewlett-Packard Company's HP 9000
line of UNIX-based computers. The new UNIX-based product was named WorkStream
Open. The development of WorkStream Open incorporated several technologies,
including client/server architecture, X-windows terminal access, Motif user
interface standard, SQL database and POSIX compliance.
In 1995, the Company introduced a next-generation distributed technology
framework for its WorkStream DFS product line, as well as three new application
servers. The distributed technology framework is based on a software message
bus, which connects applications, software systems and manufacturing equipment
as servers on a network. The WorkStream DFS application servers introduced in
1995 include a quality server for on-line quality analysis and statistical
process control, a recipe management server for centralized context-sensitive
recipe management, and a station controller for automation implementation. The
next-generation additions to the WorkStream DFS system extend the capabilities
of the current WorkStream and WorkStream Open products into a distributed,
client/server environment. The distributed nature of the WorkStream DFS system
allows users to add new functional modules or servers to their existing systems
built around WorkStream or WorkStream Open, and to more easily integrate
software applications from other sources, as additional servers on the network.
The overall system utilizes computer resources more efficiently and can operate
more effectively as a result.
In October 1995, the Company announced an alliance with Avnet Computer,
Digital Equipment Corporation and Oracle Corporation to jointly provide an
upgrade path for WorkStream users to migrate from older Digital VAX systems to
Digital's new Alpha platform. When available, the solution will consist of a new
version of WorkStream running Digital's Open VMS Alpha operating system, Alpha
hardware platforms from Digital, Oracle's CODASYL DBMS database and a full range
of implementation services from Avnet.
Just after the close of fiscal 1995, the Company announced a partnership
with Oracle Corporation to create a total supply chain management solution for
the semiconductor industry. The companies will work together to tightly link
WorkStream DFS software with Oracle's order processing, financial and enterprise
resource planning (ERP) systems. Together, these systems will provide a more
comprehensive view of product availability from sales order through
manufacturing than is presently available. Such a view will enable semiconductor
manufacturers to better meet their customers' requirements for specific product
orders in committed time frames.
In early fiscal 1992, the Company introduced and sold the first copy of a
second software product line, called FlowStream, aimed at batch process
manufacturers. In a batch process manufacturing environment, product from the
same batch may be spread across several operations at once, thus requiring that
different tracking methods be used than those employed in a discrete
environment. FlowStream was built specifically to address the unique
requirements of batch process manufacturers, and supports several critical
functions including production, engineering, research and development,
regulatory compliance and reporting, and quality control. Benefits of FlowStream
in the batch process industries include:
. operational control for assured regulatory compliance
. improved efficiency of data collection
. reduced cost of documentation associated with compliance
. decreased cycle times
. decreased time to market
. lowered indirect labor costs
. shortened response times to equipment breakdowns and other
manufacturing problems
2
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FlowStream runs on Digital and HP workstations, and features graphical user
interfaces geared to the needs of specific users, from planners and engineers to
operators. FlowStream is based upon industry-standard technologies, including X-
windows, C++ object-oriented programming, an SQL relational database, and TCP/IP
communications, which facilitate ease of use of the software and the transfer of
data between FlowStream software and other programs used in the manufacturing
environment.
Both the FlowStream and WorkStream DFS product lines provide on-line views
of plant floor operations, highlighting opportunities for manufacturers to
improve operations.
Through its direct sales force, the Company markets its WorkStream DFS and
FlowStream product lines in the United States, Canada, France, Germany, Japan,
Malaysia, Singapore, South Korea, Taiwan, and the United Kingdom. The Company
also markets its products through distributors in Japan, Israel, Italy, and
Taiwan. Many of the Company's customers are Global Fortune 500 companies and,
based on the most recently available information, include 5 of the 10 largest
aerospace firms, 4 of the 10 largest chemical manufacturers, 11 of the 25
largest electronics companies, and 10 of the 20 largest pharmaceutical firms,
worldwide. To date, software from the Company's WorkStream DFS product line has
been purchased by over 100 companies for 230 sites in 20 countries, and the
Company's FlowStream product has been purchased by 18 companies for 31 sites in
8 countries.
The Company was incorporated in California in October 1978 to provide
consulting services and released its first standard software product in fiscal
1983. The Company reincorporated in the state of Delaware in March 1991. Unless
the context otherwise requires, "Consilium" and the "Company" refer to
Consilium, Inc. and its subsidiaries. The Company's executive offices are
located at 485 Clyde Avenue, Mountain View, California 94043, and its telephone
number is (415) 691-6100.
Background
- ----------
The goal of applying computer automation to the manufacturing environment
is improved efficiency and lowered costs, both direct and indirect. There are
several different computer software applications which are designed for various
stages of the product life cycle, from computer-aided engineering and design
("CAE/CAD") to computer-assisted production on the plant floor. The primary
software applications for planning and executing production once a product is
designed include: Enterprise Resource Planning (ERP) systems, manufacturing
execution systems (MES), and control systems for automated equipment and micro-
operations.
ERP systems help manufacturers translate forecasted demand or order backlog
into a manufacturing plan of raw materials, gross capacity and production orders
for the plant floor. They also track the associated financial and accounting
paperwork, and in fact are most commonly associated with financial transaction
automation. Since ERP systems only collect historical yield and cost data and do
not provide real-time information about the complete status of operations, they
do not support the proactive or ongoing management of the actual production
process as it occurs.
Distributed control systems direct the operation of numerically controlled
machines, robots, material transports, vessels, specialty equipment, sensors,
and measurement and inspection devices used in manufacturing. Such devices are
often grouped in self-contained "work cells." Control systems track the status
of materials and equipment within a particular work cell area and not on the
plant floor as a whole.
3
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Since the 1970s, as the increasing availability of lower cost, higher
performance computer systems made the use of manufacturing software more cost
effective, large numbers of ERP and distributed control systems have been
developed and installed. The usage of and benefit from using ERP and distributed
control systems is common across many industries. Increasingly, manufacturers
are recognizing that these tools, while effective in the functions for which
they were designed, do not have adequate capabilities to manage the critical
variables of the dynamic production process on the plant floor.
Manufacturing execution systems are specifically designed to manage
production operations on the plant floor. Some industries, such as
semiconductors, have long seen the benefit of using MES software and are
considered to have fully accepted MES as a critical tool for manufacturing.
Companies in other industries, such as pharmaceuticals, are not as familiar with
the benefits of MES, and are therefore slower to adopt what is to them a still
unproven concept. Across many industries, there is a growing need for tools that
can help improve manufacturing performance, as cost, quality, service and
regulatory pressures on manufacturers increase. The Company's WorkStream DFS
product line addresses the need for manufacturing performance tools for discrete
manufacturers who must track, control and document their use of materials,
equipment, personnel, job specifications and facilities at each step of the
production process. The Company's FlowStream product addresses this need for
manufacturers in batch process environments.
Types of Manufacturing
- ----------------------
Manufacturing operations can be characterized as either discrete, batch
process, continuous process, or hybrid (combining more than one form). In
discrete operations, such as electronics manufacturing, raw material is
processed in distinct units. Work-in-process can be tracked by lot, work order
or batch. In batch process operations, such as pharmaceutical manufacturing,
material is converted from one form or state to another through various
processing steps and is tracked by batch, lot or mass quantity. Material in
batch process-type operations may be spread across several conversion steps at
once. In continuous process operations, such as oil refining, raw material is
processed without interruption in a continuous flow. Finally, some producers,
such as specialty chemical companies, may require a combination of batch process
and discrete operations to manufacture their products.
Manufacturers track and control each step of their operations based on
requirements of regulatory compliance, quality control assurance, and cost
reduction goals. Manufacturers with production processes that are hard to
consistently replicate must be able to ascertain the precise conditions under
which each product was manufactured in order to identify and correct process
variability or other causes of defects. Other manufacturers must be able to
trace both subassemblies or intermediate products and finished goods due to
product liability concerns or potential product recall, warranty or services
obligations. In addition, certain manufacturers must certify that their products
have been processed in accordance with regulatory or customer specifications, or
other standards. Manufacturers faced with these challenges must be able to
follow raw materials through each processing stage ("traceability") and recreate
the history of work-in-process from any processing stage ("genealogy"). The
collection of such data serves not only to answer questions about a particular
product or process after the fact, but acts also as a powerful tool to improve
manufacturing performance in real time during the production process.
A manufacturing execution system such as the Company's WorkStream DFS
product line provides the tools which discrete, lot-based manufacturers need to
execute their manufacturing plan and collect the data which will enable them to
analyze and control production. Typical discrete, lot-based industries include
semiconductors; disk drives; and assembly operations in the commercial
4
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aircraft, aerospace and defense industries. Such industries benefit from MES for
different reasons. For semiconductor companies, the visibility and control
provided by MES can enable various measurements of efficiency, such as capital
equipment utilization and quality. For aerospace manufacturers, assurance of
regulatory compliance is key, and MES provides both control mechanisms and
reporting capabilities to address this. Indirect labor usage is also a critical
measurement for the aerospace and defense industries, and MES provides the tools
to both account for and reduce indirect labor usage.
Batch process manufacturers such as pharmaceutical and chemical companies
have similar requirements for information collection and analysis.
Pharmaceutical manufacturers must be able to demonstrate compliance with a host
of procedural and environmental regulations before a batch of product can be
approved for shipment to customers. They must maintain complete and accurate
batch records, detailing the history of all related elements of the
manufacturing process - materials, labor, equipment, procedures, facilities,
etc. - and guaranteeing that all actions taken, both planned and unplanned, were
in line with documented and approved manufacturing practices. In addition,
pharmaceutical manufacturers increasingly are under pressure to lower costs to
their customers, and are therefore experiencing smaller margins than they had
previously enjoyed. Manufacturing is a key area in which such companies may
lower costs.
Today, many pharmaceutical plants use paper-based systems for record
keeping. Overhead and indirect labor costs associated with the compilation and
maintenance of these records is a large and increasing expense. Therefore, an
electronic system which automates the data collection process and incorporates
proactive features to prevent deviations from the standard procedures - such as
an MES - can pay for itself in a very short time.
Chemical companies confront both an increasingly stringent regulatory
environment and mounting global competition in nearly all segments of the
industry. In addition, the need to package end products in multiple forms
presents a unique challenge. Therefore, in addition to tracking precisely all
materials resulting from the manufacturing process - primary products, co- and
by-products, and various forms of waste - chemical manufacturers must also amass
enough detailed information about their operations to discover ways to improve
them from the cost or quality standpoint. The process control systems currently
used by the majority of these companies cannot provide this higher level
information, nor can their ERP systems provide the detail required to empower
this continuous improvement approach. Chemical manufacturers' competitive
situation drives them to seek new and more comprehensive tools.
A manufacturing execution system such as the Company's FlowStream product
provides pharmaceutical and chemical manufacturers with a tool for achieving
both regulatory compliance and manufacturing improvement.
Products
- --------
The WorkStream DFS and FlowStream product lines monitor and control the
five essential elements of manufacturing - materials, equipment, personnel,
specifications, and facilities - throughout the production process, and
correlate critical data for real-time visibility and control of manufacturing
operations.
5
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The following table shows the Company's principal products, price range and
approximate average new installation prices in fiscal 1995:
<TABLE>
<CAPTION>
Approximate
Average price of
new installation
WorkStream DFS Product Line List price range in fiscal 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
WorkStream and
WorkStream Open products $50,000 - $1,000,000+ $350,000
WorkStream DFS servers $45,000 - $50,000 $ 60,000
FlowStream Product Line
- ----------------------------------------------------------------------------
FlowStream product $50,000 - $1,000,000+ $300,000
</TABLE>
WorkStream DFS Product Line
- ---------------------------
The Company's WorkStream DFS product family consists of multiple software
products, WorkStream and WorkStream Open, as well as a set of application
servers and a connecting message "bus," or network. The WorkStream DFS system
includes a set of 24 integrated software modules for managing the execution of a
production plan for discrete lot-based industries; a software communications
"message bus;" and three functional servers providing additional capabilities in
a distributed, client/server environment. The 24 modules are grouped into four
benefits or solutions areas: tracking; quality and engineering management;
planning; and process control and automation. The current application servers
provide capabilities primarily in the areas of automation and quality. The
WorkStream DFS product line's modular design allows customers to license only
those functions necessary to their current business needs and to add functions
as their requirements evolve.
The WorkStream and WorkStream Open software products are written in the
COBOL and C computer languages and are principally licensed to run on either the
Digital VAX line of computers under Digital's proprietary VMS operating system
with Oracle Corporation's CODASYL DBMS database or on the Hewlett-Packard HP
9000 line of computers running under the HP-UX UNIX operating system and the
Informix relational database. The WorkStream and WorkStream Open systems'
modules are integrated through a common database, permitting all modules to
obtain information simultaneously from a single data source, and through a
common user interface. The systems are designed to allow distributed application
processing in the Digital cluster mode and in client/server mode. Users can
access WorkStream or WorkStream Open software directly via a terminal or
workstation to enter data, view data, initiate batch reports or analyses and
view the results. Data also can be entered using bar code wands or can be
entered automatically by automated equipment and work cell controllers. The
Company has recently entered into an alliance with Avnet Computer, Digital
Equipment Corporation and Oracle Corporation to port its WorkStream product to
run on Digital's Alpha platform running the Open VMS operating system.
The WorkStream DFS servers introduced in 1995 are object-oriented
applications and run in a UNIX-based environment. They are designed to operate
in a distributed software environment, and connect to an ISIS message bus, using
standard communication protocols to talk to either WorkStream or WorkStream
Open. They have been developed in the SmallTalk computer language and use the
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Informix relational database software. WorkStream DFS servers are currently
available to run on Hewlett-Packard's HP 9000 line of computers with the HP-UX
operating system.
Over the next several months, the Company plans to integrate WorkStream DFS
with various order processing, financial and ERP systems from Oracle
Corporation. The resulting system will be marketed as a total supply chain
management solution to the semiconductor industry.
The following table summarizes the primary functionality of the WorkStream
DFS product family:
<TABLE>
<S> <C>
WorkStream DFS Functions
- ------------------------
Tracking and Control . XTracks WIP by lot, sub-lot, or serial
identifier.
. Maintains genealogy and lot traceability.
. Tracks manufacturing resources and labor and
equipment states and maintains history.
Quality Management . Collects quality, test, and environmental
data correlated by material, equipment, and
operator.
. Provides Statistical Quality Control.
. Analyzes and charts collected process data
and flags anomalous data.
. Displays job specifications in both text and
graphics appropriate times and locations.
Planning and Scheduling . Rule-based dispatching.
. Finite capacity constraints.
. Work scheduling.
. Intracompany planning.
</TABLE>
FlowStream Product Line
- -----------------------
The Company's FlowStream product is designed for companies that employ
batch process styles of manufacturing. At present, FlowStream is targeted
primarily at the pharmaceutical and chemical industries. FlowStream addresses
six benefits or solutions areas: batch operations tracking and control;
inventory or materials management; quality management; document management;
planning and scheduling; and costing. FlowStream tracks work-in-process activity
by work order down through each operation or step, whether automated or manual.
FlowStream software is written in the C++ language, emphasizing an object-
oriented design, and runs on the Rdb and Oracle relational databases. FlowStream
is a distributed application that allows users to access and share real-time
information. FlowStream takes advantage of certain industry-standard interfaces.
Interfacing tools within FlowStream allow integration with other manufacturing
applications such as ERP, Laboratory Information Management Systems (LIMS) and
automation controllers. FlowStream provides graphical user interfaces featuring
icons and windows.
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The following table summarizes the primary functionality of the FlowStream
product family:
<TABLE>
<S> <C>
FlowStream Functions
- --------------------
Tracking and Control . Tracks WIP by work order, batch production
run, material, store, container or state.
. Maintains genealogy and lot traceability.
. Tracks manufacturing resources and labor and
equipment states and maintains history.
Quality Management . Collects quality, test, and environmental
data correlated by material, equipment, and
operator.
. Provides Statistical Quality Control.
. Analyzes and charts collected process data
and flags anomalous data.
. Displays job specifications in both text and
graphics appropriate times and locations.
Document Management . Documentation and configuration management,
Planning and Scheduling . Rule-based dispatching.
. Finite capacity constraints.
. Work scheduling.
. Material requirements planning.
. Master production scheduler.
. Capacity planning.
Costing . Detailed model costing and reporting.
</TABLE>
Markets and Customers
- ---------------------
Software in the WorkStream DFS product line was first used primarily by
semiconductor manufacturers whose products were sold directly into the open
market and by electronics systems companies which used the software primarily to
produce semiconductors for use in their own products. Systems from the
WorkStream DFS product line have now also been installed by many commercial
aircraft, aerospace and defense, and electronics manufacturers for a range of
diverse applications, including electronics assembly; sheet metal fabrication;
disk drive assembly; silicon wafer fabrication; and radar and navigation systems
manufacture and assembly. Current target industries include manufacturers of
semiconductors, complex electronics such as disk drives and flat panel displays,
and aerospace products in both the Company's installed base and new accounts.
8
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FlowStream software is currently targeted at research and development and
manufacturing operations in the pharmaceutical, medical device and specialty
chemical (e.g. fibers, paints, resins, plastics and film) industries.
In fiscal 1995, no customer accounted for 10% or more of total revenue.
Sales
- -----
Through its direct sales force, Consilium markets its WorkStream DFS and
FlowStream product lines in the United States, Canada, France, Germany, Japan,
Malaysia, Singapore, South Korea, Taiwan, and the United Kingdom. The Company
also utilizes distributors in Israel, Italy, Japan, and Taiwan.
As a Digital Cooperative Marketing Partner (CMP) and a Hewlett-Packard
Independent Software Vendor (ISV) participant, the Company participates with
these computer systems firms in a variety of cooperative marketing programs
including joint appearances at tradeshows, joint brochures, joint sales seminars
and joint sales calls. Under the previously described alliances with Avnet
Computer, Digital Equipment Corporation and Oracle Corporation, the Company also
participates in a variety of cooperative marketing programs, including joint
appearances at tradeshows, joint brochures, joint sales seminars and joint sales
calls.
The sales cycle for a new installation of a WorkStream DFS system typically
ranges from nine to fifteen months from the initial identification of a
qualified potential user to the installation of the software. The sales cycles
for a new installation of FlowStream typically range from nine to eighteen
months. Sales cycles for either product can be extended due to the nature of the
decision-making process for purchasing MES solutions, which generally involves
many individuals from many departments within a manufacturing company. In
addition, the missionary nature of marketing a new product such as FlowStream
into new industries, such as pharmaceuticals and chemicals, contributes to
uncertainty about the timing of future sales order closures.
Implementation of a WorkStream DFS system, including customer training,
typically takes between four and six months. Implementation of FlowStream takes
between three and twelve months to complete, depending on the scope and
complexity of the project. Follow-on orders for additional modules, servers,
and/or sites typically are not received until successful implementation at the
initial site.
The Company's direct sales force and support staff are organized by
geographical regions. As of October 31, 1995, the sales and marketing
organizations consisted of 61 employees.
The Company's foreign distributors either sublicense the Company's products
directly to end users after acquiring copies from the Company at a discount from
list price, or act as agents and receive a commission for initiating a license
agreement between the Company and the end user.
Revenues from foreign customers represented 33% of total revenues in 1995,
31% of total revenues in fiscal 1994 and 27% of total revenues in fiscal 1993.
The majority of the Company's revenues are denominated in U.S. dollars. Some
foreign sales revenues are denominated in foreign currencies and are subject to
currency fluctuations during the time between revenue recognition and receipt of
funds. To date, the Company has not hedged against such foreign currency
fluctuations.
Since the Company ships its standard products upon receipt of customer
orders, it generally has no material product backlog.
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Product Development
- -------------------
Consilium has invested significant development resources to create, enhance
and extend the functionality of its WorkStream DFS and FlowStream software
product lines. Research and development expenses were 32%, 39% and 36% of
revenues in fiscal 1995, 1994 and 1993, respectively.
The Company expects to continue to incur development expenses to maintain
and augment its current products in 1996. This augmentation could include the
creation of additional WorkStream DFS servers, the extension of availability of
its WorkStream and WorkStream Open software to additional platforms and
operating environments, and the enhancement of functionality of its FlowStream
product for the batch process industries.
In August 1985, the Financial Accounting Standards Board issued a statement
requiring that certain software development and production costs be capitalized
and amortized over the economic life of the related product. For the fiscal
years 1995, 1994 and 1993, the Company capitalized $1,460,000, $1,662,000 and
$1,842,000, respectively, which represented approximately 12%, 13% and 15% of
total spending on research and development in such periods. These capitalized
costs are amortized on a module-by-module or server-by-server basis. For the
fiscal years 1995, 1994 and 1993, the Company amortized $1,863,000, $1,809,000
and $1,578,000, respectively. (See Note 2 of Notes to Consolidated Financial
Statements.)
Services and Support
- --------------------
The Company offers product support to its customers through comprehensive
maintenance agreements. The majority of the Company's customers purchase and
renew maintenance pursuant to the Company's standard maintenance agreement.
Maintenance, which consists of product enhancements and technical support, may
be purchased after the expiration of the warranty period, which is currently 90
days, and is automatically renewable annually thereafter. Annual maintenance
fees are generally 15% of the list price of the modules or servers being
maintained and are subject to a Consumer Price Index-based inflator. Product
support services are provided worldwide by a combination of local office
technical support staff and the Company's Customer Response Center.
The Company also offers a variety of training and consulting services
through its Professional Services organization. Training classes are regularly
scheduled at regional centers or customer locations. Consulting services cover
pre-selling analysis, installation, project management, customization and
application integration. These services are offered as consulting products with
defined deliverables in order to facilitate the customers' planning and
budgeting. Time-and-material-based services are also offered to augment the
Company's consulting products and to meet specialized requirements.
The Company is increasing its allocation of resources to its Professional
Services organization because it believes that this function is key to
satisfying its customers' requirements for implementation and consulting
assistance. Satisfying its customers' requirements is, in turn, critical for
maintaining a positive image in the marketplace as a successful provider of MES
solutions.
The Company believes that the ability to identify and work with qualified
systems integration firms which integrate various manufacturing and other
systems together is an important component to its success. In early fiscal 1996,
the Company announced a certification program to train and certify systems
integration firms to integrate the Company's WorkStream DFS and FlowStream
product lines in customer implementations.
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Competition
- -----------
The Company believes that the primary competitive factors in the market for
MES software are size of installed base and product functionality, and that
additional factors include price/performance, ease of use, hardware and
software platform, vendor reputation, and financial stability. The Company
believes that its products currently compete favorably with other systems on the
primary factors listed above, although it may be at a competitive disadvantage
against companies with greater financial, marketing, services and support and
technological resources than the Company. The Company also believes that the
relative importance of these competitive factors may change over time.
The Company continues to experience competition primarily from the
management information systems departments of its largest potential customers,
which have the capability to develop software internally. The Company believes
that acquisition of MES products will increasingly shift to external vendors as
packages, services and expertise become more widely available from third
parties. The Company continues to experience direct competition primarily in the
semiconductor and pharmaceutical industries from various competitors, including
Base-10, FASTech, Incode, Promis, Inc., and SAP.
The Company anticipates increased competition from both large and small
companies. FASTech markets a competing product for the semiconductor industry.
IBM directly offers and cooperatively markets POMS, a product developed by a
third party, to the pharmaceutical industry. In addition, ERP system vendors are
beginning to compete with the Company. The first such offering was released by
SAP in mid-1995. The Company believes that the development effort required for
producing an MES comparable to the Company's WorkStream DFS and FlowStream
product lines presents a significant barrier to the entrance of new competitors.
Proprietary Rights
- ------------------
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company generally provides its products to end users
under a non-exclusive, non-transferable license which typically has a perpetual
term unless terminated for breach. Under the Company's current form of license
agreement, the licensed software may be used solely for internal operations at
specified sites. In certain instances, the Company has granted a customer
licensed rights to any modifications made to the licensed software by or for
such a customer. The Company protects the human readable, source code version of
its WorkStream Open and FlowStream products as a trade secret and an unpublished
copyrighted work.
The Company has registered "CONSILIUM," "WorkStream" and "FlowStream" as
trademarks in the United States and several foreign jurisdictions and has
received trademark designation for "CONSILIUM," "WorkStream" and "FlowStream" in
several other foreign jurisdictions.
The Company holds three patents, and also relies on a combination of trade
secret, copyright and trademark laws and license agreements to protect its
proprietary rights in its products. There can be no assurance that others will
not develop technologies that are similar or superior to the Company's
technology, duplicate the Company's technology, or design around patents owned
by the Company. The Company generally enters into confidentiality or license
agreements with employees, distributors and customers, and limits access to and
distribution of its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries.
11
<PAGE>
The Company believes that, because of the rapid pace of technological
change in the computer software industry, patent, trade secret and copyright
protection are important to support the continued building up of knowledge,
ability and experience of the Company's employees. This in turn supports the
ability of the Company to provide frequent product enhancements, and deliver
quality support services in a timely manner.
There has been substantial industry litigation regarding patent and other
intellectual property rights involving technology companies. In the future,
litigation may be necessary to protect and enforce the Company's intellectual
property rights, to defend the Company against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. Any such litigation could be costly and could divert
management's attention, which could have a material adverse effect on the
Company's business, results of operations or financial condition regardless of
the outcome of the litigation. In addition, third parties making claims against
the Company with respect to intellectual property infringement may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a claim of
infringement, the Company and its customers may be required to obtain one or
more licenses from third parties. There can be no assurance that the Company or
its customers could obtain necessary licenses from third parties at a reasonable
cost or at all.
Employees
- ---------
As of October 31, 1995, the Company had a total of 210 full-time employees,
including 61 in sales, marketing and related activities, 71 in product
development and maintenance, 46 in services and support, and 19 in management,
administration and finance. The Company also regularly utilizes a significant
number of contract personnel, primarily to assist with software development. At
October 31, 1995, the Company utilized approximately 32 contracted personnel.
None of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that employee relations are good.
Competition in the recruitment of personnel in the computer software
industry is intense. The Company believes that its future success will depend in
part on its continued ability to hire and retain qualified sales, customer
support, technical and management employees and consultants.
12
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
As of December 31, 1995, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jonathan J. Golovin 45 Chairman of the Board of Directors,
Secretary and Chief Technical Officer
Frank Kaplan 53 Vice President, Software Development
Edward Norton 51 Vice President, International Field
Operations and Worldwide Services
Lloyd Payton 55 Vice President, American Field Operations
Thomas A. Tomasetti 51 President, Chief Executive Officer and Director
Richard H. Van Hoesen 40 Vice President, Operations, Administration
and Finance and Chief Financial Officer
Clifton Wong 35 Controller
Ralph Zak 46 Vice President, Marketing
</TABLE>
Dr. Golovin, the founder of Consilium, was President of the Company from
1978 to 1987 and has served as a director of the Company since its inception and
as Secretary since January 1989. In April 1992, he was named Chief Technical
Officer. Dr. Golovin has taught both graduate and undergraduate courses in
operations management and production planning at the Massachusetts Institute of
Technology and the University of California at Berkeley. He holds a Ph.D. in
Operations Management from the Massachusetts Institute of Technology and a B.S.
degree from Cornell University.
Mr. Kaplan joined the Company in May 1994 as Vice President of Software
Development. From 1987 to 1994, he held various high level software development
positions with NEC America, Inc., a communications technology company, including
Assistant General Manager, Software Development and Director, Software
Development. Prior to NEC, Mr. Kaplan was with AT&T Bell Laboratories, a
communications technology research firm, where he was Department Head for
Operations Systems Development. Mr. Kaplan holds two Masters degrees in
Mathematics from Yale University and a B.S. in Mathematics from City College of
New York.
Mr. Norton joined the Company in September 1994 as Vice President of
Consulting and Services. In April 1995, he was promoted to Vice President,
International Sales and Worldwide Services. His title was changed to
International Field Operations and Worldwide Services in January 1996. Mr.
Norton was with Industrial Resources, Inc. from 1993 to 1994, a company he
founded to provide investment and development services for companies and
government organizations in Asia. From 1989 to 1993, Mr. Norton held the
positions of Vice President of Asia Pacific and Vice President, Worldwide
Customer Services Division with Pyramid Technology, a computer company. Mr.
Norton's prior experience includes senior management assignments with Tolerant
Systems (now Veritas), a computer systems company, from 1983 to 1989 and
Burroughs Corporation, a computer systems company (now Unisys). He holds a B.S.
in Chemistry from Sussex University in England.
Mr. Payton joined the Company in 1993 as Western Region Sales Manager and
was promoted to Vice President, North American Sales in April 1995. In January
1996, his title was changed to Vice President, American Field Operations. From
1990 to 1993, he was an independent consultant in factory automation and
business planning. From 1984 to 1990, Mr. Payton was Chief Executive
13
<PAGE>
Officer of WSI Corporation, a specialty hardware company. From 1970 to 1983, he
held a variety of executive sales management positions with Parallex
Corporation, an on-line data processing services company, Xerox Corporation, a
multi-technology company, and Telecom Midwest Corporation, a provider of on-line
accounting and control systems for manufacturers. He holds B.A. degrees in
Business and English from Murray State University in Kentucky and an M.B.A. from
Wake Forest University.
Mr. Tomasetti has served as President and Chief Executive Officer of the
Company since June 1987 and as Director since November 1987. He was a technology
consultant with Hillman Ventures, a venture capital firm, from November 1986 to
June 1987, and served as Chief Executive Officer for Formaster Magnetic Designs,
a software duplication equipment firm, from November 1984 to November 1986. From
January 1982 to September 1984, he was Director of Western Operations for
Scientific Calculations, Inc., a software company, and previously spent 16 years
at General Electric Company, a diversified multi-national conglomerate, most
recently as Vice President/General Manager for the Calma division. Mr. Tomasetti
holds a B.S. degree in Engineering from the University of Massachusetts at
Lowell.
Mr. Van Hoesen joined the Company in October 1994 as Vice President
Operations, Administration and Finance and Chief Financial Officer. Mr. Van
Hoesen was Director of Investor Relations at Sun Microsystems, a computer
company, from 1992 to 1994. From 1988 to 1992, he held several senior finance
and administration positions, most recently as Director, Administration, MIS and
Investor Relations, with Teradata Corporation, a computer company. Mr. Van
Hoesen's prior experience includes financial and administrative assignments with
Clabir Corporation, a diversified holding company, Unimation Robotics, an
industrial robotics company and Andersen Consulting, a management consulting
firm. He holds a B.S. in Industrial Engineering from Lehigh University and an
M.B.A. from the University of Pennsylvania's Wharton School of Finance.
Mr. Wong joined the Company as Controller in May 1995. From 1990 to 1995,
he was Director of Finance at Kubota Graphics Corporation, a computer hardware
company, which was previously known as Kubota Pacific Computer, Inc. From 1986
to 1990, he held various positions in finance with Stardent Computer, a computer
hardware company, which was previously known as Ardent Computer, most recently
serving as Operations Controller. He holds a B.A. in Accounting from Golden Gate
University in California and is a Certified Public Accountant in the state of
California.
Mr. Zak joined the Company as Vice President, Marketing in May 1995. From
1992 to May 1995 he was with Quickturn Design Systems, an electronic design
automation company, where he held the positions of Vice President, Business
Development and Communications and Vice President, Marketing. From 1989 to 1992,
he was Director of Marketing for the printed circuit board division of Mentor
Graphics Corporation, an electronic design automation company. From 1970 to
1989, Mr. Zak held various executive marketing, business development and
strategic planning positions with HHB Systems, Quadtree Corporation and Calma
Company, design automation companies, and Bechtel Corporation, an engineering
construction firm. He holds a B.S. in Mechanical Engineering from the University
of California at Berkeley and an M.B.A. from Stanford University.
14
<PAGE>
ITEM 2. PROPERTIES
----------
The Company's principal administrative, marketing and product development
and support facilities are located in a building totaling 61,600 square feet in
Mountain View, California. The Company will complete its move to this facility
on February 2, 1996. The Company occupies this space under a lease agreement
which expires January 31, 2003. The annual base rent payment (not including
operating expenses, insurance, property taxes, and assessments) is approximately
$665,280, and is subject to further adjustments annually in accordance with the
Consumer Price Index. The Company must also pay operating expenses, taxes and
assessments.
In addition, the Company leases sales and service office space in Atlanta,
Georgia; Bedminster, New Jersey; Blue Bell, Pennsylvania; Cranford, New Jersey;
Dallas, Texas; Denver, Colorado; Irvine, California; Minneapolis, Minnesota; and
Nashua, New Hampshire, as well as in Canada, Germany, Japan, Singapore, South
Korea, Taiwan and the United Kingdom.
The Company believes that its current facilities are adequate for its
current needs and that suitable additional space will be available as required.
See Note 3 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.
ITEM 3. LEGAL PROCEEDINGS
-----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Market Price of Common Stock
- ----------------------------
Consilium, Inc.'s common stock is traded on the Nasdaq National Market under the
symbol "CSIM." The high and low stock prices are as reported by Nasdaq.
Consilium's Initial Public Offering of stock was May 9, 1989 at $9.00 per share.
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal year: January 31 April 30 July 31 October 31
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
1995
High 8 1/4 8 7/8 12 5/8 15 1/8
Low 5 5/8 7 1/8 7 3/8 9 5/8
1994
High 9 5/8 10 1/2 8 1/2 6 1/2
Low 6 1/4 7 1/2 4 3/4 3 3/4
1993
High 11 9 1/4 7 1/2 7 1/4
Low 7 1/4 6 1/2 5 1/2 5 7/8
1992
High 22 17 1/4 14 1/2 10 1/4
Low 11 3/4 11 6 1/2 6 3/4
</TABLE>
Holders of Company Stock
- ------------------------
As of December 31, 1995, the Company had 194 stockholders of record and believes
it had at least 2,300 beneficial holders.
Dividends
- ---------
The Company has not paid cash dividends on its Common Stock and does not plan to
pay cash dividends to its stockholders in the near future. The Company
presently intends to retain its earnings to finance further growth of its
business.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
(In thousands, except income (loss) per share amounts)
<TABLE>
<CAPTION>
Years ended October 31: 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues $33,857 $27,944 $28,475 $27,558 $27,354
Income (loss) before taxes 1,150 (5,523) (4,973) (5,161) (1,567)
Provision (benefit) for
income taxes 523 725 310 162 (503)
Net income (loss) 627 (6,248) (5,283) (5,323) (1,064)
Income (loss) per share 0.08 (0.85) (0.75) (0.77) (0.15)
Shares used in per share
calculations 7,912 7,362 7,025 6,915 6,910
<CAPTION>
At October 31: 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Working capital 9,498 7,345 12,571 17,354 20,699
Total assets 29,437 26,998 31,643 34,506 37,235
Long-term debt, less
current portion --- --- 313 464 ---
Stockholders' equity 15,869 13,646 18,836 23,192 27,617
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations
- ---------------------
Revenues. Total revenues increased 21% to $33,857,000 in fiscal 1995 compared
- ---------
with $27,944,000 in fiscal 1994, which was down 2% from revenues of $28,475,000
in fiscal 1993.
The following table shows the proportion of the Company's total revenue for
the past three fiscal years from each of its three principal geographic regions:
<TABLE>
<CAPTION>
Years ended October 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
North America 67% 69% 73%
Europe 18% 17% 18%
Asia/Pacific 15% 14% 9%
</TABLE>
Product License Revenues. Product license revenues increased 59% to $16,847,000
in fiscal 1995 compared with $10,588,000 in fiscal 1994, which was up 7% from
product license revenues of $9,927,000 in fiscal 1993. The fiscal 1995 increase
was due to higher levels of sales in both of the Company's product lines.
Broken out by product line, product license revenue attributable to
products in the Company's WorkStream DFS product line increased 36% to
$12,436,000 in fiscal 1995 compared with $9,153,000 in fiscal 1994, which was up
51% from revenues of $6,048,000 in fiscal 1993. The 1995
17
<PAGE>
increase was due to a resurgence in demand in the semiconductor industry for the
Company's WorkStream and WorkStream Open products, as well as commercial
availability of the Company's new WorkStream DFS application servers. Throughout
1995, the semiconductor industry expanded rapidly, and many industry observers
expect it to continue to do so in 1996.
License revenues attributable to the FlowStream product line increased 207%
to $4,411,000 in fiscal 1995 compared with $1,435,000 in fiscal 1994, which was
down 63% from revenues of $3,879,000 in fiscal 1993. The increase in fiscal 1995
from fiscal 1994 was due to a higher level of acceptance of the FlowStream
product in the pharmaceutical industry, which historically has not used packaged
computer systems to track plant floor operations and is therefore in the early
stages of adopting such systems. The fiscal 1993 product license revenue figure
for FlowStream included $2.7 million in non-refundable prepaid license fees
associated with a major agreement signed by the Company with Honeywell
Automation and Control. Excluding this transaction, FlowStream revenues were up
22% in fiscal 1994 from net revenues of $1,179,000 in fiscal 1993.
The Company does not expect product license revenues to grow at the
percentage levels reached in 1995, as future growth will be compared with
relatively stronger periods than in earlier years. In addition, future growth
could be negatively affected if the semiconductor industry slowed its expansion,
or if the pharmaceutical industry, which has not yet adopted computer automated
manufacturing on a wide scale, does not develop into a strong market for the
Company's FlowStream product line. Finally, competition is expected to increase,
and there can be no assurance that competitive pressures will not have a
material effect on the Company's business. Additional competitors entering the
market could result in customer deferral of purchasing decisions for the
Company's products in the near-term, as prospective customers evaluate
competitive products.
The Company's product license revenue historically has been concentrated in
a relatively small number of customers and its products have a high average
selling price. See "-- Potential Fluctuation in Quarterly Results." During
fiscal 1995, the percentage of product license revenue derived from the
Company's ten largest customers was approximately 55% compared with 69% in
fiscal 1994 and 65% in fiscal 1993. Product license fees generally are payable
upon delivery of the licensed software, and cover the customer's use of the
software for the entire term of the license agreement, which is generally
perpetual.
Services Revenues. Services revenues in 1995 were $15,979,000, an increase of
10% over $14,589,000 in fiscal 1994, which was down 7% from $15,655,000 in
fiscal 1993. Services revenues are derived primarily from custom programming
services, resident and application consulting services, customer training, and
annual software maintenance fees. The increase in services revenues in fiscal
1995 primarily was due to an increase in revenues from consulting services and
to higher maintenance levels from the Company's WorkStream DFS product lines.
The Company anticipates maintenance revenues associated with its WorkStream DFS
and FlowStream product lines will continue to increase in the near term due to
the higher volume of product licenses sold in recent quarters which are
scheduled to commence maintenance terms. The decrease in services revenues from
fiscal 1993 to fiscal 1994 primarily was due to a reduction in custom
programming revenues.
Development Revenues. Development revenues decreased 63% in fiscal 1995 to
$1,031,000 from $2,767,000 in fiscal 1994, which was down 4% from $2,893,000 in
fiscal 1993. The decrease is associated with the completion of activities
related to certain customer-funded development projects.
Development revenues include work associated with porting agreements and
development contract work for third parties. Under these contracts and
agreements, the Company earns development and porting revenues, with third
parties having the right to license and use the software, often sooner than
otherwise would have occurred. The results of these development contracts and
18
<PAGE>
porting projects are expected to become standard products upon completion of the
work. Development revenues can vary significantly from period to period,
depending upon the number of contracts which have been entered into. In
addition, the timing and scope of development projects can change during the
period of development, making it difficult to accurately forecast the level of
development revenues beyond the near term. Based on current projects planned,
development revenues in fiscal 1996 are expected to remain approximately
constant with fiscal 1995 levels.
Costs and Expenses.
- -------------------
Cost of Product Revenue. Cost of product revenue increased 10% to $3,046,000 in
fiscal 1995, compared with $2,763,000 in fiscal 1994 and $2,410,000 in fiscal
1993. The increase in cost of product revenues in fiscal 1995 was due to higher
product license revenues recorded during the year. Cost of product revenue
includes amortization of capitalized software production costs, royalties,
distributor commissions, and purchased software which is resold to the end-
customer, typically along with the Company's own software. Depending on the mix
of sales of proprietary software, third party licenses and sales made through
distributors in a given period, the associated costs of product revenue can vary
significantly. Product costs as a percent of product revenue were 18%, 26%, and
24% for fiscal years 1995, 1994, and 1993, respectively. The decrease in cost
of product revenue as a percentage of product revenue from fiscal 1994 to fiscal
1995 was due to a change in the mix of product revenues coupled with higher
amortization, royalties, and purchased software costs.
Cost of Services Revenue. Cost of services revenue was 30% of total services
revenues in fiscal 1995, compared with 31% and 34% in fiscal 1994 and 1993,
respectively. Services costs include expenses for the customer response center,
resident and application consulting services, custom programming services, and
training groups within the Company. Costs increased 5% from fiscal 1994 to
fiscal 1995. The absolute dollar increase in cost of services compared with
fiscal 1994 primarily was due to the hiring of additional services personnel to
continue to meet customer requirements for consulting services. Services costs
decreased 16% from fiscal 1993 to fiscal 1994. The absolute dollar decrease
resulted from a change in the nature of work performed by the corporate
professional services group. The nature of the group's work changed from
service-oriented projects to research and development activities during the
early part of fiscal 1994.
Research and Development Expenses. Research and development expenses
represented 32% of total revenues in fiscal year 1995, 39% in 1994 and 36% in
fiscal 1993. These expenses increased to $10,903,000 in fiscal 1995 compared
with $10,860,000 in fiscal 1994 and $10,206,000 in fiscal 1993. Included in
research and development expenses are costs associated with the development of
new products, costs of enhancing and maintaining existing products, as well as
costs of porting and funded-development projects. The proportional decrease in
research and development expense as a percentage of total revenues was due to a
higher level of sales for fiscal 1995 than in fiscal 1994.
Software development expenditures of $1,460,000, $1,662,000, and $1,842,000
were capitalized under Statement of Financial Accounting Standards No. 86 in
fiscal 1995, 1994, and 1993, respectively. The amounts capitalized represented
approximately 12%, 13%, and 15% of total research and development expenditures
during such periods. The percentage decreases were due to a decline in the
absolute dollar amount of software costs capitalized during these periods. In
accordance with Statement 86, the amount of research and development
expenditures capitalized in a given time period depends upon the nature of the
development work performed. Accordingly, amounts capitalized may vary from
period to period. See Notes 1 and 2 of Notes to Consolidated Financial
Statements.
Selling and Marketing Expenses. Selling and marketing expenses represented 35%
of total revenues in fiscal 1995, compared with 41% and 45% in fiscal 1994 and
1993, respectively. Selling and
19
<PAGE>
marketing expenses increased to $11,898,000 in fiscal 1995 from $11,519,000 in
fiscal 1994 and decreased from $12,701,000 in fiscal 1993. The current year
increase in absolute dollars was due primarily to an increase in the commission
expense for the period resulting from the higher level of sales for the year,
partially offset by a lower headcount. The proportional decrease in sales and
marketing expense as a percentage of total revenues was due to a higher level of
sales for fiscal 1995 than in fiscal 1994 and increased sales productivity. The
Company believes it has achieved much of the available sales productivity
increases, and that future revenue increases would be accompanied by
proportionate increases in selling and marketing expenses.
General and Administrative Expenses. General and administrative expenses
include the costs of the finance, accounting, purchasing and administrative
operations of the Company. General and administrative expenses as a percent of
total revenue were 9%, 10%, and 11% for fiscal years 1995, 1994 and 1993,
respectively. The decrease from 1994 to 1995 was primarily due to increases in
sales over the comparable periods. Contributing to the decrease in 1994 from
1993 was lower bad debt expense. It is anticipated that expenses will be at
higher levels for the next fiscal year, particularly in the first two quarters,
due to the costs associated with moving the Company's headquarters following the
expiration of its current lease in February 1996.
Restructuring Charge. During the third quarter of fiscal 1994, the Company
announced a worldwide consolidation of its operations and recorded a
restructuring charge of $1,407,000. The consolidation primarily affected
several field offices. Major cost components associated with the restructuring
were severance pay amounts for terminated employees, lease and rental costs
associated with the consolidation of sales offices and the consolidation of
operations at the Company's headquarters facilities. The balance was comprised
of fixed asset write-offs in the offices affected, as well as travel and legal
fees. The consolidation was designed to improve efficiencies and bring
operational expenses in line with revenues.
Between the third quarter of 1994 and the second quarter of 1995, the
Company utilized $1,196,000 for various restructuring activities. During the
third quarter of fiscal 1995, the Company reevaluated the status of its
restructuring activities in light of results of operations that had improved
substantially since the commencement of the restructuring. As a result of that
reevaluation, the Company decided to discontinue subsequent restructuring
activities and reversed the remaining restructuring reserve of $211,000.
Interest Income and Expense. For the fiscal year ended October 31, 1995,
interest income was $588,000, compared with interest income of $442,000 for
fiscal 1994 and $404,000 for fiscal 1993. Higher invested cash balances and
higher interest rate levels accounted for the increase from fiscal 1994 to
fiscal 1995. Higher interest rate levels, offset by a lower invested cash
balance, accounted for the increase from fiscal 1993 to fiscal 1994. Interest
expense of $10,000, $35,000, and $59,000 in fiscal 1995, 1994 and 1993,
respectively, relates to computer equipment financed under capital leases.
Provision for Income Taxes. The Company's income tax provision for all years
presented principally relates to withholding taxes on sales made in foreign
jurisdictions. The Company has not incurred domestic income tax charges due to
utilization of net operating losses in fiscal 1995 and its net loss position in
fiscal years 1994 and 1993. The Company has established a valuation allowance
against its deferred tax assets and reviews this allowance on a periodic basis.
As such time that the Company believes that is it more likely than not that the
deferred tax asset will be realized, the valuation allowance will be reduced.
The Company adopted Statement of Financial Accounting Standards No. 109 as
of November 1, 1993. The cumulative effect of adoption of Statement 109 was not
material to the Company's results of operations or financial position for the
year ended October 31, 1994.
20
<PAGE>
Net Income(Loss). The Company had net income of $627,000, or $.08 per share in
fiscal 1995 compared with the prior year net loss of $6,248,000, or $.85 per
share in fiscal 1994. This compares with a net loss of $5,283,000, or $.75 per
share in fiscal 1993.
Potential Fluctuations in Quarterly Results. The Company's results of
operations historically have fluctuated on a quarterly basis due to several
factors. These factors include: the relatively high average selling price of
the Company's products; a relatively small number of transactions; market
acceptance of new products; introduction of competitive product offerings and
subsequent deferrals in sales orders as competitive products are evaluated by
prospective customers; the size and timing of new orders; the timing of co-
development projects with customers; expense levels; pricing changes; gain or
loss of significant customers or distributors; and the general economic
conditions in the Company's primary markets. Any unfavorable change in these
or other factors could have a material adverse effect on the Company's operating
results for a particular quarter. The operating results in any quarter are not
necessarily indicative of results for future financial periods.
Liquidity and Capital Resources
- -------------------------------
As of October 31, 1995, the Company had working capital of $9,498,000, compared
with $7,345,000 at October 31, 1994. The fiscal 1995 increase was due primarily
to cash collections associated with the higher level of product sales for the
year. Net cash provided by operating activities in fiscal 1995 was $1,702,000
compared with net cash used in operating activities of $524,000 in fiscal 1994.
Net cash provided by operations in fiscal 1995 primarily resulted from fiscal
1995 net income and an increase in non-cash charges for depreciation and
amortization, offset by an increase in accounts receivable and a decrease in
other liabilities and accrued expenses. Higher levels of sales contributed to
the increase in accounts receivable, and the utilization of the restructuring
charge recorded in the third quarter of fiscal 1994 accounted for the decrease
in the other liabilities and accrued expenses. Net cash used in operating
activities in fiscal 1994 was due primarily to the current year net loss offset
by non-cash charges for depreciation and amortization, a decrease in accounts
receivable, and an increase in other liabilities and accrued expenses. Improved
collections contributed to the decrease in accounts receivable. Higher accrued
compensation levels and expenses associated with the restructuring charge
recorded in the third quarter of fiscal 1994 contributed to the increase in
other liabilities and accrued expenses.
Net cash used for investing activities was $981,000 in fiscal 1995 as
compared to net cash provided by investing activities of $1,377,000 in fiscal
1994 and $2,977,000 in fiscal 1993. The change from fiscal 1994 to 1995 was due
to a decrease in short-term investments of $2,022,000, a decrease in
expenditures on capitalized software production costs of $202,000, offset by an
increase in investments in capital equipment of $880,000. During fiscal 1994,
short-term investments decreased $3,702,000. Amounts spent on property, plant
and equipment decreased to $663,000 in fiscal 1994 from $722,000 in fiscal 1993.
Net cash provided by financing activities of $1,283,000, $676,000, and $565,000
in fiscal 1995, 1994 and 1993, respectively, represents primarily sales of
common stock under the employee stock purchase and stock option plans, partially
offset by principal payments on capital leases.
At October 31, 1995, the Company had $10,686,000 in cash and cash
equivalents and $1,478,000 in short-term investments. Management believes the
existing cash and cash equivalents, including short-term investments, will be
sufficient to meet the Company's currently anticipated working capital and
capital expenditure requirements in fiscal 1996.
21
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
During March 1995, the Financial Accounting Standards Board issued Statement No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of." This standard is effective for the
Company's 1997 fiscal year and its adoption is not expected to have a material
effect on the financial statements of the Company.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This standard, which established a fair value based method of accounting for
stock-based compensation plans, also permits an election to continue following
the requirements of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" with disclosures of pro forma net income and earnings per share under
the new method. The Company is reviewing the implications of SFAS No. 123 and
evaluating the effect, if any, on the financial condition and results of
operations of the Company. SFAS No. 123 will be effective for the Company's
fiscal year 1997.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Report of Independent Accountants
Board of Directors and Stockholders
Consilium, Inc.
We have audited the accompanying consolidated balance sheets of Consilium,
Inc. and subsidiaries as of October 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended October 31, 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 Consilium, Inc.
and subsidiaries as of October 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
December 6, 1995, except for Note 10,
for which the date is December 15, 1995.
23
<PAGE>
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues
Product $ 16,847 $ 10,588 $ 9,927
Services 15,979 14,589 15,655
Development 1,031 2,767 2,893
-------- -------- --------
Total revenues 33,857 27,944 28,475
-------- -------- --------
Costs and Expenses
Product 3,046 2,763 2,410
Services 4,734 4,497 5,363
Research and development 10,903 10,860 10,206
Selling and marketing 11,898 11,519 12,701
General and administrative 2,915 2,828 3,113
Restructuring charge (211) 1,407 ---
-------- -------- --------
Total operating expenses 33,285 33,874 33,793
-------- -------- --------
Income (loss) from operations 572 (5,930) (5,318)
-------- -------- --------
Interest income 588 442 404
Interest expense (10) (35) (59)
-------- -------- --------
Income (loss) before income
tax provision 1,150 (5,523) (4,973)
-------- -------- --------
Provision for income taxes 523 725 310
-------- -------- --------
Net income (loss) $ 627 $ (6,248) $ (5,283)
======== ======== ========
Income (loss) per share $ 0.08 $ (0.85) $ (0.75)
======== ======== ========
Shares used in
per share calculations 7,912 7,362 7,025
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
October 31,
1995 1994
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 10,686 $ 8,682
Short-term investments 1,478 3,500
Accounts receivable, net of allowance
for doubtful accounts of $650 and
$625 in 1995 and 1994, respectively 8,347 5,181
Other current assets 1,055 1,055
-------- --------
Total current assets 21,566 18,418
Property & equipment, net 2,425 2,351
Software production costs, net 5,121 5,524
Other assets 325 705
-------- --------
Total assets $ 29,437 $ 26,998
======== ========
Liabilities
Current liabilities:
Accounts payable $ 1,824 $ 1,209
Other current liabilities and accrued expenses 4,586 4,589
Deferred revenue 5,658 4,962
Capital lease obligation --- 313
-------- --------
Total current liabilities 12,068 11,073
Deferred revenue 1,325 1,846
Deferred income taxes 158 348
Accrued lease obligation 17 85
-------- --------
Total liabilities 13,568 13,352
-------- --------
Commitments and contingencies (Notes 3, 8 and 10)
Stockholders' Equity
Preferred stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: no shares in 1995
and 1994 --- ---
Common stock, $.01 par value
Authorized: 25,000,000 shares:
Issued and outstanding: 7,695,655
in 1995 and 7,428,651 in 1994 77 74
Additional paid-in capital 23,337 21,744
Accumulated deficit (7,545) (8,172)
-------- --------
Total stockholders' equity 15,869 13,646
-------- --------
Total liabilities and
stockholders' equity $ 29,437 $ 26,998
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Retained
Earnings /
Common Stock Additional (Accumulated
(In thousands) Shares Amount Paid-in Capital Deficit) Total
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BALANCES, NOVEMBER 1, 1992 6,958 $ 70 $ 19,763 $ 3,359 $ 23,192
- --------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
stock purchase plan 121 1 749 --- 750
Exercise of common stock options for cash 141 1 176 --- 177
Net loss --- --- --- (5,283) (5,283)
- --------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1993 7,220 72 20,688 (1,924) 18,836
- --------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
stock purchase plan 142 1 738 --- 739
Exercise of common stock options for cash 67 1 318 --- 319
Net loss --- --- --- (6,248) (6,248)
- --------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1994 7,429 74 21,744 (8,172) 13,646
- --------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
stock purchase plan 136 1 708 --- 709
Exercise of common stock options for cash 131 2 885 --- 887
Net income --- --- --- 627 627
- --------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1995 7,696 $ 77 $ 23,337 $ (7,545) $ 15,869
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended October 31,
(In thousands) 1995 1994 1993
- ----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 627 $ (6,248) $ (5,283)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,332 3,162 3,053
Provision for doubtful accounts receivable 324 188 699
Change in assets and liabilities:
Accounts receivable (3,490) 1,085 (210)
Other assets 190 (654) 1,043
Accounts payable 615 (321) (306)
Deferred revenue 175 714 1,574
Other liabilities and accrued expenses (71) 1,550 310
-------- -------- --------
Total adjustments 1,075 5,724 6,163
-------- -------- --------
Net cash provided by (used in) operating activities 1,702 (524) 880
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,543) (663) (722)
Capitalized software production costs (1,460) (1,662) (1,842)
Purchases of short-term investments (1,708) (3,502) (9,469)
Sales of short-term investments 3,730 7,204 15,010
-------- -------- --------
Net cash (used for) provided by investing activities (981) 1,377 2,977
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock and other 1,596 1,058 927
Principal payments on capital leases (313) (382) (362)
-------- -------- --------
Net cash provided by financing activities 1,283 676 565
-------- -------- --------
Net increase in cash and cash equivalents 2,004 1,529 4,422
-------- -------- --------
Cash and cash equivalents at beginning of period 8,682 7,153 2,731
-------- -------- --------
Cash and cash equivalents at end of period $ 10,686 $ 8,682 $ 7,153
-------- -------- --------
Supplemental cash flow information:
Cash paid for:
Interest $ 10 $ 35 $ 59
Income taxes paid (refunded) $ 13 $ 12 $ (340)
Equipment acquired under capital leases $ --- $ --- $ 235
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------
Note 1: Summary of Significant Accounting Policies:
Consilium, Inc. was incorporated in October 1978 and designs and licenses
integrated manufacturing execution systems (MES) software for the manufacturing
plant floor. The Company also markets consulting, implementation and training
services for its software products.
Principles of Consolidation: The consolidated financial statements include the
accounts of Consilium, Inc. and its wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
Cash and Cash Equivalents: The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. At
October 31, 1995, the Company maintained substantially all of its cash and cash
equivalents with three financial institutions.
Short-Term Investments: On November 1, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the Statement,
prior period consolidated financial statements have not been restated to reflect
the change in accounting principle. The impact of adopting Statement No. 115
did not have a material effect on the consolidated financial statements.
Short-term investments consist of debt securities with a remaining maturity
of more than three months when purchased. The Company has determined that all of
its debt securities should be classified as available for sale. The difference
between the cost basis and the market value of the Company's investments was not
material at October 31, 1995. All of the Company's investments at October 31,
1995 consist of commercial paper with remaining maturities of less than one
year.
Depreciation and Amortization: Property and equipment are stated at cost and
depreciated on a straight-line basis over estimated useful lives of five years.
Leasehold improvements are amortized over their estimated useful lives or the
remaining term of the related lease, if shorter.
Software Production Costs: Costs incurred prior to establishment of
technological feasibility are charged to research and development expense.
Thereafter, the Company capitalizes certain costs, consisting of salaries,
related benefits and an allocation of indirect costs, incurred internally in
creating computer software. Software production costs are capitalized until the
software is available for general release. Amortization is provided on the
basis of license revenues recognized during the year to total anticipated
license revenues; however, the annual amortization expense, at a minimum, will
not be less than 20% of the capitalized costs. Research and development costs
incurred to improve and enhance existing software are charged to expense as
incurred.
Revenue Recognition: The Company licenses standard application software
programs and offers annual maintenance contracts that provide for technical
support and updates to software modules. Product license revenue is generally
recognized upon receipt of a customer purchase order, execution of a software
license agreement and shipment of a product to the customer. However, with
respect to sales made through foreign distributors or systems integrators,
revenue is recognized either upon resale by the distributor to the end user or
upon installation of the software at the end user's facility. Revenue from
development and porting contracts is generally recognized using the percentage
of completion method of accounting. Revenue from customer maintenance contracts
is recognized ratably over the period of the contract. Payments for maintenance
contracts are generally made for the upcoming year and are non-refundable.
Service revenue is recognized as work is performed.
28
<PAGE>
Advertising Costs: Advertising costs are charged to operations as incurred.
Advertising costs were $470,000, $503,000 and $453,000 in fiscal years 1995,
1994 and 1993.
Income Taxes: Effective November 1, 1993, the Company adopted Financial
Accounting Standards Statement No. 109, "Accounting for Income Taxes." Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, 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. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Prior to the adoption of Statement 109, income tax expense was
determined using the deferred method in accordance with Accounting Principles
Board Opinion No. 11.
Foreign Currencies: The functional currency of the Company's wholly owned
subsidiaries is the U.S. dollar. Translation gains and losses are included in
the statement of operations.
Concentrations of Credit Risk: A significant portion of the Company's sales and
receivables are from customers in the semiconductor, electronics, pharmaceutical
and chemical industries. The Company maintains allowances for doubtful accounts
receivable and does not require collateral. Short term investments are
comprised primarily of taxable notes and municipal bonds with maturities not
exceeding six months. The Company has investment policies and performs ongoing
credit evaluations to minimize credit risk.
Computation of Income/Loss per Share: Net income per common 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 the dilutive effect of stock options as computed using the treasury stock
method. Net loss per share is based on the weighted average number of common
shares outstanding during the period. Stock options have not been included in
the calculation of common equivalent shares for loss per share as their
inclusion would be antidilutive.
Recent Accounting Pronouncements: During March 1995, the Financial Accounting
Standards Board issued Statement No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
standard is effective for the Company's 1997 fiscal year and its adoption is not
expected to have a material effect on the financial statements of the Company.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." This
standard, which established a fair value based method of accounting for stock-
based compensation plans, also permits an election to continue following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
with disclosures of pro forma net income and earnings per share under the new
method. The Company is reviewing the implications of SFAS No. 123 and
evaluating the effect, if any, on the financial condition and results of
operations of the Company. SFAS No. 123 will be effective for the Company's
fiscal year 1997.
Reclassifications: Certain reclassifications were made to prior year amounts to
conform to the 1995 presentation. These reclassifications did not change the
previously reported net income (loss), total assets or total cash flows of the
Company for those years.
29
<PAGE>
Note 2: Balance Sheet Detail:
Property and Equipment:
<TABLE>
<CAPTION>
October 31,
(In thousands) 1995 1994
-------- -------
<S> <C> <C>
Computer equipment $ 8,136 $ 6,934
Office equipment 2,040 2,043
Purchased software 1,965 1,733
Leasehold improvements 736 723
-------- -------
12,877 11,433
======== =======
Less accumulated depreciation and amortization (10,452) (9,082)
-------- -------
$ 2,425 $ 2,351
======== =======
</TABLE>
Property and equipment at October 31, 1995 and 1994 includes computer
equipment acquired under capital leases of $1,131,000 (accumulated amortization
of $1,131,000 and $819,000, respectively).
Software Production Costs:
<TABLE>
<CAPTION>
October 31,
(In thousands) 1995 1994
-------- -------
<S> <C> <C>
Software production costs $ 16,325 $14,865
Less accumulated amortization (11,204) (9,341)
-------- -------
$ 5,121 $ 5,524
======== =======
</TABLE>
<TABLE>
<CAPTION>
Years Ended October 31,
(In thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Software production costs capitalized $1,460 $1,662 $1,842
Annual amortization of software
production costs $1,863 $1,809 $1,578
</TABLE>
Other Current Liabilities and Accrued Expenses:
<TABLE>
<CAPTION>
October 31,
(In thousands) 1995 1994
------ ------
<S> <C> <C>
Accrued compensation $2,245 $1,105
Employee stock purchase plan withholdings 326 302
Other 1,009 2,161
Accrued taxes 1,006 1,021
------ ------
$4,586 $4,589
====== ======
</TABLE>
Note 3: Commitments:
Operating Leases: The Company leases its headquarters, research and development
facility, sales offices and certain equipment under noncancelable operating
leases for periods of up to seven years. Certain facility leases provide for
monthly rentals of approximately $66,000, subject to increases in the Consumer
Price Index, or 5% annual increases, and continue through January 1996. Under
these agreements, the Company is responsible for property taxes, insurance and
maintenance. During August 1995, the Company entered into a lease for a new
headquarters facility with monthly rental
30
<PAGE>
payments beginning February 1996 of approximately $55,000, subject to increases
in the Consumer Price Index, to a maximum of 5% annual increase.
Future minimum lease payments under operating leases at October 31, 1995,
are as follows:
<TABLE>
<CAPTION>
Year Ending October 31,
- -----------------------
(in thousands)
<S> <C>
1996 $1,075
1997 934
1998 891
1999 901
2000 798
Thereafter 2,638
------
Total minimum lease payments $7,237
======
</TABLE>
Rental expense was approximately $1,245,000, $1,577,000, and $1,349,000 for
the years ended October 31, 1995, 1994, and 1993, respectively.
Note 4: Capital Stock:
Employee Stock Purchase Plan: On March 15, 1989, the Board of Directors adopted
an employee stock purchase plan (the "Purchase Plan") and initially reserved a
total of 250,000 shares of Common Stock of the Company. In March 1993, the
number of shares reserved for issuance under the Plan was increased by 250,000.
The Company again increased the number of shares reserved for issuance under the
Plan from 500,000 to 680,000 shares in March 1994. Under the Plan, employees
may purchase common stock through payroll deductions at 85% of the lesser of the
fair market value on the first or last day of six month offering periods. At
October 31, 1995, a total of 111,351 shares remained available for purchase
under the plan.
Employee Stock Option Plans: The Company increased the number of shares
reserved for issuance under its 1983 stock option plan from 2,000,000 to
2,320,000 in March 1994. 418,056 shares were available for future grants as of
October 31, 1995. In March 1993, the Company adopted its 1993 stock option plan
under which options for a total of 500,000 shares of Common Stock may be granted
to employees other than executive officers of the Company. 1,974 shares were
available for future grants as of October 31, 1995. Under the 1983 and 1993
plans, both qualified and non-qualified options may be granted to employees to
purchase Common Stock at prices not less than fair market value at date of
grant. The exercise period is determined by the Board of Directors at the date
of grant. All options granted under the Plan are exercisable immediately and
generally expire five years from date of grant. Options generally vest over
four years and, if exercised prior to vesting, are subject to repurchase at the
original purchase price. At October 31, 1995, a total of 401,380 options were
vested.
On September 21, 1993, the Board of Directors approved the repricing of all
employee stock options previously granted with exercise prices greater than
$6.125 per share. A total of 631,124 shares were repriced at $6.125 per share.
The Board of Directors agreed to the repricing with the condition that all
grants would begin re-vesting on September 21, 1993.
31
<PAGE>
Activity under the 1983 and 1993 Employee Stock Option Plans is as follows:
<TABLE>
<CAPTION>
(In thousands)
Number Price Aggregate
of Shares per Share Price
--------------------------------------
<S> <C> <C> <C>
Balance at November 1, 1992 701 $ .75-$18.75 $ 6,375
Granted 791 $6.125-$10.00 9,633
Exercised (141) $ .75-$7.25 (172)
Canceled (185) $4.875-$17.25 (7,945)
- -----------------------------------------------------------------------
Balance at October 31, 1993 1,166 $ .75-$18.75 $ 7,891
Granted 319 $ 4.50-$8.75 2,221
Exercised (67) $ .75-$7.25 (316)
Canceled (320) $6.125-$18.75 (2,459)
- -----------------------------------------------------------------------
Balance at October 31, 1994 1,098 $ 4.50-$15.00 $ 7,337
Granted 438 $6.375-$12.14 3,521
Exercised (131) $ 4.50-$8.75 (887)
Canceled (215) $ 4.50-$12.50 (1,635)
- -----------------------------------------------------------------------
Balance at October 31, 1995 1,190 $ 4.50-$12.50 $ 8,336
</TABLE>
Outside Director Stock Option Plan: In 1990, the Company adopted a stock option
plan under which options for a total of up to 100,000 shares of Common Stock may
be granted to non-executive directors of the Company. The plan provides for the
granting of nonqualified stock options at prices not less than fair market value
on the date of grant. Options expire 10 years after the date of grant. At
October 31, 1995, a total of 32,500 options had been granted at exercise prices
ranging between $6.125 and $8.50 per share, of which none were exercised. In
addition, the Company has separate option agreements with non-executive
directors which totaled 27,500 shares at an exercise price of $6.25 per share as
of October 31, 1995.
Note 5: Income Taxes:
As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 109 as of November 1, 1993. The cumulative effect of adoption of
Statement 109 was not material to the Company's results of operations or
financial position for the year ended October 31, 1994. Prior periods were not
restated.
The provision for income taxes consists of foreign withholding taxes.
The reconciliation between the provision for taxes calculated at the
effective tax rate and at the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994 1993
--------------------------
<S> <C> <C> <C>
Federal income tax statutory rate 34.0% (34.0%) (34.0%)
Foreign taxes 45.5% 13.1% 6.2%
Operating losses (34.0%) 34.0% 34.0%
--------------------------
Effective tax rate 45.5% 13.1% 6.2%
===== ===== ======
</TABLE>
32
<PAGE>
The following table shows the major components of the deferred tax assets
and liabilities as of October 31, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable, inventory
and other reserves $ 221 $ 513
Accrued expenses 184 689
Deferred revenue 282 580
Valuation allowance (529) (1,434)
------- -------
Net current deferred tax assets $ 158 $ 348
======= =======
Non current deferred tax assets
(liabilities):
Net operating losses $ 5,124 $ 4,605
Tax credit carryforwards 4,515 3,440
Depreciation (357) (180)
Amortization (2,089) (2,185)
Other 222 444
Valuation allowance (7,573) (6,472)
------- -------
Net non-current liability ($ 158) ($ 348)
======= =======
</TABLE>
Deferred income taxes included in other current assets at October 31, 1995
and 1994 were $158,000 and $348,000, respectively. The Company has recorded a
valuation allowance against its net deferred tax assets due to the uncertainty
surrounding the realization of such assets. Management evaluates on a quarterly
basis the recoverability of the deferred tax assets and the level of the
valuation allowance. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
At October 31, 1995, the Company has federal net operating loss
carryforwards of approximately $14,075,000 and state net operating loss
carryforwards of approximately $5,500,000. In addition, the Company has
approximately $4,160,000 and $350,000 in general business credit carryforwards
for federal tax and state tax reporting purposes, respectively.
These carryforwards and credits expire between 1996 and 2010 for both
federal and state purposes, if not used before such time to offset future
taxable income or taxes payable.
Note 6: Geographic and Significant Customer Information:
The Company designs and licenses integrated manufacturing execution systems
(MES) software for batch process and discrete manufacturers and operates
primarily in one segment. The Company markets and services its products in the
United States and foreign countries through its direct sales organization and
through distributors.
The Company's foreign operations primarily consist of product sales and
services. Geographic net revenue information is as follows:
33
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31,
(In thousands) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
North America $22,651 $19,168 $20,893
Asia / Pacific Rim 5,147 3,834 2,387
Europe 6,059 4,942 5,195
------- ------- -------
Total net revenue $33,857 $27,944 $28,475
======= ======= =======
</TABLE>
No customer accounted for more than 10% of total revenue for fiscal 1995.
Two customers accounted for 11% and 10%, respectively, of total revenue in
fiscal 1994. One other customer accounted for 11% of total revenue in fiscal
1993.
Note 7: Employee Benefit Plan:
The Company has a 401(k) plan for eligible employees. The Board of Directors
may elect to make a discretionary contribution to the plan. There were no such
contributions in fiscal 1995, 1994, or 1993.
Note 8: Litigation:
In the ordinary course of business, various legal actions and claims pending
have been filed against the Company. In the opinion of management, the ultimate
liability, if any, with respect to these matters, will not adversely affect the
results of operations or financial position of the Company.
Note 9: Restructuring Charge:
During the third quarter of fiscal 1994, the Company announced a worldwide
consolidation of its operations and recorded a restructuring charge of
$1,407,000. The consolidation primarily affected several field offices. Major
cost components associated with the restructuring were severance pay amounts for
terminated employees, lease and rental costs associated with the consolidation
of sales offices and the consolidation of operations at the Company's
headquarters facilities. The balance was comprised of fixed asset write-offs in
the offices affected, as well as travel and legal fees. The consolidation was
designed to improve efficiencies and bring operational expenses in line with
revenues.
Between the third quarter of 1994 and the second quarter of 1995, the
Company utilized $1,196,000 for various restructuring activities. During the
third quarter of fiscal 1995, the Company reevaluated the status of its
restructuring activities in light of results of operations that had improved
substantially since the commencement of the restructuring. As a result of that
reevaluation, the Company decided to discontinue subsequent restructuring
activities and reversed the remaining restructuring reserve of $211,000. No
reserve amount remains at October 31, 1995.
Note 10: Subsequent Event:
On December 15, 1995, the Company entered into an agreement with Electronic Data
Systems Corporation to out-source the Company's computer data center and
telecommunication services. The contract has a 10-year term beginning December
1995. In the event the Company decides to terminate the contract before the
expiration of the term, the Company will be required to pay a termination fee
depending on the termination date, as stated in the agreement.
34
<PAGE>
The table below sets out the obligations under this contract:
<TABLE>
<CAPTION>
Service Termination
Fiscal Year Obligation Fee
- ----------- ----------- -----------
<S> <C> <C>
1996 $ 1,396,000 $900,000
1997 2,747,000 800,000
1998 2,874,000 600,000
1999 2,950,000 500,000
2000 3,028,000 300,000
Thereafter 16,581,000 150,000
-----------
Total Service Obligations $29,576,000
===========
</TABLE>
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information required by this item other than information regarding
executive officers is set forth under "Election of Directors" and "Executive
Compensation and Other Matters - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders, to be filed within 120 days after the end of the fiscal
year ended October 31, 1995, and is hereby incorporated by reference.
Information regarding executive officers is set forth under "Executive Officers
of the Registrant" in Part I of this 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is set forth under "Executive
Compensation and Other Matters" in the Company's Proxy Statement for the 1996
Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is set forth under "General
Information - Stock Ownership of Certain Beneficial Owners and Management" in
the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is set forth under "Executive
Compensation and Other Matters - Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders and is incorporated herein by reference.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Financial Statements.
---------------------
Report of Independent Accountants dated December 6 and December 15,
1995.
Consolidated Statements of Operations - Years Ended October 31,
1995, 1994 and 1993.
Consolidated Balance Sheets - October 31, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years Ended
October 31, 1995, 1994, and 1993.
Consolidated Statements of Cash Flows - Years Ended October 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule. The following financial statement
-----------------------------
schedule of Consilium, Inc. is filed as part of this Report and
should be read in conjunction with the Consolidated Financial
Statements of Consilium, Inc.
Report of Independent Accountants on Financial
Statement Schedule Page S-1
Schedule II - Valuation and Qualifying Accounts Page S-2
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or
is shown in the Consolidated Financial Statements or notes thereto.
3. Exhibits (a)
--------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<S> <C>
3.1 Certificate of Incorporation of the Company. /3/
3.2 By-Laws of the Company. /3/
10.1 Lease agreement dated November 28, 1988, among the
Company and John Arrillaga, Trustee of the John
Arrillaga Separate Trust and Richard T. Peery,
Trustee of the Richard T. Peery Separate Property
Trust. /1/
10.2 Master Lease Agreement, dated December 2, 1988,
between the Company and General Electric Capital
Corporation, with schedules. /1/
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<S> <C>
10.3 Letter Agreement, dated July 22, 1987, with respect
to the employment of Thomas Tomasetti. /1,6/
10.4 Lease agreement paperwork for the 630 Clyde Court
facility, dated March 6, 1990, among the Company
and Santa Clara Property Associates. /2/
10.5 Agreement between the Company and Honeywell, Inc.,
Industrial Automation and Control, dated April 1,
1993. /3,5/
10.6 Form of Director and Officer Indemnity Agreement.
/4,6/
10.7 Amended and Restated 1983 Stock Option Plan. /6/
10.8 Forms of Stock Option Agreement used in conjunction
with the 1983 Stock Option Plan. /6/
10.9 1990 Outside Director's Stock Option Plan. /6/
10.10 Forms of Outside Directors Stock Option Agreement
used in conjunction with the 1990 Outside Director's
Stock Option Plan. /6/
10.11 Lease agreement for the Company's principal
facility, dated August 2, 1995, among the Company and
The Prudential Insurance Company of America.
10.12 Letter Agreement, dated August 5, 1994, with respect
to the employment of Edward Norton. /6/
10.13 Letter Agreement, dated September 28, 1994, with
respect to the employment of Richard Van Hoesen. /6/
11.1 Statement re Computation of Income (Loss) per Share.
21.1 Schedule of Subsidiaries.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney.
27 Financial Data Schedule (available in EDGAR format
only).
</TABLE>
/1/ Incorporated by reference from exhibits of the same number in
Registrant's Registration Statement on Form S-1 (File No. 33-
27947), effective May 9, 1989.
/2/ Incorporated by reference from exhibit 10.3 to Registrant's
Annual Report on Form 10-K filed for the Year ended October 31,
1990.
/3/ Incorporated by reference from exhibits 3.1, 3.2 or 10.19 to
Registrant's Quarterly Report on Form 10-Q filed for the Quarter
ended April 30, 1993.
39
<PAGE>
/4/ Incorporated by reference from exhibit 10.6 to Registrant's
Quarterly Report on Form 10-Q for the Quarter ended July 31,
1994.
/5/ The Securities and Exchange Commission has granted confidential
treatment for portions of this document.
/6/ Compensatory or employment arrangement.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the last
quarter of the fiscal year ended October 31, 1995.
40
<PAGE>
FORM S-8 UNDERTAKING
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended,
the undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into the Registrant's Registration Statements on
Form S-8 Nos. 33-30381 (filed August 8, 1989), 33-30382 (filed August 8, 1989),
33-35363 (filed July 9, 1990), 33-41312 (filed June 20, 1991), 33-63346 (filed
May 27, 1993) 33-63512 (filed May 28, 1993), 33-79474 (filed May 27, 1994) and
33-79458 (filed May 27, 1994).
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 precedents, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONSILIUM, INC.
By: /s/ Richard H. Van Hoesen
--------------------------------
Richard H. Van Hoesen
Vice President, Finance and
Administration and Chief
Financial Officer
DATED: January 25, 1996
----------------
42
<PAGE>
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas A. Tomasetti and Richard H. Van Hoesen,
jointly and severally, his or her attorneys in fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, 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 thereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ Jonathan J. Golovin Chairman of the Board, January 25, 1996
----------------------- Secretary and Chief Technical Officer
(Jonathan J. Golovin)
By: /s/ Thomas A. Tomasetti President, Chief Executive January 25, 1996
----------------------- Officer and Director
(Thomas A. Tomasetti) (Principal Executive Officer)
By: /s/ Richard H. Van Hoesen Vice President of Operations, January 25, 1996
------------------------- Administration and Finance
(Richard H. Van Hoesen) and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Clifton Wong Controller January 25, 1996
---------------- (Principal Accounting Officer)
(Clifton Wong)
By: /s/ Robert Horne Director January 25, 1996
----------------
(Robert Horne)
</TABLE>
43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Consilium, Inc., is
included on page 27 of this has been incorporated by reference in this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedules listed in the index on page 38
of this Form 10-K.
In our opinion, the financial statement schedules referred to above, 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.
s/s Coopers & Lybrand L.L.P.
-------------------------------
Coopers & Lybrand L.L.P.
San Jose, California
December 6, 1995
<PAGE>
CONSILIUM, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------- ---------- ------------------------- ----------- ---------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ------------------------------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1993:
Allowance for doubtful accounts $ 750,000 $ 699,178 - $ 899,178 $ 550,000
Year Ended October 31, 1994:
Allowance for doubtful accounts $ 550,000 $ 188,400 - $ 113,400 $ 625,000
Year Ended October 31, 1995:
Allowance for doubtful accounts $ 625,000 $ 323,873 - $ 298,873 $ 650,000
</TABLE>
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
3.1 Certificate of Incorporation of the Company. /3/
3.2 By-Laws of the Company. /3/
10.1 Lease agreement dated November 28, 1988, among the
Company and John Arrillaga, Trustee of the John Arrillaga
Separate Trust and Richard T. Peery, Trustee of the
Richard T. Peery Separate Property Trust. /1/
10.2 Master Lease Agreement, dated December 2, 1988, between
the Company and General Electric Capital Corporation,
with schedules. /1/
10.3 Letter Agreement, dated July 22, 1987, with respect to
the employment of Thomas Tomasetti. /1,6/
10.4 Lease agreement paperwork for the 630 Clyde Court facility,
dated March 6, 1990, among the Company and Santa Clara
Property Associates. /2/
10.5 Agreement between the Company and Honeywell, Inc.,
Industrial Automation and Control, dated April 1, 1993. /3,5/
10.6 Form of Director and Officer Indemnity Agreement. /4,6/
10.7 Amended and Restated 1983 Stock Option Plan. /6/
10.8 Forms of Stock Option Agreement used in conjunction
with the 1983 Stock Option Plan. /6/
10.9 1990 Outside Director's Stock Option Plan. /6/
10.10 Forms of Outside Directors Stock Option Agreement used
in conjunction with the 1990 Outside Director's Stock Option
Plan. /6/
10.11 Lease agreement for the Company's principal facility,
dated August 2, 1995, among the Company and The
Prudential Insurance Company of America.
10.12 Letter Agreement, dated August 5, 1994, with respect to
the employment of Edward Norton. /6/
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.13 Letter Agreement, dated September 28, 1994, with
respect to the employment of Richard Van Hoesen. /6/
11.1 Statement re Computation of Income (Loss) per Share.
21.1 Schedule of Subsidiaries.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney.
27 Financial Data Schedule (available in EDGAR format only).
</TABLE>
- -----------------
/1/ Incorporated by reference from exhibits of the same number in Registrant's
Registration Statement on Form S-1 (File No. 33-27947), effective May 9,
1989.
/2/ Incorporated by reference from exhibit 10.3 to Registrant's Annual Report
on Form 10-K filed for the Year ended October 31, 1990.
/3/ Incorporated by reference from exhibits 3.1, 3.2 or 10.19 to Registrant's
Quarterly Report on Form 10-Q filed for the quarter ended April 30, 1993.
/4/ Incorporated by reference from exhibit 10.6 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994.
/5/ The Securities and Exchange Commission has granted confidential treatment
for portions of this document.
/6/ Compensatory or employment arrangement.
<PAGE>
FOURTH
AMENDED AND RESTATED
CONSILIUM, INC
1983 STOCK OPTION PLAN
(as amended January 25, 1994)
1. Purpose. The Consilium, Inc. 1983 Stock Option Plan (the "Plan") was
-------
established to create additional incentive for key employees and directors of
Consilium, Inc. and any present or future parent and/or subsidiary corporations
of such corporation (collectively referred to as the "Company") to promote the
financial success and progress of the Company. The Plan has subsequently been
amended or amended and restated from time to time. For purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as defined in sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (referred to
herein as the "Code" or the "1986 Code").
Pursuant to the resolutions of the Board of Directors adopted on January
25, 1994, the Plan is hereby amended as set forth herein (the "Amended Plan").
2. Administration.
--------------
(a) Administration by Board and/or Committee. The Amended Plan shall be
----------------------------------------
administered by the Board of Directors of the Company (the "Board") and/or by
a duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references herein to the Board shall also mean the
committee if such committee has been appointed and, unless the powers of the
committee have been specifically limited, the committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
terminate or amend the Amended Plan at any time, subject to the terms of the
Amended Plan and any applicable limitations imposed by law. All questions of
interpretation of the Amended Plan or of any options granted under the Amended
Plan (an "Option") shall be determined by the Board, and such determinations
shall be final and binding upon all persons having an interest in the Amended
Plan and/or any Option.
(b) Options Authorized. Options may be either incentive stock options as
------------------
defined in section 422 of the Code or non-qualified stock options. All
incentive stock options and non-qualified stock options granted to an Optionee
shall be set forth in separate Options.
(c) Authority of Officers. Any officer of the Company shall have the
---------------------
authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
(d) Disinterested Administration. With respect to the participation
----------------------------
in the Amended Plan of employees who are also officers or directors of the
Company subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), unless otherwise determined by the Board in connection
with a particular option, the Amended Plan shall be administered by the Board or
by a duly appointed committee of the Board in compliance with the "disinterested
administration" requirement of
<PAGE>
Rule 16b-3, as promulgated under the Exchange Act and amended from time to time
or any successor rule or regulation ("Rule 16b-3").
(e) Compliance with Section 162(m) of the Code. In the event the Company
------------------------------------------
is a "publicly held corporation" within the meaning of paragraph (2) of section
162(m) of the Code, as amended by the Revenue Reconciliation Act of 1993 (P.L.
103-66), and the regulations promulgated thereunder ("Section 162(m)"), the
Company may establish a committee of outside directors meeting the requirements
of paragraph 4(C)(i) of Section 162(m) to approve the grant of Options which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).
3. Eligibility.
-----------
(a) Eligible Persons. The Options may be granted only to employees
----------------
(including officers) of the Company and directors of the Company who are also
employees. The Board shall, in the Board's sole discretion, determine which
persons shall be granted Options (an "Optionee"). An Optionee may, if he is
otherwise eligible, be granted additional Options. Notwithstanding the
foregoing, no Option may be granted to a director of the Company (whether or not
such director is also an employee of the Company) while such director is a
member of the committee which has been appointed by the Board to administer the
Amended Plan.
(b) Fair Market Value Limitation. The aggregate fair market value of
----------------------------
the stock for which an Optionee may be granted incentive stock options in any
calendar year beginning or after January 1, 1987, under all stock option plans
of the Company, including the Amended Plan, shall comply with the limitations
set forth in section 422(d) of the Code (i.e., shall not become exercisable for
----
the first time in an amount which exceeds $100,000 in a single calendar year).
4. Shares Subject to Option. The maximum number of shares which may be
------------------------
issued under the Amended Plan shall be 2,320,000 shares of the Company's
authorized but unissued common stock, subject to adjustment as provided in
paragraph 7. Subject to adjustment as provided in paragraph 7 below, at any such
time as the Company is a "publicly held corporation" within the meaning of
paragraph (2) of Section 162(m), no person shall be granted within any fiscal
year of the Company Options which in the aggregate cover more than 200,000
shares, provided that up to 300,000 shares may be granted to a new hire. In the
event that any outstanding Option for any reason expires or is terminated and/or
shares subject to repurchase are repurchased by the Company, the shares of
common stock allocable to the unexercised portion of such Option, or such
repurchased shares, may again be subjected to an Option. Notwithstanding the
foregoing, any such shares shall be made subject to a new Option only if the
grant of such new Option and the issuance of such shares pursuant to such new
Option would not cause the Amended Plan or any Option granted under the Amended
Plan to contravene Rule 16b-3.
5. Time for Granting Options. All Options shall be granted, if at all,
-------------------------
within ten (10) years from January 26, 1993.
6. Terms, Conditions and Form of Options. Subject to the provisions of
-------------------------------------
the Amended Plan, the Board shall determine for each Option (which need not be
identical) the number of shares for which the Option shall be granted, the
Option price of the Option, the exercisability of the Option, whether the Option
is an incentive stock option or a non-qualified stock option, and all other
terms and conditions of the Option not inconsistent with the Amended Plan.
Options granted pursuant to the Amended Plan shall be evidenced by written
agreements specifying the number of shares covered thereby, in such form as the
<PAGE>
Board shall from time to time establish, and shall comply with and be subject to
the following terms and conditions:
(a) Option Price. The option price per share for an Option shall be not
------------
less than the fair market value, as determined by the Board, of the shares of
common stock of the Company on the date of the granting of the Option, except
that, as to an Optionee who at the time the Option is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company within the meaning of section 422(b)(6) of the Code and/or
10% of the total combined value of all classes of stock of the Company (a "Ten
Percent Owner Optionee"), the option price per share for any incentive stock
option granted the Ten Percent Owner Optionee shall not be less than 110% of the
fair market value of the shares on the date the Option is granted.
(b) Exercise Period of Options. The Board shall have the power to set the
--------------------------
time or times within which each Option shall be exercisable or the event or
events upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that no Option shall
be exercisable after the expiration of ten (10) years from the date such Option
is granted, and provided further that no Option granted to a Ten Percent Owner
Optionee which is intended to be an incentive stock option shall be exercisable
after the expiration of five (5) years from the date such Option is granted.
(c) Payment of Option Price. Payment of the option price for the number
-----------------------
of shares being purchased shall be made (1) in cash, by check, or cash
equivalent, (2) by tender to the Company of shares of the Company's stock which
(a) either has been owned by the Optionee for more than six (6) months or was
not acquired, directly or indirectly, from the Company, and (b) has a value, as
determined by the Board (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the option price, (3) by the assignment of the proceeds of a sale of some
or all of the shares being acquired upon the exercise of an Option (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System), or (4) by such other consideration (including, without
limitation, the Optionee's promissory note) as the Board may approve at the time
the option is granted. In the event the Board permits the exercise of an Option
in whole or in part by means of the Optionee's promissory note, the Board shall
determine the provisions of such note; provided, however, that the note shall
not represent more than ninety percent (90%) of the option price, the principal
shall be due and payable not more than five (5) years after the Option is
exercised, and interest shall be payable at least annually and be at least equal
to the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code.
(x) Unless otherwise provided by the Board, in the event the Company
at any time is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations.
(y) The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to establish, decline to approve and/or
terminate any program and/or procedures for the exercise of Options by means of
an assignment of the proceeds of a sale of some or all of the shares of stock to
be acquired upon such exercise.
<PAGE>
(d) Options Non-Transferable. During the lifetime of the Optionee, the
------------------------
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
(e) Standard Option Terms.
---------------------
(i) Immediately Exercisable Incentive Stock Options. Unless otherwise
-----------------------------------------------
provided for by the Board in the grant of an Option, an Option designated by the
Board as an "Immediately Exercisable Incentive Stock Option" shall comply with
and be subject to the terms and conditions set forth in the form of Immediately
Exercisable Incentive Stock Option Agreement attached hereto as Exhibit A and
incorporated herein by reference.
(ii) Immediately Exercisable Nonqualified Stock Options. Unless
--------------------------------------------------
otherwise provided for by the Board in the grant of an Option, an Option
designated by the Board as an "Immediately Exercisable Nonqualified Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Immediately Exercisable Nonqualified Stock Option Agreement
attached hereto as Exhibit B and incorporated herein by reference.
7. Effect of Change in Stock Subject to Amended Plan. Appropriate
-------------------------------------------------
adjustments shall be made in the number and class of shares of stock subject to
the Amended Plan and to any outstanding Options and in the option price of any
outstanding Options in the event of a stock dividend, stock split, reverse stock
split, combination, reclassification, or like change in the capital structure of
the Company.
8. Termination or Amendment of Amended Plan. The Board, including any
----------------------------------------
duly appointed committee of the Board, may terminate or amend the Amended Plan
at any time; provided, however, that without approval of the Company's
stockholders there shall be (i) no increase in the total number of shares
covered by the Amended Plan (except by operation of the provisions of paragraph
7 above), and (ii) no change in the class of persons eligible to receive
Options. In any event, no amendment may adversely affect any then outstanding
Options or any unexercised portions thereof, without the consent of the
Optionee, unless such amendment is required to enable the Option to qualify as
an incentive stock option (as defined in the Code). In addition to the
foregoing, the approval of the Company's stockholders shall be sought for any
amendment to the Amended Plan or an Option for which the Board deems stockholder
approval necessary in order to comply with Rule 16b-3.
9. Continuation of Prior Versions of the Plan. Notwithstanding any other
------------------------------------------
provision of the Amended Plan to the contrary, the terms of each prior version
of the Plan, as amended, shall remain in effect and apply to Options granted
pursuant to that version of the Plan.
Pursuant to the authority granted by the Board of Directors, the
undersigned officer of Consilium, Inc. hereby adopts the foregoing Fourth
Amended and Restated Consilium, Inc. 1983 Stock Option Plan as of the 25th day
of January, 1994.
<PAGE>
EXHIBIT A
---------
CONSILIUM, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
Consilium, Inc. (the "Company"), a Delaware corporation, hereby grants to
________________________________________________________ (the "Optionee"), an
option to purchase a total of ______________ shares of common stock of the
Company, under the Company's Fourth Amended and Restated 1983 Stock Option Plan
(the "Plan"), at the option price of $______________ per share and in the
manner, and subject to the provisions of this Option Agreement (the "Option").
Any subsequent reference herein to the Company shall also mean any present or
future parent and/or subsidiary corporation of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be
defined in sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
This Option is intended to be an incentive stock option as described in
section 422 of the Code, but the Company does not represent or warrant that this
Option qualifies as such. Optionee should consult with Optionee's own tax
advisors regarding the tax effects of this Option and the requirements necessary
to obtain favorable tax treatment under section 422 of the Code, including, but
not limited to, holding period requirements.
1. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Company's Board of Directors (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent references herein to the Board
shall also mean the committee if such committee has been appointed and, unless
the powers of the committee have been specifically limited, the committee shall
have all of the powers of the Board granted in the Plan, including, without
limitation, the power to terminate or amend the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law. All
determinations by the Board shall be final and binding upon all persons having
an interest in the Option. Any officer of the Company shall have the authority
to act on behalf of the Company with respect to any matter, right, obligation,
or election which herein, provided the officer has apparent authority with
respect to such matter, right, obligation, or election.
2. Exercise of the Option.
----------------------
(a) Right to Exercise. The Option shall be immediately exercisable in
-----------------
its entirety subject to the Optionee's agreement that any shares purchased upon
exercise are subject to the Company's repurchase right set forth in paragraph 10
below. Notwithstanding the foregoing, except as provided in paragraph 8 below,
the aggregate fair market value of the stock with respect to which the Optionee
may exercise the Option for the first time during any calendar year, together
with any other incentive stock options which are exercisable for the first time
during any such year, as determined in accordance with section 422(d) of the
Code, shall not exceed One Hundred Thousand Dollars ($100,000). Such limitation
on exercise described in section 422(d) of the Code shall be referred to in this
Option Agreement as the "$100,000 Exercise Limitation." Notwithstanding the
foregoing, in the event that the adoption of the Plan or any amendment of the
Plan is subject to the approval of the Company's stockholders in order for the
Option to comply with the requirements of Rule 16b-3, promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall not be exercisable prior to such stockholder approval if the Optionee is
subject to Section 16(b) of the Exchange Act, unless the Board, in its sole
discretion, approves the exercise of the Option prior to such stockholder
approval.
<PAGE>
(b) Method of Exercise. The Option shall be exercisable by written
------------------
notice in the form attached hereto as Exhibit 1 which shall state the election
to exercise the Option, the number of shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares as may be required by the
Company pursuant to the provisions of this Option Agreement. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Treasurer of the Company prior to the expiration of the
term of the Option as set forth in paragraph 4 below, accompanied by an executed
copy of the then current form of Joint Escrow Instructions as required by
paragraph 10(b) and full payment of the option price for the number of shares
being purchased (1) in cash, (2) by tender of stock of the Company which (a)
either has been owned by the Optionee for more than six (6) months or was not
acquired, directly or indirectly from the Company, and (b) has a fair market
value not less than the option price, (3) by Immediate Sales Proceeds, as
defined below, or (4) by such other consideration as may have been approved by
the Board at the time the Option was granted. "Immediate Sales Proceeds" shall
mean the assignment in form acceptable to the Company of the proceeds of a sale
of some or all of the shares acquired upon the exercise of the Option pursuant
to a program and/or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System). The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to decline to approve any such program
and/or procedure.
(c) Withholding. At the time the Option is exercised, in whole or in
-----------
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for federal and state tax withholding obligations of the
Company, if any, which arise in connection with the Option including, without
limitation, obligations arising upon (i) the exercise of the Option in whole or
in part, (ii) the transfer, in whole or in part, of any shares acquired on
exercise of the Option, (iii) the operation of any federal or state law
providing for the imputation of interest or (iv) the lapse of any restriction
with respect to any shares acquired on exercise of the Option.
(d) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered in the name
of the person or persons exercising the Option.
(e) Restriction on Grant of Option and Issuance of Shares. The grant
-----------------------------------------------------
of the Option and the issuance of shares pursuant to the Option shall be subject
to compliance with all applicable requirements of federal or state law with
respect to such securities, including, without limitation, any required approval
by the Commissioner of Corporations of the State of California. The Option may
not be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. As a condition to the exercise of the Option, the Company may
require the Optionee to make any representation or warranty to the Company as
may be required by any applicable law or regulation. The Company may at any
time place legends referring to any applicable federal and/or state securities
restrictions on all certificates representing shares of stock subject to the
provisions of this Agreement.
(f) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
(g) Execution of Escrow Agreement. A condition of any exercise of the
-----------------------------
Option as to Unvested Shares, as defined in paragraph 10 below, is that the
Optionee, and the spouse of the
<PAGE>
Optionee, if any, contemporaneously with the exercise of the Option and prior to
any issuance of any stock certificate representing the shares purchased on
exercise of the Option, execute the form of escrow agreement required by
paragraph 10(b) below.
3. Non-Transferability of the Option. The Option may not be transferred
---------------------------------
in any manner otherwise than by will or by the laws of the descent or
distribution and may be exercised during the lifetime of the Optionee only by
the Optionee.
4. Termination of the Option.
-------------------------
(a) Option Term. The Option may not be exercised after five (5) years
-----------
from the date of grant of the Option set forth below (the "Option Term Date"),
and may be exercised during such period only in accordance with the terms of the
Option as set forth in this Option Agreement.
(b) Termination of Employment. If the Optionee ceases to be an
-------------------------
employee of the Company for any reason except death or disability, the Option,
to the extent unexercised and exercisable by the Optionee on the date on which
the Optionee ceased to be an employee, may be exercised by the Optionee within
three (3) months after the date on which the Optionee ceased to be an employee,
but in any event no later than the Option Term Date. If the Optionee's
employment with the Company is terminated because of the death of the Optionee
or disability of the Optionee within the meaning of section 422(c)(7) of the
Code, the Option, to the extent unexercised by the Optionee on the date the
Optionee ceased to be employed by the Company, may be exercised by the Optionee
(or the Optionee's legal representative) at any time prior to the expiration of
twelve (12) months from the date the Optionee ceased to be employed, but in any
event no later than the Option Term Date. The Optionee's employment shall be
deemed to have terminated on account of death if the Optionee dies within three
(3) months of the Optionee's termination of employment. Except as provided in
this paragraph 4, the Option shall terminate and may not be exercised after the
Optionee ceases to be an employee of the Company.
(c) Optionee Subject to Section 16(b). Notwithstanding the foregoing,
---------------------------------
if the exercise of the Option within the applicable time periods set forth above
would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Option shall remain exercisable until the earliest to occur of (i) the tenth
(10th) day following the date on which the Optionee would no longer be subject
to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of employment, or (iii) the Option Term Date.
5. Transfer of Control. A "Transfer of Control" shall be deemed to
-------------------
have occurred in the event any of the following occurs with respect to the
Company:
(a) a merger in which the Company is not the surviving corporation;
(b) the sale or exchange by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly at least a majority of the beneficial interest in the voting stock
of the Company; or
(c) the sale of all or substantially all of the Company's assets
(other than a sale or transfer to a subsidiary of the Company as defined in
section 424(f) of the Code).
<PAGE>
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall assume the Company's rights and obligations under this
Option Agreement. In the event the Acquiring Corporation elects not to assume
the Company's rights and obligations under this Option Agreement in connection
with a Transfer of Control, the Unvested Share Repurchase Option set forth in
paragraph 10 below shall terminate and be of no further force and effect
effective upon the Transfer of Control. The Option shall terminate effective as
of the date of the Transfer of Control to the extent that the Option is neither
assumed by the Acquiring Corporation nor exercised as of the date of the
Transfer of Control.
6. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company.
7. Rights as a Stockholder or Employee. The Optionee shall have no rights
-----------------------------------
as a stockholder with respect to any shares covered by the Option until the date
of the issuance of a stock certificate(s) for the shares for which the Option
has been exercised. No adjustment shall be made for dividends or distributions
or other rights for which the record date is prior to the date such stock
certificate(s) are issued, except as provided in paragraph 6. Nothing in the
Option shall confer upon the Optionee any right to continue in the employ of the
Company or interfere in any way with any right of the Company to terminate the
Optionee's employment at any time.
8. Exception to $100,000 Exercise Limitation. Notwithstanding any other
-----------------------------------------
provision of this Option Agreement, if compliance with the $100,000 Exercise
Limitation as set forth in paragraph 2(a) above will result in the
exercisability of any Vested Shares (as defined in paragraph 10(a) above) being
delayed more than thirty (30) days beyond the vesting date for such shares, the
Option shall be deemed to be two (2) options. The first option shall be for the
maximum number of shares subject to the Option that can comply with the $100,000
Exercise Limitation without causing the Option to be unexercisable as to Vested
Shares. The second option, which shall not be treated as an incentive stock
option as described in section 422(b) of the Code, shall be for the balance of
the shares subject to the Option and shall be exercisable on the same terms and
at the same time as set forth in this Option Agreement, provided, however, that
(a) the second sentence of paragraph 2(a) above shall not apply to the second
option and (b) such shares shall become Vested Shares on the same date or dates
as set forth in this Option Agreement without regard to this paragraph. Unless
the Optionee specifically elects to the contrary in the Optionee's written
notice of exercise, the first option shall be deemed to be exercised first to
the maximum possible extent and then the second option shall be deemed to be
exercised.
9. Notice of Sale Upon Disqualifying Disposition. The Optionee shall notify
---------------------------------------------
the Treasurer of the Company if the Optionee sells any of the shares purchased
pursuant to the Option within one (1) year from the date the Optionee exercises
all or part of the Option or within two (2) years of the grant date of the
Option. The Optionee shall hold all shares purchased under the Option in the
Optionee's name (and not in the name of any nominee) for the one-year period
immediately after exercise of the Option and the two-year period immediately
after grant of the Option. The Company may, at any time during the one or two-
year periods set forth above, place a legend or legends on any certificate
representing shares acquired pursuant to the Option requesting the transfer
agent for the Company's stock to notify the Company of any such transfers. The
obligation of the Optionee to notify the Company of any such transfer shall
continue notwithstanding that a legend has been placed on the certificate
pursuant to the preceding sentence.
<PAGE>
10. Unvested Share Repurchase Option. In the event the Optionee's
--------------------------------
employment with the Company is terminated for any reason, with or without cause,
or if the Optionee or the Optionee's legal representative attempts to sell,
exchange, transfer, pledge or otherwise dispose of any shares acquired upon
exercise of the Option which have not vested in the Optionee pursuant to
paragraph 10(a) below (the "Unvested Shares"), the Company shall have the right
to reacquire the Unvested Shares under the terms and subject to the conditions
set forth in this paragraph 10 (the "Unvested Share Repurchase Option").
(a) Vesting of Shares. Unless otherwise specified by the Board at the
-----------------
time the Option is granted and set forth below, the term Initial Vesting Date
for purposes of the Option Agreement shall mean the date twelve (12) months from
the date the Option is granted as set forth below. Shares subject to the Option
shall vest in the Optionee (the "Vested Shares") on and after the Initial
Vesting Date in accordance with the following formula:
Nemployment + 12 X Ngrant = Nvested
----------------
Nperiod
Where Nemployment = the number of full months of the Optionee's
continuous employment with the Company from the
Initial Vesting Date.
Nperiod = the number of full months in the period
determined by the Board during which shares
subject to the Option shall be subject to the
Unvested Share Repurchase Option. Unless
otherwise specified by the Board at the time
the Option is granted, Nperiod shall equal
forty-eight (48) months.
Ngrant = the number of shares subject to the Option.
Nvested = the number of Vested Shares.
Shares subject to the Option shall not vest in the Optionee prior to the
Initial Vesting Date.
(b) Escrow. To insure that the Unvested Shares will be available for
------
repurchase, the Optionee shall deposit the certificates evidencing the shares
which the Optionee purchases upon exercise of an Option with an escrow agent
designated by the Board under the terms and conditions of an escrow agreement
approved by the Board. The Company will bear the expenses of the escrow.
(c) Exercise of Unvested Share Repurchase Option. Except as provided
--------------------------------------------
in paragraph 5 above, if the employment of the Optionee is terminated for any
reason or if the Optionee or the Optionee's legal representative attempts to
dispose of any Unvested Shares other than as allowed in this Plan, the Company
may exercise the Unvested Share Repurchase Option by written notice to the
escrow agent and to the Optionee or the Optionee's legal representative within
ninety (90) days after such termination (or exercise of the Option, if later) or
after the Company has received notice of the attempted disposition.
(d) Payment for Shares and Return of Shares. Payment by the Company
---------------------------------------
to the escrow agent on behalf of the Optionee or the Optionee's legal
representative shall be made in cash at the
<PAGE>
time the written notice of exercise is given by the Company pursuant to
paragraph 8(c), above. For purposes of the foregoing, cancellation of any
promissory note of the Optionee to the Company shall be treated as payment to
the Optionee in cash to the extent of the unpaid principal and any accrued
interest cancelled. The purchase price per share being purchased by the Company
shall be an amount equal to the lesser of (i) the Optionee's original cost per
share, or (ii) the fair market value of the shares as determined by the Board as
of the date of the event giving rise to the Unvested Share Repurchase Option.
Within thirty (30) days after payment by the Company, the escrow agent shall
give the shares which the Company has purchased to the Company and shall give
the payment received from the Company to the Optionee.
(e) Assignment of Unvested Share Repurchase Option. In the event the
----------------------------------------------
Company is unable to exercise the Unvested Share Repurchase Option pursuant to
the provisions of Section 500 et seq. of the California Corporations Code, or
-- ----
the corresponding provisions of other applicable law, the Company shall have the
right to assign the Unvested Share Repurchase Option to one or more persons as
may be selected by the Board.
(f) Early Termination of Unvested Share Repurchase Option. The other
-----------------------------------------------------
provisions of paragraph 10 notwithstanding, the Unvested Share Repurchase Option
shall terminate and be of no further force and effect upon the occurrence of a
Transfer of Control (as defined in paragraph 5), unless the Company's successor,
acquiror or purchaser assumes the terms and obligations of this Option
Agreement.
(g) Legends. The Company may place a legend or legends referencing
-------
the Unvested Share Repurchase Option on any shares subject to the Unvested Share
Repurchase Option.
(h) Additional Rights. The Company's rights under this paragraph 10
-----------------
are in addition to any other rights the Company may have to acquire some or all
of the Unvested Shares.
11. Stock Dividends, etc. If, from time to time, there is any stock
--------------------
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of Optionee's ownership of the shares acquired upon exercise of the Option shall
be immediately subject to the Unvested Share Repurchase Option with the same
force and effect as the shares subject to the Unvested Share Repurchase Option
before such event.
12. Binding Effect. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
13. Amendment or Termination. The Board may at any time amend or
------------------------
terminate the Plan and/or the Option; provided, however, that no such amendment
or termination may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such amendment is required to enable
the Option to qualify as an incentive stock option.
DATE OF GRANT:
INITIAL VESTING DATE:
<PAGE>
CONSILIUM, INC.
By: ____________________________________
Title: _________________________________
Optionee represents that Optionee is familiar with the terms and provisions
of this Option Agreement, including the Unvested Share Repurchase Option set
forth in paragraph 10, and hereby accepts the Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement.
Date: ______________________________ ________________________________________
The undersigned, being the spouse of the above-named optionee, does hereby
acknowledge that the undersigned has read and is familiar with the provisions of
the above Agreement, and the undersigned hereby agrees thereto and joins therein
to the extent, if any, that the agreement and joinder of the undersigned may be
necessary.
________________________________________
<PAGE>
EXHIBIT B
---------
CONSILIUM, INC.
IMMEDIATELY EXERCISABLE
NONQUALIFIED STOCK OPTION AGREEMENT
Consilium, Inc. (the "Company"), a Delaware corporation, hereby grants to
______________________________________________ (the "Optionee"), an option to
purchase a total of ___________ shares of common stock of the Company, under the
Company's Fourth Amended and Restated 1983 Stock Option Plan (the "Plan"), at
the option price of $______________ per share and in the manner, and subject to
the provisions of this Option Agreement (the "Option"). Any subsequent
reference herein to the Company shall also mean any present or future parent
and/or subsidiary corporation of the Company. For purposes of this Option
Agreement, a parent corporation and a subsidiary corporation shall be as defined
in sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended
(the "Code").
This is a nonqualified stock option and shall not be treated as an
incentive stock option as described in section 422 of the Code.
1. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Company's Board of Directors (the "Board")
and/or by a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references herein to the Board shall also
mean the committee if such committee has been appointed and, unless the powers
of the committee have been specifically limited, the committee shall have all of
the powers of the Board granted in the Plan, including, without limitation, the
power to terminate or amend the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law. All determinations by the
Board shall be final and binding upon all persons having an interest in the
Option. Any officer of the Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
2. Exercise of the Option.
----------------------
(a) Right to Exercise. The Option shall be immediately exercisable
-----------------
in its entirety subject to the Optionee's agreement that any shares purchased
upon exercise are subject to the Company's repurchase right set forth in
paragraph 8 below. Notwithstanding the foregoing, in the event that the adoption
of the Plan or any amendment of the Plan is subject to the approval of the
Company's stockholders in order for the Option to comply with the requirements
of Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Option shall not be exercisable prior to such
stockholder approval if the Optionee is subject to Section 16(b) of the Exchange
Act, unless the Board, in its sole discretion, approves the exercise of the
Option prior to such stockholder approval.
(b) Method of Exercise. The Option shall be exercisable by written
------------------
notice in the form attached hereto as Exhibit 1 which shall state the election
to exercise the Option, the number of shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares as may be required by the
Company
<PAGE>
pursuant to the provisions of this Option Agreement. Such written notice shall
be signed by the Optionee and shall be delivered in person or by certified mail
to the Treasurer of the Company prior to the expiration of the term of the
Option as set forth in paragraph 4 below, accompanied by an executed copy of the
then current form of Joint Escrow Instructions as required by paragraph 8(b) and
full payment of the option price for the number of shares being purchased (1) in
cash, (2) by tender of stock of the Company which (a) either has been owned by
the Optionee for more than six (6) months or was not acquired, directly or
indirectly from the Company, and (b) has a fair market value not less than the
option price, (3) by Immediate Sales Proceeds, as defined below, or (4) by such
other consideration as may have been approved by the Board at the time the
Option was granted. "Immediate Sales Proceeds" shall mean the assignment in form
acceptable to the Company of the proceeds of a sale of some or all of the shares
acquired upon the exercise of the Option pursuant to a program and/or procedure
approved by the Company (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System). The Company reserves,
at any and all times, the right, in the Company's sole and absolute discretion,
to decline to approve any such program and/or procedure.
(c) Withholding. At the time the Option is exercised, in whole or in
-----------
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for federal and state income tax withholding obligations
of the Company, if any, which arise upon exercise, in whole or in part, of the
Option.
(d) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered in the name
of the person or persons exercising the Option.
(e) Restriction on Grant of Option and Issuance of Shares. The grant
-----------------------------------------------------
of the Option and the issuance of shares pursuant to the Option shall be subject
to compliance with all applicable requirements of federal or state law with
respect to such securities, including, without limitation, any required approval
by the Commissioner of Corporations of the State of California. The Option may
not be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. As a condition to the exercise of the Option, the Company may
require the Optionee to make any representation or warranty to the Company as
may be required by any applicable law or regulation. The Company may at any
time place legends referring to any applicable federal and/or state securities
restrictions on all certificates representing shares of stock subject to the
provisions of this Agreement.
(f) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
(g) Execution of Escrow Agreement. A condition of any Unvested Share
-----------------------------
exercise of the Option as defined in paragraph 8 below is that the Optionee, and
the spouse of the Optionee, if any, contemporaneously with the exercise of the
Option and prior to any issuance of any stock certificate representing the
shares purchased on exercise of the Option, execute the form of escrow agreement
required by paragraph 8(b) below.
3. Non-Transferability of the Option. The Option may not be transferred
---------------------------------
in any manner otherwise 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.
<PAGE>
4. Termination of the Option.
-------------------------
(a) Option Term. The Option may not be exercised after five (5) years
-----------
from the date of grant of the Option set forth below (the "Option Term Date"),
and may be exercised during such period only in accordance with the terms of the
Option as set forth in this Option Agreement.
(b) Termination of Employment. If the Optionee ceases to be an
-------------------------
employee of the Company for any reason except death or disability, the Option,
to the extent unexercised and exercisable by the Optionee on the date on which
the Optionee ceased to be an employee, may be exercised by the Optionee within
three (3) months after the date on which the Optionee ceased to be an employee,
but in any event no later than the Option Term Date. If the Optionee's
employment with the Company is terminated because of the death of the Optionee
or disability of the Optionee within the meaning of section 105(d)(4) of the
Code, the Option, to the extent unexercised by the Optionee on the date the
Optionee ceased to be employed by the Company, may be exercised by the Optionee
(or the Optionee's legal representative) at any time prior to the expiration of
twelve (12) months from the date the Optionee ceased to be employed, but in any
event no later than the Option Term Date. The Optionee's employment shall be
deemed to have terminated on account of death if the Optionee dies within three
(3) months of the Optionee's termination of employment. Except as provided in
this paragraph 4, the Option shall terminate and may not be exercised after the
Optionee ceases to be an employee of the Company. In the event the Optionee is
not an employee at the time the Option is granted, termination of the Optionee's
status as a director shall be deemed termination of the Optionee's employment
for purposes of applying the provisions of this Option Agreement.
(c) Optionee Subject to Section 16(b). Notwithstanding the foregoing,
---------------------------------
if the exercise of the Option within the applicable time periods set forth above
would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Option shall remain exercisable until the earliest to occur of (i) the tenth
(10th) day following the date on which the Optionee would no longer be subject
to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of employment, or (iii) the Option Term Date.
5. Transfer of Control. A "Transfer of Control" shall be deemed to have
-------------------
occurred in the event any of the following occurs with respect to the Company:
(a) a merger in which the Company is not the surviving corporation;
(b) the sale or exchange by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company where the
stockholders of the Company before such sale or exchange do not retain, directly
or indirectly at least a majority of the beneficial interest in the voting stock
of the Company; or
(c) the sale of all or substantially all of the Company's assets
(other than a sale or transfer to a subsidiary of the Company as defined in
section 424(f) of the Code).
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall assume the Company's rights and obligations under this
Option Agreement. In the event the Acquiring Corporation elects not to assume
the Company's rights and obligations under this Option Agreement in connection
with a Transfer of
<PAGE>
Control, the Unvested Share Repurchase Option set forth in paragraph 8 below
shall terminate and be of no further force and effect effective upon the
Transfer of Control. The Option shall terminate effective as of the date of the
Transfer of Control to the extent that the Option is neither assumed by the
Acquiring Corporation nor exercised as of the date of the Transfer of Control.
6. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company.
7. Rights as a Stockholder or Employee. The Optionee shall have no rights
-----------------------------------
as a stockholder with respect to any shares covered by the Option until the date
of the issuance of a stock certificate(s) for the shares for which the Option
has been exercised. No adjustment shall be made for dividends or distributions
or other rights for which the record date is prior to the date such stock
certificate(s) are issued, except as provided in paragraph 6. Nothing in the
Option shall confer upon the Optionee any right to continue in the employ of the
Company or interfere in any way with any right of the Company to terminate the
Optionee's employment at any time.
8. Unvested Share Repurchase Option. In the event the Optionee's
--------------------------------
employment with the Company is terminated for any reason, with or without cause,
or if the Optionee or the Optionee's legal representative attempts to sell,
exchange, transfer, pledge or otherwise dispose of any shares acquired upon
exercise of the Option which have not vested in the Optionee pursuant to
paragraph 8(a) below (the "Unvested Shares"), the Company shall have the right
to reacquire the Unvested Shares under the terms and subject to the conditions
set forth in this paragraph 8 (the "Unvested Share Repurchase Option").
(a) Vesting of Shares. Unless otherwise specified by the Board at the
-----------------
time the Option is granted and set forth below, the term Initial Vesting Date
for purposes of this Option Agreement shall mean the date twelve (12) months
from the date the Option is granted as set forth below. Shares subject to the
Option shall vest in the Optionee (the "Vested Shares") on and after the Initial
Vesting Date in accordance with the following formula:
Nemployment + 12 X Ngrant = Nvested
----------------
Nperiod
Where Nemployment = the number of full months of the Optionee's
continuous employment with the Company from the
Initial Vesting Date.
Nperiod = the number of full months in the period
determined by the Board during which shares
subject to the Option shall be subject to the
Unvested Share Repurchase Option. Unless
otherwise specified by the Board at the time the
Option is granted, Nperiod shall equal forty-
eight (48) months.
Ngrant = the number of shares subject to the Option.
Nvested = the number of Vested Shares.
<PAGE>
Shares subject to the Option shall not vest in the Optionee prior to the
Initial Vesting Date.
(b) Escrow. To insure that the Unvested Shares will be available for
------
repurchase, the Optionee shall deposit the certificates evidencing the shares
which the Optionee purchases upon exercise of an Option with an escrow agent
designated by the Board under the terms and conditions of an escrow agreement
approved by the Board. The Company will bear the expenses of the escrow.
(c) Exercise of Unvested Share Repurchase Option. Except as provided
--------------------------------------------
in paragraph 8(f) below, if the employment of the Optionee is terminated for any
reason or if the Optionee or the Optionee's legal representative attempts to
dispose of any Unvested Shares other than as allowed in this Plan, the Company
may exercise the Unvested Share Repurchase Option by written notice to the
escrow agent and to the Optionee or the Optionee's legal representative within
ninety (90) days after such termination or after the Company has received notice
of the attempted disposition.
(d) Payment for Shares and Return of Shares. Payment by the Company
---------------------------------------
to the escrow agent on behalf of the Optionee or the Optionee's legal
representative shall be made in cash at the time the written notice of exercise
is given by the Company pursuant to paragraph 8(c), above. For purposes of the
foregoing, cancellation of any promissory note of the Optionee to the Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest cancelled. The purchase price per share
being purchased by the Company shall be an amount equal to the lesser of (i) the
Optionee's original cost per share, or (ii) the fair market value of the shares
as determined by the Board as of the date of the event giving rise to the
Unvested Share Repurchase Option. Within thirty (30) days after payment by the
Company, the escrow agent shall give the shares which the Company has purchased
to the Company and shall give the payment received from the Company to the
Optionee.
(e) Assignment of Unvested Share Repurchase Option. In the event the
----------------------------------------------
Company is unable to exercise the Unvested Share Repurchase Option pursuant to
the provisions of Section 500 et seq. of the California Corporations Code, or
-- ----
the corresponding provisions of other applicable law, the Company shall have the
right to assign the Unvested Share Repurchase Option to one or more persons as
may be selected by the Board.
(f) Early Termination of Unvested Share Repurchase Option. The other
-----------------------------------------------------
provisions of paragraph 8 notwithstanding, the Unvested Share Repurchase Option
shall terminate and be of no further force and effect upon the occurrence of a
Transfer of Control (as defined in paragraph 5), unless the Company's successor,
acquiror or purchaser assumes the terms and obligations of this Option
Agreement.
(g) Legends. The Company may place a legend or legends referencing
-------
the Unvested Share Repurchase Option on any shares subject to the Unvested Share
Repurchase Option.
(h) Additional Right. The Company's rights under this paragraph 8 are
----------------
in addition to any other rights the Company may have to acquire some or all of
the Unvested Shares.
9. Stock Dividends, etc. If, from time to time, there is any stock
---------------------
dividend, stock split, or other change in the character or amount of any of the
outstanding stock of the Company, then in such
<PAGE>
event any and all new, substituted or additional securities to which the
Optionee is entitled by reason of Optionee's ownership of the shares acquired
upon exercise of the Option shall be immediately subject to the Unvested Share
Repurchase Option with the same force and effect as the shares subject to the
Unvested Share Repurchase Option before such event.
10. Binding Effect. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
11. Amendment or Termination. The Board may at any time amend or
------------------------
terminate the Plan and/or the Option; provided, however, that no such amendment
or termination may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee.
DATE OF GRANT:
INITIAL VESTING DATE:
CONSILIUM, INC.
By: ________________________________
Title: _____________________________
Optionee represents that Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in paragraph 8, and hereby accepts the Option subject to all of
the terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.
Date: __________________________________ ____________________________________
The undersigned, being the spouse of the above-named optionee, does hereby
acknowledge that the undersigned has read and is familiar with the provisions of
the above Agreement, and the undersigned hereby agrees thereto and joins therein
to the extent, if any, that the agreement and joinder of the undersigned may be
necessary.
____________________________________
<PAGE>
CONSILIUM, INC.
AMENDED AND RESTATED
1990 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. Purpose. The Consilium, Inc. 1990 Outside Directors Stock Option Plan
-------
(the "Prior Plan") was established effective as of January 17, 1990 (the
"Effective Date") to create additional incentive for the outside directors of
Consilium, Inc. and any successor corporation thereto (collectively referred to
as the "Company") to promote the financial success and progress of the Company.
The Prior Plan was amended and restated effective as of April 29, 1992 to
provide for annual grants of immediately exercisable options; and was amended
and restated again as of February 9, 1993 in the form set forth herein (the
"Plan").
2. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references to the Board shall also mean the committee if such committee has been
appointed and, unless the powers of the committee have been specifically
limited, the committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All questions of interpretation of the Plan or of any options granted
under the Plan (an "Option") shall be determined by the Board, and such
determinations shall be final and binding upon all persons having an interest in
the Plan and/or any Option. All Options shall be nonqualified stock options.
Any officer of the Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
3. Eligibility and Type of Option. The Options may be granted only to
------------------------------
directors of the Company who are not employees of the Company or any present or
future parent and/or subsidiary corporations of the Company. Options granted to
eligible directors of the Company ("Outside Directors") shall be nonqualified
stock options; that is, options which are not treated as having been granted
under section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"). For purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in sections 424(e) and 424(f) of the Code.
4. Shares Subject to Option. Options shall be options for the purchase of
------------------------
the authorized but unissued common stock of the Company (the "Stock"), subject
to adjustment as provided in paragraph 8 below. The maximum number of shares of
Stock which may be issued under the Plan shall be 100,000 shares. In the event
that any outstanding Option for any reason expires or is terminated and/or
shares of Stock subject to repurchase are repurchased by the Company, the shares
allocable to the unexercised portion of such Option, or such repurchased shares,
may again be subjected to an Option. Notwithstanding the foregoing, any such
shares shall be made subject to a new Option only if the grant of such new
Option and the issuance of such shares pursuant to such new Option would not
cause the Plan or any Option granted under the Plan to contravene Rule 16b-3
under the Securities Exchange Act of 1934, as amended, and as amended from time
to time or any successor rule or regulation ("Rule 16b-3").
5. Time for Granting Options. All Options shall be granted, if at all,
-------------------------
within ten (10) years from the Effective Date.
6. Terms, Conditions and Forms of Options. Options granted pursuant to
--------------------------------------
the Plan shall be evidenced by written agreements specifying the number of
shares of Stock covered thereby, in
<PAGE>
substantially the two forms attached hereto as Exhibit A and Exhibit B,
--------- ---------
respectively, and incorporated herein by reference (the "Option Agreements"),
and shall comply with and be subject to the following terms and conditions:
(a) Automatic Grant of Options. Subject to execution by each Outside
--------------------------
Director of the appropriate Option Agreement:
(i) Each Outside Director who first serves on the Board after the Effective
Date shall be granted an Option to purchase fifteen thousand (15,000) shares of
Stock upon the first date of service.
(ii) In addition to any other grant made to an Outside Director under the
Plan, an Outside Director shall be granted an immediately exercisable Option to
purchase shares of Stock in an amount equal to two thousand five hundred (2,500)
times the number of full years of service of such Outside Director during the
period from October 31, 1990 through the date of the 1993 Annual Meeting of
Stockholders.
(iii) In addition to any other grant made to an Outside Director under the
Plan, an Outside Director shall be granted an immediately exercisable Option to
purchase two thousand five hundred (2,500) shares of Stock on the date of the
first meeting of the Board of Directors in each successive fiscal year
commencing in fiscal 1994, provided that if an Outside Director has served less
than one full year at the date of grant, such director's grant will be pro-rated
to the number of shares (rounded to the nearest hundred shares) equal to 2,500
divided by twelve and multiplied by the number of full months of service by such
director on the date of grant.
(iv) Notwithstanding the foregoing, any Outside Director may elect not to
receive an Option granted pursuant to this paragraph 6(a) by delivering written
notice of such election to the Board (1) in the case of an initial Option grant,
no later than the date upon which such Outside Director commences service on the
Board, or (2) in the case of an Option grant pursuant to paragraph 6(a)(iii), no
later than six (6) months prior to the date of such first meeting of the fiscal
year.
(b) Option Price. The option price per share for an Option shall be the
------------
fair market value, as determined by the average of the high and low prices of a
sale of a share of Stock on the National Association of Securities Dealers
Automated Quotations system (the "NASDAQ System") or other national securities
exchange, on the date of the granting of the Option. If the date of the
granting of the Option does not fall on a day on which the Company's Stock is
trading on the NASDAQ System or other national securities exchange, the date on
which the option price per share shall be established shall be the last day on
which the Company's Stock was so traded prior to the date of the granting of the
Option. Notwithstanding the foregoing, an Option may be granted with an
exercise price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for another option
in a manner qualifying with the provisions of section 424(a) of the Code.
(c) Exercise Period of Options. Any Option granted hereunder shall be
--------------------------
exercisable for a term of ten (10) years.
(d) Payment of Option Price. Payment of the option price for the number of
-----------------------
shares of Stock being purchased pursuant to any Option shall be made in cash, by
check or in cash equivalent.
(e) Shareholder Approval. Any Option granted pursuant to the Plan under
--------------------
section 6(a)(ii) or (iii) shall be subject to obtaining shareholder approval of
the Plan at the first annual meeting of shareholders after the adoption of such
provision.
<PAGE>
7. Authority to Vary Terms. The Board shall have the authority from time
-----------------------
to time to vary the terms of the Option Agreements, either in connection with
the grant of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
such revised or amended form or forms of stock option agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by the Optionee on exercise of an Option in the event such
Optionee's service as a director of the Company is terminated for any reason.
8. Effect of Change in Stock Subject to Plan. Appropriate adjustments
-----------------------------------------
shall be made in the number and class of Stock subject to the Plan and to any
outstanding Options and in the option price of any outstanding Options in the
event of a stock dividend, stock split, reverse stock split, combination,
reclassification, or like change in the capital structure of the Company.
9. Transfer of Control. A "Transfer of Control" shall be deemed to have
-------------------
occurred in the event any of the following occurs with respect to the Company.
(a) the sale or exchange by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company where the shareholders of
the Company before such sale or exchange do not retain, directly or indirectly,
at least a majority of the beneficial interest in the voting stock of the
Company;
(b) a merger in which the Company is not the surviving corporation; or
(c) the sale of all or substantially all of the Company's assets (other
than a sale or transfer to a subsidiary of the Company).
In the event of a Transfer of Control, any unexercisable and/or unvested
portion of the outstanding Options shall be immediately exercisable and vested
as of a date prior to the Transfer of Control, as the Board so determines. The
exercise and/or vesting of any Option that was permissible solely by reason of
this paragraph 9 shall be conditioned upon the consummation of the Transfer of
Control. Any Options which are not exercised as of the date of the Transfer of
Control shall terminate effective as of the date of the Transfer of Control.
10. Options Non-Transferable. During the lifetime of the Optionee, the
------------------------
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
11. Termination or Amendment of Plan. The Board, including any duly
--------------------------------
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the stockholders of the Company,
there shall be (a) no increase in the total number of shares of Stock covered by
the Plan (except by operation of the provisions of paragraph 8 above) and (b) no
expansion in the class of persons eligible to receive Options; and provided
further, that the provisions of the Plan addressing eligibility to participate
in the Plan and the amount, price and timing of grants of Options shall not be
amended more than once every six (6) months, other than to comport to changes in
the Code, or the rules thereunder. In addition to the foregoing, the approval
of the Company's stockholders shall be sought for any amendment to the Plan for
which the Board deems stockholder approval necessary in order to comply with
Rule 16b-3. In any event, no termination or amendment may adversely affect any
then outstanding Option or any unexercised portion thereof, without the consent
of the Optionee.
<PAGE>
12. Options Granted Under the Prior Plan. Any Option previously granted
------------------------------------
by the Company under the Prior Plan shall continue to be governed under the
terms of the Prior Plan and the terms of the agreement documenting that Option.
The undersigned Secretary of the Company hereby certifies that the
foregoing Amended and Restated Consilium, Inc. 1990 Outside Directors Stock
Option Plan was adopted by the Board of Directors of Consilium, Inc. at a
meeting of such Board on the 9th day of February, 1993.
Secretary
<PAGE>
The Plan was amended by the Board of Directors on September 21, 1993 in
connection with an election to comply with new Rule 16b-3.
<PAGE>
EXHIBIT A
---------
CONSILIUM, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL GRANT)
Consilium, Inc. (the "Company"), granted to the individual named below an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean ____________________________________.
(b) "Date of Option Grant" shall mean _______________________________.
(c) "Number of Option Shares" shall mean ____________________________
shares of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $______________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(g) Determination of "Vested Ratio":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date 1/4
provided the Optionee has
continuously served as a
director of the Company from
the date of Option Grant until
the Initial Vesting Date
<PAGE>
Vested Ratio
------------
Plus
----
For each full year of the 1/4
Optionee's continuous service
as a director of the Company
from the Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Consilium, Inc., a Delaware corporation, and
any successor corporation thereto.
(k) "Plan" shall mean the Amended and Restated Consilium, Inc. 1990
Outside Directors Stock Option Plan.
2. Status of Option. This Option is intended to be a nonqualified stock
----------------
option and shall not be treated as an incentive stock option as described in
section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent reference herein to the Board
shall also mean the committee if such committee has been appointed and, unless
the powers of the committee have been specifically limited, the committee shall
have all of the powers of the Board granted in the Plan, including, without
limitation, the power to terminate or amend the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law. All
determinations by the Board shall be final and binding upon all persons having
an interest in the Option. Any officer of the Company shall have the authority
to act on behalf of the Company with respect to any matter, right, obligation,
or election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, or election.
4. Exercise of the Option.
----------------------
(a) Right to Exercise. The Option shall first become exercisable on
-----------------
the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set forth
in paragraph 1 above less the number of shares previously acquired upon exercise
of the Option. In no event shall the Option be exercisable for more shares than
the Number of Option Shares. In addition to the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's stockholders in order for the Option to comply with the
requirements of Rule 16b-3, promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Option shall not be exercisable prior
to such stockholder approval if the Optionee is subject to Section 16(b) of the
Exchange Act.
<PAGE>
(b) Method of Exercise. The Option shall be exercisable by written
------------------
notice to the Company which shall state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and shall
be delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Company, prior to the termination of the Option as set
forth in paragraph 6 below, accompanied by full payment of the exercise price
for the number of shares being purchased.
(c) Form of Payment of Option Price. Such payment shall be made in
-------------------------------
cash, by check, or in cash equivalent.
(d) Withholding. At the time the Option is exercised, in whole or in
-----------
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, or (ii) the transfer, in whole or in part, of
any shares acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restriction on Grant of Option and Issuance of Shares. The grant
-----------------------------------------------------
of the Option and issuance of the shares upon exercise of the Option shall be
subject to compliance with all applicable requirements of federal or state law
with respect to such securities. The Option may not be exercised if the issuance
of shares upon such exercise would constitute a violation of any applicable
federal or state securities laws or other law or regulations. In addition, no
Option may be exercised unless (i) a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. As a condition to the exercise of the Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate, to
evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
---------------------------------
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent or
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following the Optionee's
termination of service as a director of the Company as described in paragraph 7
below, or (c) upon a Transfer of Control as described in paragraph 8 below.
<PAGE>
7. Termination of Service as a Director.
------------------------------------
(a) Termination of Director Status. If the Optionee ceases to be a
------------------------------
director of the Company for any reason other than the Optionee's death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be a director, may be exercised by the Optionee at any time
prior to the expiration of three (3) months from the date the Optionee's service
as a director of the Company terminated, but in any event no later than the
Option Term Date. If the Optionee ceases to be a director of the Company because
of the death or disability of the Optionee within the meaning of section 422(c)
of the Code, the Option, to the extent unexercised and exercisable by the
Optionee on the date of such death or disability, may be exercised by the
Optionee (or the Optionee's legal representative) at any time prior to the
expiration of twelve (12) months from the date the Optionee's service as a
director of the Company terminated, but in any event no later than the Option
Term Date. The Optionee's service as a director of the Company shall be deemed
to have terminated on account of death if the Optionee dies within three (3)
months after the Optionee's termination of service as a director of the Company.
(b) Exercise Prevented by Law. Except as provided in this paragraph 7,
-------------------------
the Option shall terminate and may not be exercised after the Optionee's service
as a director of the Company terminates unless the exercise of the Option in
accordance with this paragraph 7 is prevented by the provisions of paragraph
4(f) above. If the exercise of the Option is so prevented, the Option shall
remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date.
(c) Optionee Subject to Section 16(b). Notwithstanding the foregoing,
---------------------------------
if the exercise of the Option within the applicable time periods set forth above
would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Option shall remain exercisable until the earliest to occur of (i) the tenth
(10th) day following the date on which the Optionee would no longer be subject
to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of service as a director of the Company, or (iii) the
Option Term Date.
8. Transfer of Control. An "Ownership Change" shall be deemed to have
-------------------
occurred in the event any of the following occurs with respect to the Company.
(a) the sale or exchange by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company.
(b) a merger in which the Company is not the surviving corporation; or
(c) the sale of all or substantially all of the Company's assets
(other than a sale or transfer to a subsidiary corporation of the Company).
A "Transfer of Control" shall mean an Ownership Change in which the
shareholders of the Company before such Ownership Change do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company.
In the event of a Transfer of Control, any unexercisable portion of the
Option shall be immediately exercisable as of a date prior to the Transfer of
Control, as the Board so determines. The Option shall terminate effective as of
the date of the Transfer of Control to the extent that the Option is not
exercised as of the date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital
<PAGE>
structure of the Company. In the event a majority of the shares which are of the
same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "New Shares"), the Company may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the number of shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder. The Optionee shall have no rights as a
-----------------------
shareholder with respect to any shares covered by the Option until the date of
the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above.
11. Legends. The Company may at any time place legends referencing any
-------
applicable federal and/or state securities law restrictions on this Option
Agreement and/or all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company this Option Agreement and/or any and
all certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to effectuate the provisions of this
paragraph.
12. Binding Effect. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
13. Termination or Amendment. The Board, including any duly appointed
------------------------
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee.
14. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Company with respect to the
subject matter contained herein, and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the Company
other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of this Option and shall remain in full force and effect.
15. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
CONSILIUM, INC.
By:
Title:
<PAGE>
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
Date:
Optionee's Signature
Printed Name of Optionee
<PAGE>
EXHIBIT B
---------
CONSILIUM, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(IMMEDIATELY EXERCISABLE)
Consilium, Inc. (the "Company"), granted to the individual named below an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean _________________________.
(b) "Date of Option Grant" shall mean ________________________.
(c) "Number of Option Shares" shall mean ______________ shares of
common stock of the Company as adjusted from time to time pursuant to paragraph
9 below.
(d) "Exercise Price" shall mean $______________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Company" shall mean Consilium, Inc., a Delaware corporation, and
any successor corporation thereto.
(h) "Plan" shall mean the Amended and Restated Consilium, Inc. 1990
Outside Directors Stock Option Plan.
2. Status of Option. This Option is intended to be a nonqualified stock
----------------
option and shall not be treated as an incentive stock option as described in
section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent reference herein to the Board
shall also mean the committee if such committee has been appointed and, unless
the powers of the committee have been specifically limited, the committee shall
have all powers of the Board granted in the Plan, including, without limitation,
the power to terminate or amend the Plan at any time, subject to the terms of
the Plan and any applicable limitations imposed by law. All determinations by
the Board shall be final and binding upon all persons having an interest in the
Option. Any officer of the Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
<PAGE>
4. Exercise of the Option.
----------------------
(a) Right to Exercise. The Option shall first become exercisable in
-----------------
its entirety on the Date of Option Grant and remain exercisable until the
termination of the Option in the amount equal to the Number of Option Shares
less the number of shares previously acquired upon exercise of the Option. In no
event shall the Option be exercisable for more shares than the Number of Option
Shares. In addition to the foregoing, in the event that the adoption of the Plan
or any amendment of the Plan is subject to the approval of the Company's
stockholders in order for the Option to comply with the requirements of Rule
16b-3, promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Option shall not be exercisable prior to such stockholder
approval if the Optionee is subject to Section 16(b) of the Exchange Act.
(b) Method of Exercise. The Option shall be exercisable by written
------------------
notice to the Company which shall state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and shall
be delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Company, prior to the termination of the Option as set
forth in paragraph 6 below, accompanied by full payment of the exercise price
for the number of shares being purchased.
(c) Form of Payment of Option Price. Such payment shall be made in
-------------------------------
cash, by check or in cash equivalent.
(d) Withholding. At the time the Option is exercised, in whole in or
-----------
in part, or at any time thereafter as requested by the Company, the Optionee
shall make adequate provision for foreign, federal or state tax withholding
obligations of the Company, if any, which arise in connection with the Option
including, without limitation, obligations arising upon (i) the exercise, in
whole or part, of the Option, or (ii) the transfer, in whole or part, of any
shares acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restriction on Grant of Option and Issuance of Shares. The grant
-----------------------------------------------------
of the Option and the issuance of the shares upon exercise of the Option shall
be subject to compliance with all applicable requirements of federal or state
law with respect to such securities. The Option may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
<PAGE>
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
---------------------------------
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent or
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following the Optionee's
termination of service as a director of the Company as described in paragraph 7
below, or (c) upon a Transfer of Control as described in paragraph 8 below.
7. Termination of Service as a Director.
------------------------------------
(a) Termination of Director Status. If the Optionee ceases to be a
------------------------------
director of the Company for any reason other than the Optionee's death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be a director, may be exercised by the Optionee at any time
prior to the expiration of three (3) months from the date the Optionee's service
as a director of the Company terminated, but in any event no later than the
Option Term Date. If the Optionee ceases to be a director of the Company because
of the death or disability of the Optionee within the meaning of section 422(c)
of the Code, the Option, to the extent unexercised and exercisable by the
Optionee on the date of such death or disability, may be exercised by the
Optionee (or the Optionee's legal representation) at any time prior to the
expiration of twelve (12) months from the date of the Optionee's service as a
director of the Company terminated, but in any event no later than the Option
Term Date. The Optionee's service as a director of the Company shall be deemed
to have terminated on account of death if the Optionee dies within three (3)
months after the Optionee's termination of service as a director of the Company.
(b) Exercise Prevented by Law. Except as provided in this paragraph 7,
-------------------------
the Option shall terminate and may not be exercised after the Optionee's service
as a director of the Company terminates unless the exercise of the Option in
accordance with this paragraph 7 is prevented by the provisions of paragraph
4(f) above. If the exercise of the Option is so prevented, the Option shall
remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date.
(c) Optionee Subject to Section 16(b). Notwithstanding the foregoing,
---------------------------------
if the exercise of the Option within the applicable time periods set forth above
would subject the Optionee to suit under Section 16(b) of the Securities
Exchange Act of 1934, as amended, the Option shall remain exercisable until the
earliest to occur of (i) the tenth (10th) day following the date on which the
Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee's termination of service as a of the
Company, or (iii) the Option Term Date.
8. Transfer of Control. An "Ownership Change" shall be deemed to have
-------------------
occurred in the event any of the following occurs with respect to the Company.
(a) the sale or exchange by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(b) a merger in which the Company is not the surviving corporation; or
(c) the sale of all or substantially all of the Company's assets
(other than a sale or transfer to a subsidiary corporation of the Company).
<PAGE>
A "Transfer of Control" shall mean an Ownership Change in which the
shareholders of the Company before such Ownership Change do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company.
The Option shall terminate effective as of the date of the Transfer of
Control to the extent that the Option is not exercised as of the date of the
Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company. In the event of a majority of the shares which
are of the same class as the shares that are subject to the Option are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change) shares of another corporation (the "New Shares"), the Company
may unilaterally amend the Option to provide that the Option is exercisable for
New Shares. In the event of any such amendment, the number of shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder. The Optionee shall have no rights as a
-----------------------
shareholder with respect to any shares covered by the Option until the date of
the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above.
11. Legends. The Company may at any time place legends referencing any
-------
applicable federal and/or state securities law restrictions on this Option
Agreement and/or all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company this Option Agreement and/or any and
all certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to effectuate the provision of this
paragraph.
12. Binding Effect. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
13. Termination or Amendment. The Board, including any duly appointed
------------------------
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee.
14. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Company with respect to the
subject matter contained herein, and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the Company
other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of this Option and shall remain in full force and effect.
15. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
<PAGE>
CONSILIUM, INC.
By:
Title:
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
Date:
Optionee's Signature
Printed Name of Optionee
<PAGE>
LEASE
BETWEEN
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
A NEW JERSEY CORPORATION
AND
CONSILIUM, INC.
A CALIFORNIA CORPORATION
FOR THE PREMISES LOCATED AT
485 CLYDE AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
DATED: AUGUST 2, 1995
<PAGE>
THIS LEASE, which is effective as of the date set forth in the Basic Lease
Information, is entered into by Landlord and Tenant, as set forth in the Basic
Lease Information. Terms which are capitalized in this Lease and not expressly
defined herein shall have the meanings set forth in the Basic Lease Information.
1. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord, the
--------
Premises described in the Basic Lease Information) and as shown on attached
Exhibit A, including all parking located on the Premises as shown on Exhibit A.
- --------- ---------
The Premises includes two buildings (each individually a "Building" and
collectively the "Buildings"): one building containing approximately 47,100
square feet (the "Large Building") and one building containing approximately
14,500 square feet (the "Small Building").The Premises is also at times referred
to herein as the "Property."
2. TERM.
----
(a) Lease Term. The Term of this Lease shall commence on the Commencement
----------
Date (as defined in subsection 2(b)) for either Building and, unless
terminated on an earlier date in accordance with the terms of this Lease,
shall extend for a period of eighty four (84) months from the date that the
Commencement Date has occurred for both Buildings.
(b) Commencement Date. Tenant acknowledges that the Commencement Date for
--- -----------------
the Large Building and the Commencement Date for the Small Building may
occur on different dates due to possible delays in Landlord's ability to
commence construction within the Small Building. Tenant agrees to accept
possession of each Building on such different Commencement Dates. The
"Commencement Date" of this Lease with respect to each of the Large
Building and the Small Building shall be the earliest to occur of the
following, as reasonably determined by Landlord: (i) the date the
applicable local governmental authority (e.g., the city in which the
----
Building is located) approves the improvements ("Improvements") which
Landlord is to construct within such Building pursuant to Exhibit B, as
---------
evidenced by a final signed-off building permit or certificate of occupancy
for the Improvements; (ii) the date Landlord's contractor certifies that
the Improvements to be constructed within such Building have been
substantially completed (except for punch list items); (iii) the date
Tenant occupies such Building; or (iv) the date the Commencement Date with
respect to such Building would have occurred but for Tenant delays, as
described in Exhibit B. Notwithstanding the foregoing, so long as Tenant
---------
does not occupy either Building for the conduct of Tenant's business (as
opposed to fixturing), the Commencement Date shall not occur before the
Estimated Commencement Date referenced in the Basic Lease Information.
(c) Premises Not Delivered.
----------------------
(i) If the Commencement Dates for the Large Building and the Small
Building are different or if the Commencement Date with respect to
either Building does not occur until after the Estimated Commencement
Date then: (A) the Term with respect to such Building shall not
commence until the Commencement Date for such Building; (B) the
validity of this Lease and the obligations of Tenant under this Lease
shall not be affected; (C) Tenant shall not be obligated to pay Rent
with respect to a Building until the Commencement Date has occurred
with respect to such Building; (D) Tenant shall be obligated to pay
Rent (including without limitation Operating Expenses) on a pro rata
basis (based upon the square footage referenced above) for the
Building with respect to which the Commencement Date has occurred and
(E) Landlord shall not be subject to any liability.
(ii) Notwithstanding the foregoing, if (A) the Commencement Date for
the Large Building does not occur or is not deemed to have occurred
within ninety (90) days after the Estimated Commencement Date
referenced in the Basic Lease Information, or (B) the Commencement
Date for the Small Building does not occur or is not deemed to have
occurred within one hundred fifty (150) days after such Estimated
Commencement Date, Tenant shall have the right to terminate the Lease
as Tenant's sole and exclusive remedy (except as provided in
Subsection 2(c)(iii) below) upon written notice to Landlord which
notice shall be delivered (if at all) within fifteen (15) days after
the expiration of such time period. Upon such termination, Landlord
and Tenant shall have no further obligation or liability hereunder,
except for such obligations which expressly survive such termination
as provided herein. Such periods shall be extended one (1) day for
each day that the Commencement Date is delayed as a result of acts of
God, strikes or other labor problems, shortages of materials, fire or
other casualty, action or failure to act of any governmental
authority, or any other reason beyond the reasonable control of
Landlord.
(iii) If Commencement Date with respect to the Large Building does
not occur on or before
2
<PAGE>
January 31, 1996, then Landlord shall reimburse Tenant for holdover
base monthly rent costs thereafter incurred by Tenant under Tenant's
lease of space at 640 Clyde Court, Mountain View, California to the
extent such monthly base rent costs exceed $42,390; provided, however,
Landlord's liability for such holdover rental amount shall not exceed
$44,545.81 per month. If the Commencement Date for the Small Building
does not occur on or before January 31, 1996, then Landlord shall
reimburse Tenant for holdover monthly base rent costs thereafter
incurred by Tenant under Tenant's lease of space at 630 Clyde Avenue,
Mountain View, California to the extent such monthly base rent costs
exceed $13,050; provided, however, Landlord's liability for such
holdover costs shall not exceed $2,305.50 per month. In the event
Tenant is required to holdover in such other leased premises pursuant
to the foregoing, Tenant shall use Tenant's best efforts to minimize
the amount of holdover rent payable by Tenant and shall not disclose
to such other landlords Landlord's agreement to pay such costs. If
the Commencement Date for the Large Building does not occur by March
31, 1996, Landlord shall have the right to terminate the Lease
effective upon delivery of written notice on or before April 30, 1996
and upon such termination, Landlord and Tenant shall have no further
obligation or liability hereunder (including, without limitation, any
further obligation to pay such holdover rental costs), except for such
obligations which expressly survive such termination as provided
herein.
(d) Commencement Date Memorandum. When the Commencement Date for each of
----------------------------
the Buildings is determined, the parties shall execute a Commencement Date
Memorandum, in the form attached hereto as Exhibit C, setting forth the
---------
Commencement Date and the expiration date ("Expiration Date") of this
Lease.
(e) Early Entry. If Tenant is permitted to enter the Premises prior to the
-----------
Commencement Date for the purposes of fixturing or any purpose other than
occupancy permitted by Landlord, the entry shall be subject to all the
terms and provisions of this Lease, except that the payment of Rent shall
commence as of the Commencement Date. Landlord shall use reasonable
efforts to provide such early access to the Premises Tenant may reasonably
request prior to the Commencement Date in accordance with and subject to
this subsection (e) for the sole purpose of permitting Tenant to plan
furniture layout and to install Tenant's fixtures. However, Landlord shall
be under no obligation to provide such early access (and may upon delivery
of written notice terminate any previously permitted early access) if
Landlord determines that such early access will interfere with the
construction of the Tenant Improvements pursuant to Exhibit B or otherwise
---------
delay the Commencement Date. Tenant shall coordinate all such permitted
early access with Landlord in order to assure that such early access will
not delay or disrupt the construction of the Tenant Improvements.
3. RENT. As used in this Lease, the term "Rent" shall include: (i) the Base
----
Rent; (ii) Tenant's Percentage Share of the Operating Expenses paid or incurred
by Landlord during the calendar year; and (iii) all other amounts which Tenant
is obligated to pay under the terms of this Lease. All amounts of money payable
by Tenant to Landlord shall be paid without prior notice or demand, deduction or
offset. This Lease is intended to be a triple net lease, with all costs,
expenses and charges (including the Operating Expenses) paid by Tenant. Tenant
hereby acknowledges that late payment by Tenant to Landlord of Rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any trust deed covering the Premises. Accordingly, if
any installment of Rent or any other sums due from Tenant shall not be received
by Landlord within five (5) days after when due, Tenant shall pay to Landlord a
late charge equal to five percent (5%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant. Acceptance
of such late charge by Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In addition,
any amount which is not paid within five (5) days after when due shall bear
interest from the date due until the date paid at the rate ("Interest Rate")
which is the lesser of fifteen percent (15%) per annum or the maximum rate
permitted by law.
4. BASE RENT.
---------
(a) Tenant shall pay Base Rent to Contract Manager (or other entity
designated by Landlord), in advance, on the first day of each calendar
month of the Term, at Contract Manager's address for notices (as set forth
in the Basic Lease Information) or at such other address as Landlord may
designate. The Base Rent shall be the amount set forth in the Basic Lease
Information.
(b) In addition to the adjustments in the monthly Base Rent referenced in
the Basic Lease Information,
3
<PAGE>
the monthly Base Rent shall be adjusted effective as of first day of the
sixty-first (61st) and seventy-third (73rd) months of the Term (each
individually referred to herein as an "Adjustment Date") by reference to
increases in the CPI Index (defined below) determined as follows but
subject to the minimum and maximum increases referenced below. The CPI
Index last published immediately prior to the thirty-first (31st) month of
the Term ("Beginning Index") shall be compared to the CPI Index last
published immediately prior to the applicable Adjustment Date ("Adjustment
Index"). If there has been an increase in the CPI Index between the
Beginning Index and the Adjustment Index, then, subject to the minimum and
maximum increases referenced below, monthly Base Rent as of the Adjustment
Date and in effect until the next Adjustment Date shall be an amount equal
to the greater of (i) $56,672 multiplied by a fraction, the numerator of
which is the Adjustment Index and the denominator of which is the Beginning
Index, or (ii) the Base Rent in effect immediately prior to the Adjustment
Date multiplied times one hundred three percent (103%). Notwithstanding
any changes in the CPI Index, the Base Rent increase on each Adjustment
Date shall not be less than three percent (3%) nor more than five percent
(5%) of the Base Rent in effect immediately prior to such Adjustment Date.
For purposes of the foregoing, the CPI Index shall be the Consumer Price
Index, All Urban Consumers, All Items, as published by the United States
Department of Labor, Bureau of Labor Statistics (1982-1984 = 100) for the
San Francisco Bay area. In the event the CPI Index is discontinued or
modified, the foregoing calculations shall be based upon a similar index
reasonably selected by Landlord and using, if applicable, conversion
procedures specified by the Department of Labor. Landlord's failure to
notify Tenant of any adjustment to the monthly Base Rent hereunder shall
not be deemed a waiver of Landlord's right to subsequently make such
modifications and collect the adjusted amount at any time.
5. OPERATING EXPENSES.
------------------
(a) Operating Expenses as Portion of Rent. Tenant shall pay as additional
-------------------------------------
Rent Tenant's Percentage Share of the Operating Expenses paid or incurred
by Landlord during the calendar year.
(b) Definition of Operating Expenses. The term "Operating Expenses" shall
--------------------------------
mean (i) all of Landlord's direct costs and expenses of operation, repair
and maintenance of the Buildings, the Property and supporting facilities,
as determined by Landlord in accordance with generally accepted accounting
principles or other recognized accounting principles, consistently applied;
(ii) costs, or a portion thereof, properly allocable to the Buildings or
Property of any capital improvements made to the Buildings or Property by
Landlord which comprise labor-saving devices or other equipment intended to
improve the operating efficiency of any system within the Buildings or
Property (such as an energy management computer system) to the extent of
cost savings in Operating Expenses as a result of the device or equipment,
as reasonably determined by Landlord; and (iii) costs properly allocable to
the Buildings or Property of any capital improvements made to the Buildings
or Property by Landlord that are required under any governmental law or
regulation that was not applicable to the Buildings and Property at the
time they were constructed, or that are reasonably required for the health
and safety of tenants in the Property or Buildings, the costs, or allocable
portion thereof, to be amortized over the useful life of such item as
Landlord shall reasonably determine, together with interest upon the
unamortized balance at the "Prime Rate" as is published in the Wall Street
Journal (or such reasonable substitute prime rate as Landlord may
reasonably select) at the time such expense is incurred plus two percent
(2%) or such higher rate as may have been paid by Landlord on funds
borrowed for the purpose of constructing the capital improvements. The
term "Operating Expenses" shall include the costs of all utilities
(including surcharges) for the Property and Buildings; the cost of all
insurance which Landlord or Landlord's lender deems necessary for the
Property and Buildings; a reasonable management fee; dues imposed by any
property owner's association ("Association"); and the Real Property Taxes
(as defined in subsection 5(f)). If Landlord elects to self-insure or
includes the Property under blanket insurance policies covering multiple
properties, then the term "Operating Expenses" shall include the portion of
the cost of such self-insurance or blanket insurance allocated by Landlord
to this Property.
(c) Exclusions from Operating Expenses. The term "Operating Expenses"
----------------------------------
shall not include (i) the cost of any additional or extraordinary services
provided to other tenants of the Property; (ii) costs paid directly by
Tenant; (iii) principal and interest payments on loans secured by deeds of
trust recorded against Property; (iv) real estate sales or leasing
brokerage commissions; or (v) executive salaries of off-site personnel
employed by Landlord except for the charge (or pro rata share) of the
manager of the Property and Buildings.
(d) Estimates of Operating Expenses. During December of each calendar year
-------------------------------
during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of Landlord's estimate of the amount of Operating
Expenses which will be payable for the ensuing calendar year. On or before
the first
4
<PAGE>
day of each month during the ensuing calendar year, Tenant shall pay to
Landlord one-twelfth (1/12) of the estimated amount; provided, however,
that if notice is not given in December, Tenant shall continue to pay on
the basis of the then applicable Rent until the month after the notice is
given. If at any time it appears to Landlord that the amount payable for
the current calendar year will vary from Landlord's estimate by more than
five percent (5%), Landlord may give notice to Tenant of Landlord's revised
estimate for the year, and subsequent payments by Tenant for the year shall
be based on the revised estimate; provided, however, that Landlord shall
not give notice of a revised estimate for any year more frequently than
once a calendar quarter.
(e) Annual Adjustment. Within one hundred twenty (120) days after the
-----------------
close of each calendar year of the Term, or as soon after the one hundred
twenty (120) day period as practicable, Landlord shall deliver to Tenant a
statement of the actual Operating Expenses for the prior calendar year.
If, on the basis of the statement, Tenant owes an amount that is less than
the estimated payments for the calendar year previously made by Tenant,
Landlord shall apply the excess to the next payment of Operating Expenses
due or refunded to Tenant if such adjustment occurs after the expiration of
the Term and Tenant is not in default under the Lease. If, on the basis of
the statement, Tenant owes an amount that is more than the estimated
payments for the calendar year previously made by the Tenant, Tenant shall
pay the deficiency to Landlord within thirty (30) days after delivery of
the statement. The statement of Operating Expenses shall be presumed
correct and shall be deemed final and binding upon Tenant unless (i) Tenant
in good faith objects in writing thereto within thirty (30) days after
delivery of the statement to Tenant (which writing shall state, in
reasonable detail, all of the reasons for the objection); and (ii) Tenant
pays in full, within thirty (30) days after delivery of the statement to
Tenant, any amount owed by Tenant with respect to the statement which is
not in dispute. If Tenant objects to Landlord's allocation to this
Property of the cost of self-insurance or blanket insurance, such
allocation shall nonetheless be presumed correct and shall be deemed final
and binding upon Tenant unless Tenant's timely written objection includes
credible evidence that Landlord could have obtained substantially
comparable insurance coverage for this Property alone at lower cost. If
Tenant delivers notice to Landlord that Tenant disputes Landlord's
determination of Operating Expenses referenced in Landlord's statement
within the thirty (30) day period referenced above, and timely pays to
Landlord the amount not in dispute, Tenant shall, upon delivery of not less
than ten (10) days' prior written notice, have the right, at Tenant's sole
cost and expense, to inspect (or cause a certified public accountant
engaged by Tenant to inspect) Landlord's books and records directly
concerning the calculation of such disputed Operating Expenses. Such
inspection shall be conducted at the office of the property manager of the
Buildings or such other location reasonably designated by Landlord and
shall be completed within sixty (60) days after the delivery of Tenant's
notice objecting to Landlord's statement. If Tenant does not timely
deliver notice objecting to Landlord's statement or timely complete such
inspection, Tenant shall be conclusively deemed to have approved Landlord's
statement. In the event it is determined by Landlord and Tenant that there
was an error in Landlord's statement which overstated the amount of
Operating Expenses payable by Tenant by more than five percent (5%), then
Landlord shall reimburse Tenant for Tenant's reasonable out-of-pocket costs
incurred in connection with such audit provided that such reimbursement
shall not exceed $500.
(f) Definition of Real Property Taxes. The term "Real Property Taxes"
---------------------------------
shall mean any ordinary or extraordinary form of assessment or special
assessment, license fee, rent tax, levy, penalty (if a result of Tenant's
delinquency), or tax, other than net income, estate, succession,
inheritance, transfer or franchise taxes, imposed by any authority having
the direct or indirect power to tax, or by any city, county, state or
federal government for any maintenance or improvement or other district or
division thereof. The term shall include all transit charges, housing fund
assessments, real estate taxes and all other taxes relating to the
Premises, Buildings and/or Property, all other taxes which may be levied in
lieu of real estate taxes, all assessments, assessment bonds, levies, fees
and other governmental charges (including, but not limited to, charges for
traffic facilities, improvements, child care, water services studies and
improvements, and fire services studies and improvements) for amounts
necessary to be expended because of governmental orders, whether general or
special, ordinary or extraordinary, unforeseen as well as foreseen, of any
kind and nature for public improvement, services, benefits or any other
purposes which are assessed, levied, confirmed, imposed or become a lien
upon the Premises, Buildings or Property or become payable during the Term.
Notwithstanding the foregoing, Real Property Taxes shall not include fees
or charges imposed by a governmental agency for the clean up, monitoring or
remediation of Hazardous Substances on the Premises except if assessed as a
result of the act or omission of Tenant or Tenant's Parties, as defined in
subsection 8(l)(ii).
(g) Acknowledgment of Parties. It is acknowledged by Landlord and Tenant
-------------------------
that Proposition 13 was adopted by the voters of the State of California in
the June, 1978 election, and that assessments, taxes, fees, levies and
charges may be imposed by governmental agencies for such purposes as fire
protection,
5
<PAGE>
street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services which formerly may have been
provided without charge to property owners or occupants. It is the
intention of the parties that all new and increased assessments, taxes,
fees, levies and charges due to Proposition 13 or any other cause are to be
included within the definition of Real Property Taxes for purposes of this
Lease.
(h) Taxes on Tenant Improvements and Personal Property. Notwithstanding
--------------------------------------------------
any other provision hereof, Tenant shall pay the full amount of any Real
Property Taxes during the Term resulting from any and all alterations and
tenant improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant. Tenant shall
pay, prior to delinquency, all taxes assessed or levied against Tenant's
personal property in, on or about the Premises. When possible, Tenant
shall cause its personal property to be assessed and billed separately from
the real or personal property of Landlord.
6. PRORATION OF RENT. If the Commencement Date is not the first day of the
-----------------
month, or if the end of the Term is not the last day of the month, Rent shall be
prorated on a monthly basis (based upon a thirty (30) day month) for the
fractional month during the month which this Lease commences or terminates. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to subsection 5(e) which are to be performed after the
termination.
7. TENANT IMPROVEMENTS. Landlord agrees to construct within the Premises
-------------------
certain improvements to the Premises ("Tenant Improvements") pursuant to
the terms of Exhibit B.
---------
8. USES OF PREMISES.
----------------
(a) Tenant shall use the Premises solely for the use set forth in the Basic
Lease Information, and Tenant shall not use the premises for any other
purpose without obtaining the prior written consent of Landlord, which
consent shall be given or withheld in the sole and absolute discretion of
Landlord without any requirement of reasonableness in the exercise of that
discretion. Subject to the last sentence of this subsection 8(a), Tenant
shall, at its own cost and expense, comply with all applicable laws, rules,
regulations, orders, permits, licenses and ordinances issued by any
governmental authority (collectively "Laws") which relate to the condition,
use or occupancy of the Premises during the term of this Lease provided,
however, Tenant shall be responsible for compliance with Laws which require
modification to the Premises only to the extent such compliance is
necessitated by Tenant's particular use of or activities within the
Premises or any alterations (as defined in Section 9) by Tenant. In the
event there is a change in Laws after the Commencement Date which requires
a modification to the Premises and Tenant is not responsible for performing
such modification pursuant to the foregoing, Landlord shall perform such
modification and the cost of such modification shall be included as an
Operating Expense; provided that any capital items (as determined in
accordance with generally accepted accounting principles) shall be
amortized with interest as provided in Subsection 5(b). Tenant shall not
use the Premises in any manner that will constitute waste, nuisance, or
unreasonable annoyance (including, without limitation, the use of
loudspeakers or sound or light apparatus that can be heard or seen outside
the Premises) to other tenants in the Property. Notwithstanding the
foregoing, Tenant shall have no obligation to remedy or cure any instance
of noncompliance of the Premises with Laws existing as of the Commencement
Date except to the extent arising out of Tenant's particular use of the
Premises or the acts or omissions of Tenant and/or Tenant's Parties (as
defined in subsection 8(l)(ii). In addition, Tenant's obligation to comply
with Laws respecting Hazardous Substances is set forth separately in
subsection 8(c) below.
(b) "Hazardous Substance" shall mean the substances including within the
definitions of the term "Hazardous Substance" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
42 U.S.C. Section 9601 et seq., and the California Carpenter-Presley-Tanner
-------
Hazardous Substance Account Act, California Health & Safety Code Section
25300 et seq., and regulations promulgated thereunder, as amended.
-------
"Hazardous Waste" shall mean (a) any waste listed as or meeting the
identified characteristics of a "Hazardous Waste" under the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., and
-------
regulations promulgated pursuant thereto, collectively "RCRA", or (b) any
waste meeting the identified characteristics of "Hazardous Waste" under
California Hazardous Waste Control Law, California Health and Safety Code
Section 25100 et. seq., and regulations promulgated pursuant thereto,
---------
collectively "CHWCL". "Hazardous Waste Facility" shall mean a hazardous
waste facility as defined under CHWCL.
(c) Tenant covenants that, at its sole cost and expense, it will comply
with all applicable Laws and operating plans with respect to the use,
handling, generation, transportation, storage, treatment and/or
6
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disposal by Tenant and/or Tenant's Parties (as defined in subsection
8(l)(ii) of Hazardous Substances or Hazardous Wastes on or about the
Premises, and Tenant will provide Landlord with copies of all permits,
registrations or other similar documents that authorize Tenant to conduct
any such activities in connection with its authorized use of the Premises.
Additionally, Tenant agrees to comply with the Rules and Regulations
attached hereto as Exhibit D, the reasonable requirements of the Board of
---------
Fire Underwriters or Landlord's insurance carrier, and to comply with
covenants, conditions and restrictions ("CC&R's"), if any, applicable to
the Property.
(d) Tenant agrees that it shall not operate on the Premises any facility
required to be permitted or licensed as a Hazardous Waste Facility or for
which interim status as such is required. Nor shall Tenant store any
Hazardous Wastes on the Premises for ninety (90) days or more.
(e) Tenant agrees to comply with all applicable Laws relating to
underground storage tanks installed or operated by Tenant and/or Tenant's
Parties (including any installation, monitoring, maintenance, closure
and/or removal of such tanks) as such tanks are defined in California
Health and Safety Code, Section 25281(u), including, without limitation,
complying with California Health and Safety Code Sections 25280-25299.6 and
the regulations promulgated thereunder. Tenant shall furnish to Landlord
copies of all registrations and permits for all such underground storage
tanks.
(f) If applicable, Tenant shall provide to Landlord in writing the
following information and/or documentation at the Commencement Date, and
within sixty (60) days of any change in the required information and/or
documentation:
(i) A list of all Hazardous Substances and/or Hazardous Wastes that
Tenant uses, handles, generates, transports, stores, treats or
disposes in connection with its operations on the Premises.
(ii) Copies of all Material Safety Data Sheets ("MSDS's") required to
be completed by Tenant with respect to operations of Tenant at the
Premises in accordance with Title 8, California Code of Regulations
Section 5194 or 42 U.S.C. Section 11021, or any amendments thereto.
In lieu of this requirement, Tenant may provide a Hazardous Materials
Inventory Sheet that details the MSDS's.
(iii) Copies of all hazardous waste manifests, as defined in Title
26, California Code of Regulations Section 22-66260.10, that Tenant is
required to complete in connection with its operations at the
Premises.
(iv) A copy of any Hazardous Materials Management Plans required with
respect to Tenant's operations.
(v) Copies of any Contingency Plans and Emergency Procedures required
of Tenant due to its operations in accordance with Title 26, Section
22-66260.10, of the California Code of Regulations, and any amendments
thereto.
(vi) Copies of any biennial reports to be furnished to California
Department of Health Services relating to Hazardous Substances and/or
Hazardous Wastes.
(vii) Copies of all industrial waste water discharge permits.
(g) Tenant shall secure Landlord's prior written approval for any proposed
receipt, storage, possession, use, transfer or disposal of "Radioactive
Materials" or "Radiation", as such materials are defined in Title 26,
California Code of Regulations Section 17-30100 or possessing the
characteristics of the materials so defined, which approval Landlord may
withhold in its sole and absolute discretion. The Tenant in connection
with any authorized receipt, storage, possession, use, transfer or disposal
of radioactive materials or radiation shall:
(i) Comply with all federal, state and local laws, rules, regulations,
orders, licenses and permits;
(ii) Furnish Landlord with a list of all radioactive materials or
radiation received, stored, possessed, used, transferred or disposed;
and
7
<PAGE>
(iii) Furnish Landlord with all licenses, registration materials,
inspection reports, orders and permits in connection with the receipt,
storage, possession, use, transfer or disposal or radioactive
materials or radiation.
(h) Tenant agrees to comply with any and all applicable Laws with respect
to the release by Tenant and/or Tenant's Parties into the environment of
any Hazardous Wastes or Hazardous Substances or radiation or radioactive
materials. Tenant agrees to notify Landlord in writing of any such release
into the environment in violation of or which requires reporting to a
governmental agency under any Law within twenty-four (24) hours of the time
at which Tenant becomes aware of such release.
(i) Tenant shall indemnify, defend, and hold Landlord harmless from any and
all claims, losses (including, but not limited to, loss of rental income
and loss due to business interruption), damages, (including diminution in
value or loss of rental value following expiration or earlier termination
of the Term) liabilities, costs, legal fees, and expenses of any sort
arising out of or relating to any release into the environment of Hazardous
Substances or Hazardous Wastes or Radiation or Radioactive Materials by
Tenant or any of Tenant's Parties, or Tenant's failure to comply with
Subparagraphs (a)-(h) of this section of the Lease.
(j) Tenant agrees to cooperate with Landlord in furnishing Landlord with
reasonably complete information regarding Tenant's receipt, handling, use,
storage, transportation, generation, treatment and/or disposal of Hazardous
Substances or Hazardous Wastes or Radiation or Radioactive Materials. Upon
request, Tenant agrees to grant Landlord reasonable access at reasonable
times to the Premises to inspect Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of Hazardous
Substances, Hazardous Wastes or Radiation or Radioactive Materials without
being deemed guilty of any disturbance of Tenant's use or possession and
without being liable to Tenant in any manner; provided, however, that (i)
any such inspections shall be subject to the reasonable business security
requirements of Tenant, (ii) Landlord shall be solely responsible for the
safety and conduct of any such inspectors, (iii) Landlord shall defend and
indemnify Tenant for any claims, liabilities or losses to the extent
arising from the negligence or intentional misconduct of any such
inspectors; and (iv) upon Tenant's request, provide a copy of a report, if
any, prepared by Landlord's consultant with respect to such inspection so
long as such report is not otherwise subject to the attorney-client
privilege.
(k) Notwithstanding Landlord's rights of inspection and review under this
paragraph, Landlord shall have no obligation or duty to so inspect or
review, and no third party shall be entitled to rely on Landlord to conduct
any sort of inspection or review by reason of the provisions of this
paragraph.
(l) The following provisions shall apply to any Existing Contamination (as
defined below):
(i) Tenant acknowledges that (1) certain Hazardous Substances may be
located on, about or under the Property; (2) Landlord has delivered to
Tenant the environmental reports referenced on attached Exhibit E
---------
(collectively the "Environmental Reports"); (3) neither Landlord nor
any agent or contractor of Landlord has made any representation or
warranty concerning the environmental condition of the Property; (iv)
neither Landlord nor any agent or contractor of Landlord has made any
representation or warranty concerning the accuracy or completeness of
the Environmental Reports; (v) Tenant shall make such additional
assessments, tests or inquiries regarding the environmental condition
of the Property as Tenant may deem necessary or appropriate; provided
that Tenant shall not conduct any tests on or about the Property
unless Tenant has obtained the prior written approval of Landlord
regarding the nature and scope of such testing; and (4) subject to
Landlord's indemnity referenced below, Tenant shall accept the
Premises in its "AS IS" environmental condition. As used herein, the
term "Existing Contamination" shall mean the identity and amount of
Hazardous Substances referenced in the Environmental Reports as being
located on or under the Property as of the date of this Lease or
otherwise proven by Tenant to have been located on or under the
Property as of the date of this Lease.
(ii) Subject to the provisions of this subsection, Landlord shall
indemnify, defend (with counsel reasonably acceptable to Tenant) and
hold harmless Tenant, Tenant's sublessees and their respective
officers, directors, employees, successors and assigns of Tenant's
interest in this Lease (collectively "Tenant Indemnitees and
individually "Tenant Indemnitee") from and against any Environmental
Claim (as defined below) asserted against any Tenant Indemnitee and,
subject to the limitations referenced in the following paragraph, any
out of pocket costs, fees and expenses, including attorneys' and
consultants' fees, paid by a Tenant Indemnitee in connection
8
<PAGE>
with such Environmental Claim, provided that the foregoing indemnity
shall not apply to the extent that any such Environmental Claim arises
out of or is caused or exacerbated by the negligence or wilful
misconduct of Tenant or any affiliate of Tenant and/or their
respective agents, contractors, employees, licensees, invitees,
sublessees and/or assignees (collectively "Tenant's Parties" and
individually "Tenant's Party"). As used in this Lease, the term
"Environmental Claim" shall mean any claim, demand, loss, damage
and/or liability asserted against a Tenant Indemnitee with respect to
the Existing Contamination (i) by a governmental authority, or (ii) by
any other third party who is not an affiliate, subsidiary, partner,
agent, employee or invitee of Tenant. The parties acknowledge that
the term "Environmental Claim" shall not include under any
circumstance (a) lost profits, business interruption, whether in
connection with a claim related to the Existing Contamination or
otherwise, or any consequential damages suffered or incurred by a
Tenant Indemnitee that are not sought by a governmental entity or
third party from such Tenant Indemnitee with respect to the Existing
Contamination, or (b) any claim related to Hazardous Substances on the
Property which are not included within the scope of the term "Existing
Contamination". Neither this subsection nor any other provision of
this Lease shall be separately assignable and may only be assigned in
connection with Tenant's assignment of this Lease as may permitted
under Section 14 of this Lease.
(iii) In the event an Environmental Claim is asserted against a
Tenant Indemnitee for which a Tenant Indemnitee intends to seek
indemnification pursuant to the foregoing paragraph, such Tenant
Indemnitee shall promptly deliver written notice to Landlord of such
Environmental Claim and Landlord shall have exclusive authority
related to the response to and defense of the Environmental Claim,
provided that Landlord promptly accepts in writing the tender of such
Environmental Claim and defends with reasonable diligence the interest
of such Tenant Indemnitee with respect to such Environmental Claim in
accordance with this subsection (the "Defense Obligation"). No cost,
fee or expense paid or incurred by Tenant with respect to an asserted
Environmental Claim shall be required to be reimbursed or indemnified
by Landlord unless Landlord has previously approved such expense in
writing, Landlord has breached the Defense Obligation or Landlord has
denied approval of such expense on the basis that the foregoing
indemnity does not cover the specific Environmental Claim for which
such expense was incurred and thereafter it is determined pursuant to
a final judgment that the foregoing indemnity does cover the specific
Environmental Claim for which such expense was incurred. Tenant shall
cooperate with Landlord in connection with the response to and defense
of any Environmental Claim and shall make available to Landlord such
information and personnel as Landlord may reasonably request in order
to respond to or defend such Environmental Claim, so long as Landlord
agrees to reimburse the Tenant Indemnitee for any reasonable out-of-
pocket costs incurred by such Tenant Indemnitee in connection with
such request.
(iv) Tenant acknowledges that Tenant and Landlord are intended
indemnitees under that certain Indemnification Agreement between
Landlord and Xeruca, Inc. dated August 27, 1993 (the "Xeruca Indemnity
Agreement"). In the event an Environmental Claim is asserted against
Tenant, as a condition to Landlord's indemnification obligation
referenced in this Section 8(1), Tenant shall fully cooperate with
Landlord in Landlord's prosecution of any claim or cause of action
under the Xeruca Indemnity Agreement, provided that (i) Landlord
agrees to reimburse the Tenant Indemnitee for any reasonable out-of-
pocket costs incurred by such Tenant Indemnitee in connection with
such cooperation, and (ii) the foregoing does not limit or delay
satisfaction of such indemnification obligation by Landlord.
(m) Within ninety (90) days after the full execution of this Lease, Tenant
shall have the right to conduct a Phase I environmental assessment of the
Premises in accordance with generally accepted industry practices. The
consultant engaged by Tenant to perform such assessment shall be subject to
Landlord's prior approval which approval shall not be unreasonably
withheld. Tenant shall not drill any borings or otherwise perform testing
of the soil or ground water on or under the Premises without the prior
written consent of Landlord, which consent shall not be unreasonably
withheld but may be subject to such additional conditions as Landlord may
reasonably require. Tenant shall not disclose the results of such Phase I
environmental assessment to any other party (other than Tenant's sublessees
and their respective agents, lenders, insurers, successors, assigns,
consultants and attorneys who shall agree to maintain such confidentiality)
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. The foregoing restriction shall not apply to the
extent disclosure is (i) made in the course of litigation regarding
Tenant's or Landlord's obligations under this Lease, or (ii) as may be
required under applicable Laws. Tenant shall deliver a copy of any such
report to Landlord. Tenant's right to conduct the Phase I environmental
assessment is for Tenant's information only and Tenant's obligations under
this
9
<PAGE>
Lease are in no way contingent upon such assessment and/or Tenant's
approval of the results, conclusions or recommendations contained therein.
(n) This Section 8 of the Lease shall survive termination of the Lease.
9. ALTERATIONS.
-----------
(a) Permitted Alterations. Tenant shall give Landlord not less than ten
---------------------
(10) days' notice of any alteration Tenant desires to make to the Premises.
Tenant shall not make any alteration in, on or about the Premises without
the prior written consent of Landlord unless the alteration does not affect
the Building structure, the exterior appearance of the Building, the roof
or the Building systems (e.g., electrical systems) and the cost of the
----
alteration is not in excess of Five Thousand Dollars ($5,000.00). Tenant
shall comply with all rules, laws, ordinances and requirements applicable
at the time Tenant makes any alteration and shall deliver to Landlord a
complete set of "as built" plans and specifications for each alteration.
Tenant shall be solely responsible for maintenance and repair of all
alterations made by Tenant. As used in this Section 9, the term
"alteration" shall include any alteration, addition or improvement.
(b) Liens. If, because of any act or omission of Tenant or anyone claiming
-----
by, through, or under Tenant, any mechanics' lien or other lien is filed
against the Premises, the Buildings, the Property or against other property
of Landlord (whether or not the lien is valid or enforceable), Tenant, at
its own expense, shall cause it to be discharged of record within a
reasonable time, not to exceed thirty (30) days, after the date of the
filing. In addition, Tenant shall defend and indemnify Landlord and hold
it harmless from any and all claims, losses, damages, judgments,
settlements, costs and expenses, including attorneys' fees, resulting from
such liens resulting from an act or omission of Tenant or Tenant's Parties.
(c) Ownership of Alterations. Any alteration made by Tenant immediately
------------------------
shall become Landlord's property. Except as provided in subsection 9(d),
Landlord may require Tenant, at Tenant's sole expense and by the end of the
Term, to remove any alterations made by Tenant and to restore the Premises
to its condition prior to the alteration.
(d) Request Regarding Removal Obligation. At the time that Tenant requests
------------------------------------
Landlord's consent to any alteration, Tenant may request that Landlord
notify Tenant if Landlord will require Tenant, at Tenant's sole expense, to
remove any or all of the alteration by the end of the Term, and to restore
the Premises to its condition prior to the alteration.
10. REPAIRS.
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(a) Tenant's Obligation. Except as provided in subsection 10(b), Tenant,
-------------------
at all times during the Term and at Tenant's sole cost and expense, shall
keep the Premises and every part thereof in good condition and repair,
ordinary wear and tear, damage thereto not caused by Tenant, by fire,
earthquake, acts of God or the elements excepted. Tenant hereby waives all
right to make repairs at the expense of Landlord or in lieu thereof to
vacate the Premises as provided in California Civil Code Section 1942 or
any other law, statute or ordinance now or hereafter in effect.
(b) Landlord's Obligations. Landlord, at Landlord's expense, shall repair
----------------------
and maintain the structural portions of the roof (but not roof membrane or
other non-structural elements of the roof) and structural portions of the
Buildings unless the maintenance and repair are caused in whole or in part
by the act, neglect, fault or omission of any duty of Tenant, its agents,
servants, employees or invitees, in which case Tenant shall pay to Landlord
the cost of the maintenance and repairs caused in whole or in part by
Tenant. There shall be no abatement of Rent and no liability of Landlord
by reason of any injury to or interference with Tenant's business arising
from the making of any repairs, alterations or improvements in or to the
fixtures, appurtenances and equipment therein. Landlord's cost of
performing the foregoing obligations shall be included in Operating
Expenses; provided, however, any items required to be capitalized under
generally accepted accounting principles shall only be included in
Operating Expenses on an amortized basis plus interest in accordance with
subsection 5(b). In addition, if the performance of Landlord's obligations
pursuant to this subsection 10(b) directly result in Tenant being unable to
conduct its business in a material portion of such Building and Tenant
actually vacates such portion of the Building for a period in excess of ten
(10) consecutive days, then, from and after the expiration of such ten (10)
day period, Base Rent shall abate on a prorated basis to the extent such
portion of the Premises is untenantable until such time as the Premises is
in a condition so that Tenant may reasonably resume the conduct of its
business; provided, however, such abatement of Base Rent shall not apply to
the extent Tenant's obligation for the payment of Base Rent during such
period is or would be covered under insurance policies
10
<PAGE>
maintained or required to be maintained by Tenant under this Lease if this
sentence were not included in the Lease.
11. DAMAGE OR DESTRUCTION.
---------------------
(a) Landlord's Obligation to Rebuild. If the Premises are damaged or
--------------------------------
destroyed, Landlord promptly and diligently shall repair the Premises
unless Landlord has the option to terminate this Lease as provided herein,
and Landlord elects to terminate.
(b) Right to Terminate. Landlord and Tenant each shall have the option to
------------------
terminate this Lease if the Premises or the Buildings are destroyed or
damaged by fire or other casualty, regardless of whether the casualty is
insured against under this Lease, if Landlord reasonably determines that
the repair of the Premises or the Buildings cannot be completed within one
hundred eighty (180) days after the casualty. If a party desires to
exercise the right to terminate this Lease as a result of a casualty, the
party shall exercise the right by giving the other party written notice of
its election to terminate within thirty (30) days after the damage or
destruction, in which event this Lease shall terminate fifteen (15) days
after the date of the notice. If neither Landlord nor Tenant exercises the
right to terminate this Lease, Landlord promptly shall commence the process
of obtaining necessary permits and approvals, and shall commence repair of
the Premises as soon as practicable and thereafter prosecute the repair
diligently to completion, in which event this Lease shall continue in full
force and effect.
(c) Limited Obligation to Repair. Landlord's obligation, should Landlord
----------------------------
elect or be obligated to repair or rebuild, shall be limited to the
Building shell and any tenant improvements which are constructed and paid
for by Landlord pursuant to Exhibit B. Tenant, at its option and expense,
---------
shall replace or fully repair all trade fixtures, equipment and other
improvements installed by Tenant and existing at the time of the damage or
destruction.
(d) Abatement of Rent. In the event of any damage or destruction to the
-----------------
Premises which does not result in termination of this Lease, the Base Rent
temporarily shall be abated proportionately to the degree the Premises are
untenantable as a result of the damage or destruction, commencing from the
date of the damage or destruction and continuing during the period required
by Landlord to substantially complete its repair and restoration of the
Premises; provided, however, that nothing herein shall preclude Landlord
from being entitled to collect the full amount of any rent loss insurance
proceeds. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the Premises, damage to Tenant's personal
property or any inconvenience occasioned by any damage, repair or
restoration. Tenant hereby waives the provisions of Section 1932,
Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code, and the provisions of any similar law hereafter enacted.
(e) Damage Near End of Term and Extensive Damage. In addition to the
--------------------------------------------
rights to termination under subsection 11(b), either Landlord or Tenant
shall have the right to cancel and terminate this Lease as of the date of
the occurrence of destruction or damage if the Premises or the Buildingsare
substantially destroyed or damaged (i.e., there is damage or destruction
----
which Landlord determines would require more than six (6) months to repair)
and made untenantable during the last twelve (12) months of the Term.
Landlord or Tenant shall give notice of its election to terminate this
Lease under this subsection 11(e) within thirty (30) days after Landlord
determines that the damage or destruction would require more than six (6)
months to repair. If neither Landlord nor Tenant elects to terminate this
Lease, the repair of the damage shall be governed by subsection 11(a) or
11(b), as the case may be.
(f) Insurance Proceeds. If this Lease is terminated, Landlord may keep all
------------------
the insurance proceeds resulting from the damage, except for those proceeds
which specifically insured Tenant's personal property and trade fixtures.
12. EMINENT DOMAIN. If all or any part of the Premises is taken for public or
--------------
quasi-public use by a governmental authority under the power of eminent domain
or is conveyed to a governmental authority in lieu of such taking, and if the
taking or conveyance causes the remaining part of the Premises to be
untenantable and inadequate for use by Tenant for the purpose for which they
were leased, then Tenant, at its option and by giving notice within fifteen (15)
days after the taking, may terminate this Lease as of the date Tenant is
required to surrender possession of the Premises. If a part of the Premises is
taken or conveyed but the remaining part is tenantable and adequate for Tenant's
use, then this Lease shall be terminated as to the part taken or conveyed as of
the date Tenant surrenders possession; Landlord shall make such repairs,
alterations and improvements as may be necessary to render the part not taken or
conveyed tenantable; and the Rent shall be reduced in proportion to the part of
the Premises taken or conveyed. All compensation awarded for the taking or
conveyance shall be
11
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the property of Landlord without any deduction therefrom for any estate of
Tenant, and Tenant hereby assigns to Landlord all its right, title and interest
in and to the award. Tenant shall have the right, however, to recover from the
governmental authority, but not from Landlord, such compensation as may be
awarded to Tenant on account of the interruption of Tenant's business, moving
and relocation expenses; and removal of Tenant's trade fixtures and personal
property.
13. INDEMNITY AND INSURANCE.
-----------------------
(a) Indemnity. Tenant shall be responsible for, shall insure against, and
---------
shall indemnify Landlord and its constituent parts and hold them harmless
from, any and all liability for any loss, damage or injury to person or
property occurring in, on or about the Premises during the Term of this
Lease or such other period as Tenant or Tenant's Parties use or occupy the
Premises, and Tenant hereby releases Landlord and its constituent parts
from any and all liability for the same, except to the extent caused by the
gross negligence or wilful misconduct of Landlord or breach of this Lease
by Landlord. Tenant's obligation to indemnify Landlord and its constituent
parts hereunder shall include the duty to defend against any claims
asserted by reason of any loss, damage or injury, and to pay any judgments,
settlements, costs, fees and expenses, including attorneys' fees, incurred
in connection therewith. Tenant's obligations, as set forth in this
subsection 13(a), shall be subject to Landlord's indemnity obligation set
forth in subsection 8(l). In addition, Tenant shall not be obligated to
indemnify Landlord for Hazardous Substances which migrate under or onto the
Premises from an offsite source except to the extent arising out of an act
or omission by Tenant and/or Tenant's Parties.
(b) Insurance. At all times during the term of this Lease, Tenant shall
---------
carry, at its own expense, for the protection of Tenant, Landlord,
Landlord's constituent parts and Landlord's management agents, as their
interests may appear, one or more policies of comprehensive general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with minimum coverages of One Million
Dollars ($1,000,000.00) for injury to one person in any one accident, Three
Million Dollars ($3,000,000.00) for injuries to more than one person in any
one accident and Two Million Dollars ($2,000,000.00) in property damage per
accident and insuring against any and all liability for which Tenant is
responsible under this Lease. The insurance policy or policies shall name
Landlord, Landlord's constituent parts and Landlord's management agents as
additional insureds, and shall provide that the policy or policies may not
be cancelled on less than thirty (30) days' prior written notice to
Landlord. Tenant shall furnish Landlord with certificates evidencing the
insurance. If Tenant fails to carry the insurance and furnish Landlord
with copies of all the policies after a request to do so, Landlord shall
have the right to obtain the insurance and collect the cost thereof from
Tenant as additional Rent.
14. ASSIGNMENT AND SUBLETTING.
-------------------------
(a) Landlord's Consent. Tenant shall not assign, sublet or otherwise
------------------
transfer all or any portion of Tenant's interest in this Lease
(collectively, "sublet") without Landlord's prior written consent, which
consent shall not be unreasonably withheld. Consent by Landlord to one
sublet shall not be deemed to be a consent to any subsequent sublet.
(b) Effect of Sublet. Each sublet to which Landlord has consented shall be
----------------
by an instrument in writing, in a form satisfactory to Landlord as
evidenced by Landlord's written approval. Each sublessee shall agree in
writing, for the benefit of Landlord, to assume, to be bound by and to
perform the terms, conditions and covenants of this Lease to be performed
by Tenant. Tenant shall not be released from personal liability for the
performance of each term, condition and covenant of this Lease, and
Landlord shall have the right to proceed against Tenant without proceeding
against the subtenant.
(c) Information to be Furnished. If Tenant desires at any time to sublet
---------------------------
the Premises, Tenant first shall notify Landlord of its desire to do so and
shall submit in writing to Landlord: (i) the name of the proposed
subtenant; (ii) the nature of the proposed subtenant's business to be
carried on in the Premises; (iii) the terms and provisions of the proposed
sublease and a copy of the proposed sublease form; and (iv) such financial
information, including financial statements, as Landlord reasonably may
request concerning the proposed subtenant.
(d) Landlord's Election. At any time within twenty (20) days after
-------------------
Landlord's receipt of the information specified in subsection 14(c),
Landlord, by written notice to Tenant, may elect either (i) to consent to
the sublet by Tenant; or (ii) to refuse its consent to the sublet. If
Landlord fails to elect either of the alternatives within the thirty (30)
day period, it shall be deemed that Landlord has refused its consent to the
sublet. If Landlord refuses its consent, Landlord shall deliver to Tenant
a statement of the
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basis for its refusal. Any attempted sublet without Landlord's consent
shall not be effective.
(e) Payment Upon Sublet. If Landlord consents to the sublet, Tenant
-------------------
thereafter may enter into a valid sublet of the Premises or portion
thereof, upon the terms and conditions set forth in the information
furnished by Tenant to Landlord pursuant to subsection 15(c), subject to
the condition that fifty percent (50%) of any excess of the monies received
by Tenant under the sublet ("subrent") over the Rent required to be paid by
Tenant hereunder shall be paid to Landlord. Solely for purposes of
calculating such excess pursuant to the foregoing, Tenant shall have the
right to deduct from the subrent costs incurred by Tenant directly in
connection with such subletting, for brokerage commissions and subleasehold
improvements. Any subrent to be paid to Landlord pursuant hereto shall be
payable to Landlord as and with the Base Rent payable to Landlord hereunder
pursuant to the terms of Section 4. The term "subrent" as used herein
shall include any consideration of any kind received by Tenant from the
subtenant, if the sums are related to Tenant's interest in this Lease or in
the Premises, including, without limitation, bonus money, and payments (in
excess of fair market value thereof) for Tenant's assets, fixtures,
inventory, accounts, goodwill, equipment, furniture, general intangibles if
transferred with such subletting.
(f) Executed Counterparts. No sublet shall be valid nor shall any
---------------------
subtenant take possession of the Premises until an executed counterpart of
the sublease has been delivered to Landlord and approved in writing.
(g) Transfer to Purchaser. A transfer of this Lease to one or more
---------------------
purchasers of a majority interest in Tenant shall be deemed a sublet under
this Lease unless Tenant is a corporation, the stock of which is listed on
a national securities exchange (as such term is used in the Securities
Exchange Act of 1934, as amended) or is publicly traded on the over the
counter market and prices therefor are published daily on business days in
a recognized financial journal.
(h) Transfers to Affiliates. Tenant may assign this Lease or sublet the
-----------------------
Premises, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger or consolidation with Tenant, or to any person or
entity which acquires all the assets of Tenant as a going concern of the
business that is being conducted on the Premises, provided that the
assignee assumes, in full, the obligations of Tenant under this Lease.
15. DEFAULT.
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(a) Tenant's Default. At the option of Landlord, a material breach of this
----------------
Lease by Tenant shall exist if any of the following events (severally,
"Event of Default"; collectively, "Events of Default") shall occur: (i) if
Tenant shall have failed to pay Rent, including Tenant's Percentage Share
of Operating Expenses, or any other sum required to be paid hereunder
within five (5) days after delivery of written notice from Landlord to
Tenant, together with interest at the Interest Rate, from the date the
amount became due through the date of payment, inclusive; (ii) if Tenant
shall have failed to perform any term, covenant or condition of this Lease
except those requiring the payment of money, and Tenant shall have failed
to cure the breach within fifteen (15) days after written notice from
Landlord if the breach could reasonably be cured within the fifteen (15)
day period; provided, however, if the failure could not reasonably be cured
within the fifteen (15) day period, then Tenant shall not be in default
unless it has failed to promptly commence and thereafter continue to make
diligent and reasonable efforts to cure the failure as soon as practicable
as reasonably determined by Landlord; (iii) if Tenant shall have assigned
its assets for the benefit of its creditors; (iv) if the sequestration of,
attachment of, or execution on, any material part of the property of Tenant
or on any property essential to the conduct of Tenant's business shall have
occurred, and Tenant shall have failed to obtain a return or release of the
property within thirty (30) days thereafter, or prior to sale pursuant to
any sequestration, attachment or levy, whichever is earlier; (v) if Tenant
shall have failed to continuously and uninterruptedly conduct its business
in the Premises, or shall have abandoned or vacated the Premises; (vi) if a
court shall have made or entered any decree or order adjudging Tenant to be
insolvent, or approving as properly filed a petition seeking reorganization
of Tenant, or directing the winding up or liquidation of Tenant, and the
decree or order shall have continued for a period of thirty (30) days;
(vii) if Tenant shall make or suffer any transfer which constitutes a
fraudulent or otherwise avoidable transfer under any provision of the
federal Bankruptcy Laws or any applicable state law; or (viii) if Tenant
shall have failed to comply with the provisions of Section 23 or 25. An
Event of Default shall constitute a default under this Lease.
(b) Remedies Upon Tenant's Default. Upon an Event of Default, Landlord
------------------------------
shall have the following remedies, in addition to all other rights and
remedies provided by law, equity, statute or otherwise provided in this
Lease, to which Landlord may resort cumulatively or in the alternative:
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(i) Landlord may continue this Lease in full force and effect, and
this Lease shall continue in full force and effect as long as Landlord
does not terminate Tenant's right to possession, and Landlord shall
have the right to collect Rent when due. During the period Tenant is
in default, Landlord may enter the Premises and relet it, or any part
of it, to third parties for Tenant's account, provided that any Rent
in excess of the Rent due hereunder shall be payable to Landlord.
Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of cleaning and redecorating the
Premises required by the reletting and like costs. Reletting may be
for a period shorter or longer than the remaining Term of this Lease.
Tenant shall pay to Landlord the Rent and other sums due under this
Lease on the dates the Rent is due, less the Rent and other sums
Landlord receives from any reletting. No act by Landlord allowed by
this subsection (i) shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this
Lease.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect. No act
by Landlord other than giving written notice to Tenant shall terminate
this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession. On termination, Landlord
shall have the right to remove all personal property of Tenant and
store it at Tenant's cost and to recover from Tenant as damages: (a)
the worth at the time of award of unpaid Rent and other sums due and
payable which had been earned at the time of termination; plus (b) the
worth at the time of award of the amount by which the unpaid Rent and
other sums due and payable which would have been payable after
termination until the time of award exceeds the amount of the Rent
loss that Tenant proves could have been reasonably avoided; plus (c)
the worth at the time of award of the amount by which the unpaid Rent
and other sums due and payable for the balance of the Term after the
time of award exceeds the amount of the Rent loss that Tenant proves
could be reasonably avoided; plus (d) any other amount necessary to
compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform Tenant's obligations under this Lease, or
which, in the ordinary course of things, would be likely to result
therefrom, including, without limitation, any costs or expenses
incurred by Landlord: (1) in retaking possession of the Premises,
including reasonable attorneys' fees and costs therefor; (2)
maintaining or preserving the Premises for reletting to a new tenant,
including repairs or alterations to the Premises for the reletting;
(3) leasing commissions; (4) any other costs necessary or appropriate
to relet the Premises; and (5) at Landlord's election, such other
amounts in addition to or in lieu of the foregoing as may be permitted
from time to time by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in subsections
(ii)(a) and (ii)(b) is computed by allowing interest at the Interest Rate, on
the unpaid Rent and other sums due and payable from the termination date through
the date of award. The "worth at the time of award" of the amount referred to
in subsection (ii)(c) is computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award, plus one
percent (1%). Tenant waives redemption or relief from forfeiture under
California Code of Civil Procedure Sections 1174 and 1179, or under any other
present or future law, if Tenant is evicted or Landlord takes possession of the
Premises by reason of any default of Tenant hereunder.
(c) Landlord's Default. Landlord shall not be deemed to be in default in
------------------
the performance of any obligation required to be performed by Landlord
hereunder unless and until Landlord has failed to perform the obligation
within thirty (30) days after receipt of written notice by Tenant to
Landlord specifying wherein Landlord has failed to perform the obligation;
provided, however, that if the nature of Landlord's obligation is such that
more than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if Landlord shall commence the
performance within the thirty (30) day period and thereafter shall
diligently prosecute the same to completion.
16. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall at any
----------------------------------------------
time fail to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may, after delivery of reasonable prior
written notice, but shall not be obligated to, make the payment or perform any
other act to the extent Landlord may deem desirable and, in connection
therewith, pay expenses and employ counsel. Landlord's notice shall afford
Tenant a reasonable opportunity to perform such obligations except in the event
of an emergency where Landlord reasonably determines that prompt action is
required. Any payment or performance by Landlord shall not waive or release
Tenant from any obligations of Tenant under this Lease. All sums so paid by
Landlord, and all penalties, interest and costs in connection therewith, shall
be due and payable by Tenant on the next day after any payment by Landlord,
together with interest thereon at the Interest Rate, from that date to
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<PAGE>
the date of payment thereof by Tenant to Landlord, plus collection costs and
attorneys' fees. Landlord shall have the same rights and remedies for the
nonpayment thereof as in the case of default in the payment of Rent.
17. SECURITY DEPOSIT. Tenant has deposited with Landlord the Security
----------------
Deposit, in the amount specified in the Basic Lease Information, as security for
the full and faithful performance of every provision of this Lease to be
performed by Tenant. If Tenant defaults with respect to any provision of this
Lease, Landlord may use, apply or retain all or any part of the Security Deposit
for the payment of any Rent or other sum in default, for the payment of any
amount which Landlord may expend or become obligated to expend by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is used or applied, Tenant shall deposit with Landlord, within
ten (10) days after written demand therefor, cash in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. Upon the
expiration or earlier termination of the Lease, Landlord shall deliver to Tenant
any unapplied portion of the Security Deposit held by Landlord.
18. SURRENDER OF PREMISES. By taking possession of the Premises and subject to
---------------------
the provisions of Exhibit B, Tenant shall be deemed to have accepted the
---------
Premises and the Property in good, clean and completed condition and repair,
subject to all applicable laws, codes and ordinances. On the expiration or early
termination of this Lease, Tenant shall surrender the Premises to Landlord in
its condition as of the Commencement Date, normal wear and tear, acts of God,
fire (not caused by Tenant and/or Tenant's Parties) and eminent domain excepted.
Tenant shall remove from the Premises all of Tenant's personal property, trade
fixtures and any alterations required to be removed pursuant to Section 9.
Tenant shall have no obligation to remove the Tenant Improvements installed by
Landlord pursuant to Exhibit B. Tenant shall repair damage or perform any
---------
restoration work required by the removal. If Tenant fails to remove any personal
property, trade fixtures or alterations after the end of the Term, Landlord may
remove the property and store it at Tenant's expense, including interest at the
Interest Rate. If the Premises are not so surrendered at the termination of this
Lease, Tenant shall indemnify Landlord against all loss or liability resulting
from delay by Tenant in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenant, losses to Landlord due to
lost opportunities to lease to succeeding tenants, and attorneys' fees and
costs.
19. HOLDING OVER. If Tenant remains in possession of all or any part of the
------------
Premises after the expiration of the Term or the termination of this Lease, the
tenancy shall be month-to-month only and shall not constitute a renewal or
extension for any further term. In such event, Base Rent shall be increased in
an amount equal to one hundred fifty percent (150%) of the Base Rent during the
last month of the Term (including any extensions), and any other sums due under
this Lease shall be payable in the amount, and at the times, specified in this
Lease. The month-to-month tenancy shall be subject to every other term,
condition, covenant and agreement contained in this Lease and Tenant shall
vacate the Premises immediately upon Landlord's request.
20. ACCESS TO PREMISES. Tenant shall permit Landlord and its agents to enter
------------------
the Premises at all reasonable times upon reasonable notice (not less than
twenty-four (24) hours except in an emergency), except in the case of an
emergency (in which event no notice shall be necessary), to inspect the
Premises; to post Notices of Nonresponsibility and similar notices and to show
the Premises to interested parties such as prospective mortgagors, purchasers
and tenants; to make necessary alterations, additions, improvements or repairs
either to the Premises or the Buildings ; and to discharge Tenant's obligations
hereunder when Tenant has failed to do so within a reasonable time after written
notice from Landlord. The above rights are subject to reasonable security
regulations of Tenant, and to the requirement that Landlord shall at all times
act in a manner to cause the least possible interference with Tenant's
operations.
21. SIGNS. The size, design, color, location and other physical aspects of any
-----
sign in or on the Buildings shall be subject to the CC&R's, if any, Rules and
Landlord's approval prior to installation, and to any appropriate municipal or
other governmental approvals. The costs of any permitted sign, and the costs of
its installation, maintenance and removal, shall be at Tenant's sole expense and
shall be paid within ten (10) days of Tenant's receipt of a bill from Landlord
for the costs.
22. WAIVER OF SUBROGATION. Anything in this Lease to the contrary
---------------------
notwithstanding, Landlord and Tenant each hereby waives and releases the other
of and from any and all rights of recovery, claim, action or cause of action
against the other, its subsidiaries, directors, agents, officers and employees,
for any loss or damage that may occur in the Premises, the Buildings or the
Property; to improvements to the Buildings or personal property (building
contents) within the Buildings; or to any furniture, equipment, machinery, goods
and supplies not covered by this Lease which Tenant may bring or obtain upon the
Premises or any additional improvements which Tenant may construct on the
Premises by reason of fire, the elements or any other cause which is required to
be insured against under this Lease, regardless of cause or origin, including
negligence of Landlord or Tenant and their agents,
15
<PAGE>
subsidiaries, directors, officers and employees, to the extent insured against
under the terms of any insurance policies carried by Landlord or Tenant and in
force at the time of any such damage, but only if the insurance in question
permits such a partial release in connection with obtaining a waiver of
subrogation from the insurer. Because this Section 22 will preclude the
assignment of any claim mentioned in it by way of subrogation or otherwise to an
insurance company or any other person, each party to this Lease agrees
immediately to give to each insurance company written notice of the terms of the
mutual waivers contained in this Section and to have the insurance policies
properly endorsed, if necessary, to prevent the invalidation of the insurance
coverages by reason of the mutual waivers contained in this Section.
23. SUBORDINATION.
-------------
(a) Subordinate Nature. Except as provided in subsection 23(b), this Lease
------------------
is subject and subordinate to all ground and underlying leases, mortgages
and deeds of trust which now or may hereafter affect the Property, the
Buildings or the Premises, to the CC&R's, if any, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Within
ten (10) days after Landlord's written request therefor, Tenant shall
execute any and all documents required by Landlord, the lessor under any
ground or underlying lease ("Lessor"), or the holder or holders of any
mortgage or deed of trust ("Holder") to make this Lease subordinate to the
lien of any lease, mortgage or deed of trust, as the case may be.
(b) Possible Priority of Lease. If a Lessor or a Holder advises Landlord
--------------------------
that it desires or requires this Lease to be prior and superior to a lease,
mortgage or deed of trust, Landlord may notify Tenant. Within seven (7)
days of Landlord's notice, Tenant shall execute, have acknowledged and
deliver to Landlord any and all documents or instruments, in the form
presented to Tenant, which Landlord, Lessor or Holder deems necessary or
desirable to make this Lease prior and superior to the lease, mortgage or
deed of trust.
(c) Recognition or Attornment Agreement. If Landlord or Holder requests
-----------------------------------
Tenant to execute a document subordinating this Lease, the document shall
provide that, so long as Tenant is not in default, Lessor or Holder shall
agree to enter into either a recognition or attornment agreement with
Tenant, or a new lease with Tenant upon the same terms and conditions as to
possession of the Premises, which shall provide that Tenant may continue to
occupy the Premises so long as Tenant shall pay the Rent and observe and
perform all the provisions of this Lease to be observed and performed by
Tenant.
24. TRANSFER OF THE PROPERTY. Upon transfer of the Property and assignment of
------------------------
this Lease, Landlord shall be entirely freed and relieved of all liability under
any and all of its covenants and obligations contained in or derived from this
Lease occurring after the consummation of the transfer and assignment, and from
all liability for the Security Deposit upon such transferee's express assumption
of the Lease. Tenant shall attorn to any entity purchasing or otherwise
acquiring the Premises at any sale or other proceeding.
25. ESTOPPEL CERTIFICATES. Within ten (10) days following written request by a
---------------------
party, the other party shall execute and deliver to the requesting party an
estoppel certificate, in the form prepared by the requesting party. The
certificate shall: (i) certify that this Lease is unmodified and in full force
and effect or, if modified, state the nature of the modification and certify
that this Lease, as so modified, is in full force and effect, and the date to
which the Rent and other charges are paid in advance, if any; and (ii)
acknowledge that there are not, to the certifying party's actual knowledge, any
uncured defaults on the part of the requesting party hereunder, or if there are
uncured defaults on the part of the requesting party, state the nature of the
uncured defaults. The certificate shall also evidence the status of the Lease as
may be required either by a lender making a loan to Landlord to be secured by
deed of trust or mortgage covering the Premises or a purchaser of the Property
from Landlord.
26. MORTGAGEE PROTECTION. In the event of any default on the part of Landlord,
--------------------
Tenant will give notice by registered or certified mail to any beneficiary of a
deed of trust or mortgagee of a mortgage covering the Property (provided that
Tenant has previously received the name and address of such person) and shall
offer the beneficiary or mortgagee a reasonable opportunity to cure the default;
provided that such right to cure shall not exceed the cure period afforded to
Landlord pursuant to subsection 15(c).
27. ATTORNEYS' FEES. If either party shall bring any action or legal
----------------
proceeding for damages for an alleged breach of any provision of this Lease, to
recover rent or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease or
right of either party, the prevailing party shall be entitled to recover, as a
part of the action or proceedings, or in a separate action brought for that
purpose, such attorneys' fees and court costs as may be fixed by the court or
jury. The prevailing party shall be the party which secures a final judgment in
its favor.
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28. BROKERS. Landlord and Tenant each warrants and represents that it has had
--------
no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, except for any brokers(s) specified in the Basic
Lease Information, and that it knows of no other real estate broker or agent who
is or might be entitled to a commission in connection with this Lease. Each
party shall indemnify and hold harmless the other from and against any and all
liabilities or expenses arising out of claims made by any other broker or
individual for commissions or fees resulting from a breach of the foregoing
warranty by such party.
29. PARKING. Landlord shall not be liable to Tenant, nor shall this Lease be
-------
affected, if any parking in the Premises is impaired by moratorium, initiative,
referendum, law, ordinance, regulation or order passed, issued or made by any
governmental or quasi-governmental body.
30. UTILITIES AND SERVICES. Tenant shall be solely responsible for obtaining
----------------------
and paying for all utilities and services, including heating, air conditioning,
ventilation (i.e., HVAC service contracts, janitorial and security) in
connection with the Premises. Landlord shall not be liable for, and Tenant shall
not be entitled to any abatement or reduction of Rent by reason of, no eviction
of Tenant shall result from and, further, Tenant shall not be relieved from the
performance of any covenant or agreement in this Lease because of, Landlord's
failure to furnish or Tenant's failure to obtain any such utility or service any
of the foregoing. The foregoing shall not be deemed a waiver of any claim which
Tenant may have against Landlord for Landlord's gross negligence, wilful
misconduct or breach of this Lease.
31. MODIFICATION FOR LENDER. If, in connection with obtaining financing for
-----------------------
the Premises or any portion thereof, Landlord's lender shall request reasonable
modification to this Lease as a condition to such financing, Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially affect Tenant's rights hereunder.
32. ACCEPTANCE. Delivery of this Lease, duly executed by Tenant, constitutes
----------
an offer to lease the Premises as set forth herein, and under no circumstances
shall such delivery be deemed to create an option or reservation to lease the
Premises for the benefit of Tenant. This Lease shall become effective and
binding only upon execution hereof by Landlord and delivery of a signed copy to
Tenant. Upon acceptance of Tenant's offer to lease under the terms hereof and
receipt by Landlord of the Rent for the first month of the Term and the Security
Deposit in connection with Tenant's submission of the offer, Landlord shall be
entitled to retain the sums and apply them to damages, costs and expenses
incurred by Landlord if Tenant fails to occupy the Premises. If Landlord rejects
the offer, the sums shall be returned to Tenant.
33. [Intentionally omitted]
34. RECORDING. Neither Landlord nor Tenant shall record this Lease, nor a
---------
short form memorandum of this Lease, without the prior written consent of the
other.
35. QUITCLAIM. Upon any termination of this Lease pursuant to its terms,
---------
Tenant, at Landlord's request, shall execute, have acknowledged and deliver to
Landlord a quitclaim deed of all Tenant's interest in the Premises, Buildings
and Property created by this Lease.
36. NOTICES. Any notice or demand required or desired to be given under this
-------
Lease shall be in writing and shall be given by hand delivery, telecopy or the
United States mail. Notices which are sent by telecopy shall be deemed to have
been given upon receipt. Notices which are mailed shall be deemed to have been
given upon receipt or delivery is refused; provided, however, if Tenant has
vacated the Premises or no one at the Premises is legally authorized to accept
notice on behalf of Tenant, then notice shall be deemed delivered to Tenant
seventy-two (72) hours have elapsed after the notice was deposited in the United
States mail, registered or certified, the postage prepaid, addressed to the
party to be served. As of the date of execution of this Lease, the addresses of
Landlord and Tenant are as specified in the Basic Lease Information. Either
party may change its address by giving notice of the change in accordance with
this Section.
37. LANDLORD'S EXCULPATION. In the event of default, breach or violation by
-----------------------
Landlord (which term includes Landlord's partners, co-venturers and co-tenants,
and officers, directors, employees, agents and representatives of Landlord and
Landlord's partners, co-venturers and co-tenants) of any of Landlord's
obligations under this Lease, Landlord's liability to Tenant shall be limited to
its ownership interest in the Buildings and Property or the proceeds of a public
sale of the ownership interest pursuant to the foreclosure of a judgment against
Landlord. Landlord shall not be personally liable, or liable in any event, for
any deficiency beyond its ownership interest in the Buildings and Property.
38. ADDITIONAL STRUCTURES. Any diminution or interference with light, air
----------------------
or view by any structure which may
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be erected on land adjacent to the Buildings shall in no way alter this Lease or
impose any liability on Landlord.
39. OPTION TO EXTEND.
----------------
(a) Terms of Option. Provided that Tenant is not in default under this
---------------
Lease either at the time of exercise of the right to extend or on the
Expiration Date, Tenant shall have the non-assignable right, at its
option, to extend this Lease for one (1) period of five (5) years (the
"Extension Term") commencing on the Expiration Date. If Tenant elects to
extend this Lease for any Extension Term, Tenant shall give unequivocal
written notice ("Exercise Notice") of its exercise to Landlord not less
than one hundred eighty (180) days, nor more than twelve (12) months prior
to the Expiration Date. Tenant's failure to give the Exercise Notice in a
timely manner shall be deemed a waiver of Tenant's right to extend. The
terms, covenants and conditions applicable to the Extension Term shall be
the same terms, covenants and conditions of this Lease except that (i)
Tenant shall not be entitled to any further option to extend, and (ii) the
Base Rent for the Premises during the Extension Term shall be determined as
provided in subsection 39.b. below, and (iii) Landlord shall have no
obligation to improve or otherwise modify the Premises or to provide any
tenant improvement allowance.
(b) Determination of Base Rent During Extension Term.
-------------------------------------------------
(i) Agreement on Rent. Subject to the limitations of this Section,
------------------
Landlord and Tenant agree that the Base Rent during the Extension Term
shall be equal to ninety-five percent (95%) of the fair market rental
value of the Premises for the Extension Term. Landlord and Tenant
shall have thirty (30) days after Landlord receives the Exercise
Notice in which to agree on the Base Rent during the Extension Term.
In determining the fair market rental value of the Premises during the
Extension Term, consideration shall be given to the uses of the
Premises permitted under this Lease, the quality, size, design and
location of the Premises, and the rental value of comparable space
located in the proximity of the Buildings. In no event shall the Base
Rent for the Extension Term be less than the Base Rent last payable
under this Lease during the Term. If Landlord and Tenant agree on the
Base Rent for the Extension Term during the thirty (30) day period,
they shall immediately execute an amendment to this Lease stating the
Base Rent.
(ii) Selection of Appraisers. If Landlord and Tenant are unable to
------------------------
agree on the Base Rent for the Extension Term within the thirty (30)
day period, then within fifteen (15) days after the expiration of the
thirty (30) day period, Landlord and Tenant each, at its cost and by
giving notice to the other party, shall appoint a competent and
disinterested real estate appraiser with at least five (5) years full-
time commercial appraisal experience in Mountain View to appraise and
set the Base Rent during the Extension Term. If either Landlord or
Tenant does not appoint an appraiser within ten (10) days after the
other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and shall set the Base
Rent during the Extension Term. If two (2) appraisers are appointed
by Landlord and Tenant as stated in this section, they shall meet
promptly and attempt to set the Base Rent for the Extension Term. If
the two (2) appraisers are unable to agree within thirty (30) days
after the second appraiser has been appointed, they shall attempt to
select a third appraiser meeting the qualifications stated in this
section within ten (10) days after the last day the two (2) appraisers
are given to set the Base Rent. If they are unable to agree on the
third appraiser, either Landlord or Tenant, by giving ten (10) days'
notice to the other party, can apply to the then president of the real
estate board of Santa Clara County, or to the Presiding Judge of the
Superior Court of Santa Clara County for, the selection of a third
appraiser who meets the qualifications stated in this section.
Landlord and Tenant each shall bear one-half (l/2) of the cost of
appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has
not previously acted in any capacity for either Landlord or Tenant.
(iii) Value Determined By Three (3) Appraisers. Within thirty (30)
-----------------------------------------
days after the selection of the third appraiser, a majority of the
appraisers shall set the Base Rent for the Extension Term. If a
majority of the appraisers is unable to set the Base Rent within the
stipulated period of time, Landlord's appraiser shall arrange for
simultaneous exchange of written appraisals of the fair market rental
value of the Premises from each of the appraisers and the three (3)
appraisals shall be added together and their total divided by three
(3); ninety-five percent (95%) of the resulting quotient shall be the
Base Rent for the Premises during the Extension Term. If, however,
the low appraisal and/or the high appraisal are/is more than ten
percent (10%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one
(1) appraisal is disregarded, the remaining two (2) appraisals shall
be added together and their
18
<PAGE>
total divided by two (2); ninety-five percent (95%) of the resulting
quotient shall be the Base Rent for the Premises during the Extension
Term. If both the low appraisal and the high appraisal are
disregarded as stated in this Paragraph, ninety-five percent (95%) of
the middle appraisal shall be the Base Rent for the Premises during
the Extension Term.
(iv) Notice to Landlord and Tenant. After the Base Rent for the
------------------------------
Extension Term has been set, the appraisers shall immediately notify
Landlord and Tenant, and Landlord and Tenant shall immediately execute
an amendment to this Lease stating the Base Rent.
40. GENERAL.
-------
(a) Captions. The captions and headings used in this Lease are for the
--------
purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
(b) Time. Time is of the essence for the performance of each term,
----
condition and covenant of this Lease.
(c) Severability. If any provision of this Lease is held to be invalid,
------------
illegal or unenforceable, the invalidity, illegality, or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if the invalid, illegal or unenforceable provision had not
been contained herein.
(d) Choice of Law; Construction. This Lease shall be construed and
---------------------------
enforced in accordance with the laws of the State of California. The
language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning and not strictly for or against either
Landlord or Tenant.
(e) Gender; Singular, Plural. When the context of this Lease requires, the
------------------------
neuter gender includes the masculine, the feminine, a partnership or
corporation or joint venture, and the singular includes the plural.
(f) Binding Effect. The covenants and agreements contained in this Lease
--------------
shall be binding on the parties hereto and on their respective successors
and assigns (to the extent this Lease is assignable).
(g) Waiver. The waiver of Landlord of any breach of any term, condition or
------
covenant of this Lease shall not be deemed to be a waiver of the provision
or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach at the
time of acceptance of the payment. No covenant, term or condition of this
Lease shall be deemed to have been waived by Landlord unless the waiver is
in writing signed by Landlord.
(h) Entire Agreement. This Lease is the entire agreement between the
----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no
subsequent change or addition to this Lease shall be binding unless in
writing and signed by the parties hereto.
(i) Waiver of Jury. To the extent permitted by law, the parties hereby
--------------
waive any right it may have to a jury trial in the event of litigation
between Tenant and Landlord pertaining to this Lease.
(j) Counterparts. This Lease may be executed in counterparts, each of
------------
which shall be an original, but all counterparts shall constitute one (1)
instrument.
(k) Exhibits. The Basic Lease Information and all exhibits attached hereto
--------
are hereby incorporated herein and made an integral part hereof.
(l) Addendum. The Addendum, if any, attached hereto is hereby incorporated
--------
herein and made an integral part hereof.
[Remainder of page intentionally left blank]
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease effective as of the
date first above written.
"LANDLORD"
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
a New Jersey corporation
By: s/s Robert Hutchison
---------------------------------------
Its: Vice President
"TENANT"
CONSILIUM, INC.,
a California corporation
By: s/s Richard H. Van Hoesen
--------------------------------------
Its: Vice President Finance & Administration
---------------------------------------
20
<PAGE>
BASIC LEASE INFORMATION
-----------------------
DATE: August 2, 1995
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey
corporation
TENANT: CONSILIUM, INC., a California corporation
PREMISES: BUILDING ADDRESS: 485 Clyde Avenue
Mountain View, CA 94043
USE: General office, sales, service, research and development,
engineering, light assembly, storage and other lawful related
use not involving use of Hazardous Substances, except as
customarily used in an office use
TERM: Eighty-four (84) months
ESTIMATED
COMMENCEMENT
DATE: January 1, 1996
BASE RENT: Months Payment per Month
------ -----------------
1 - 30 $55,440.00 per month
31 - 60 $56,672.00 per month
61 - 72 Adjusted per increase in CPI (see Section 4)
73 - 84 Adjusted per increase in CPI (see Section 4)
ADVANCE RENT: $55,440.00
ESTIMATED
EXPENSES: Insurance: $979.44 per month
Real Property Taxes: $5,174.40 per month
TENANT'S
PERCENTAGE
SHARE: 100% of Building
100% of Property
SECURITY
DEPOSIT: $56,672.00
BROKERS: Tenant's Broker: Cooper/Brady
Landlord's Broker: CPS
CONTRACT
MANAGER: Edward Pike Company
ADDRESS FOR
NOTICES: LANDLORD: The Prudential Insurance Company of
America
4309 Hacienda Drive, Suite 500
Pleasanton, CA 94588
CONTRACT MANAGER: Edward Pike Company
1111 Broadway, Suite 1510
Oakland, CA 94607
With a copy to:
Edward Pike Company
2140 B Bering Drive
San Jose, CA 95131
TENANT: Consilium, Inc.
485 Clyde Avenue
Mountain View, CA 94043
TENANT IMPROVEMENTS: Base Allowance: $1,848,000.00
21
<PAGE>
EXHIBITS AND ADDENDUM: Exhibit A - Site Plan of Premises
Exhibit B - Tenant Improvements Construction Agreement
Exhibit C - Commencement Date Memorandum
Exhibit D - Rules and Regulations
Exhibit E - Environmental Reports
INITIALS: s/s ROBERT HUTCHISON s/s RICHARD H. VAN HOESEN
---------------------------- -----------------------------
LANDLORD TENANT
22
<PAGE>
EXHIBIT A
---------
SITE PLAN
<PAGE>
EXHIBIT B
---------
TENANT IMPROVEMENTS CONSTRUCTION AGREEMENT
------------------------------------------
This Tenant Improvements Construction Agreement ("Agreement") is part of the
Lease ("Lease") relating to certain premises ("Premises") which are more
particularly described in Exhibit A of this Lease. Landlord and Tenant agree as
---------
follows with respect to the Tenant Improvements to be installed in the Premises:
1. PLANS AND SPECIFICATIONS
------------------------
A. Space Plan. Within thirty (30) days after the date of this Lease,
----------
Tenant shall deliver to Landlord for Landlord's approval Tenant's
proposed space plan prepared by Schutte Hayes or such other architect
as may be reasonably approved by Landlord to prepare the plans and
specifications for the Tenant Improvements (the "Architect") for the
Premises. Within five (5) days after submittal of such space plan,
Landlord shall either approve or disapprove (in writing with the
changes requested by Landlord) the space plan. Within five (5) days
after receipt of any required revisions requested by Landlord, Tenant
shall cause the space plan to be revised and resubmitted to Landlord
for Landlord's approval and the foregoing procedure shall be repeated
until Tenant's proposed space plan has been approved by Landlord. If
Tenant and Landlord are unable to agree upon a space plan within sixty
(60) days after the date of this Lease, either party shall have the
right to terminate this Lease. The space plan approved by Landlord and
Tenant shall be referred to herein as the "Approved Space Plan."
B. Preliminary Plans/Working Drawings. Landlord shall engage the
----------------------------------
Architect to prepare the preliminary plans and specifications and
working drawings for the Tenant Improvements; provided, however,
Landlord shall have the right to terminate the Architect if Landlord
reasonably determines that the Architect will delay the completion of
the Tenant Improvements. Within five (5) days after any request by
Landlord or Architect, Tenant shall furnish any information requested
by Landlord or Architect for the preparation by the Architect of
preliminary plans and specifications and thereafter for the
preparation of working drawings and specifications. If Tenant fails
to furnish the information within the five (5) day period, Landlord
shall have the right to terminate this Agreement and the Lease.
Within three (3) working days after any proposed plans and
specifications, working drawings and specifications which have been
prepared by the Architect are submitted to Tenant (collectively the
"Proposed Plans"), Tenant shall reasonably approve or disapprove the
Proposed Plans. The Proposed Plans shall be deemed approved if Tenant
fails to disapprove them within the three (3) business day period.
If Tenant disapproves the Proposed Plans, Tenant shall have three (3)
business days after the date of disapproval to provide sufficient
information to the Architect so that revised Proposed Plans may be
prepared. If Tenant fails to submit the required information to
revise the Proposed Plans within the three (3) business day period or
if the revised Proposed Plans are not approved by Tenant within three
(3) business days after submission to Tenant, Landlord shall have the
right to terminate this Agreement and the Lease. The foregoing
approval process shall be followed until final working drawings have
been approved by Landlord and Tenant.
After the foregoing process has been completed, the working drawings
and specifications which have been approved by Landlord and Tenant are
hereinafter referred to as the "Approved Working Drawings."
C. Cost Estimates. Landlord shall obtain a cost estimate from its
--------------
contractor based on the approved preliminary plans and specifications
and Approved Working Drawings, respectively, and Tenant shall have
three (3) business days after the date of submission to Tenant of each
cost estimate to approve or disapprove it. A cost estimate shall be
deemed approved if Tenant fails to disapprove it within the three (3)
business day period. If Tenant disapproves a cost estimate, Tenant
shall have five (5) business days after the date of disapproval to
reduce the cost estimate by agreeing to modifications to the plans and
specifications or to the Approved Working Drawings, which
modifications shall be subject to the prior written approval of
Landlord. If Tenant disapproves a cost estimate but fails to approve
modifications which will reduce the cost estimate within the five (5)
business day period, Landlord may either terminate this Agreement and
the Lease or proceed with construction on the basis of the last cost
estimate submitted to Tenant.
24
<PAGE>
D. Tenant's Approval. Whenever either party's approval is required
------------------
pursuant to the terms of this Agreement, the approval shall not be
unreasonably withheld or delayed. Each party's approvals or
disapprovals shall be in writing.
E. Termination. If this Agreement and the Lease are terminated by
-----------
Landlord pursuant to any of the provisions of this Agreement, the
parties' rights and obligations hereunder shall be discharged;
provided, however, Tenant shall pay Landlord, within ten (10) days
after the date of Tenant's receipt of a statement for the same, the
costs incurred by Landlord through the date of termination in
connection with the preparation of any plans, drawings, and
specifications and all costs incurred by Landlord in applying for any
governmental approvals, including a building permit, required for
construction of the Tenant Improvements.
2. CONSTRUCTION OF TENANT IMPROVEMENTS.
-----------------------------------
A. Construction by Landlord. Landlord shall cause construction of the
------------------------
Tenant Improvements to be completed in a good and workmanlike manner
with the costs to be expended by Landlord not to exceed the Base
Allowance set forth in the Basic Lease Information. In addition,
Landlord shall cause the improvements specified on attached Exhibit B-
1 to be constructed and the parking on the Premises as shown on
attached Exhibit B-2 at Landlord's sole cost and expense collectively
-----------
(collectively "Landlord Improvements"). The cost of the Landlord
Improvements shall not be included as part of the Tenant Improvements
Cost.
B. Tenant Improvements Cost. The Tenant Improvements cost ("Tenant
------------------------
Improvements Cost") to be paid by Landlord shall include, but not be
limited to:
(i) All costs of preliminary and final architectural and engineering
plans, drawings and specifications for the Tenant Improvements,
and engineering costs associated with completion of the State of
California energy utilization calculations under Title 24
legislation;
(ii) All costs of obtaining building permits and other necessary
authorizations from the applicable governmental authority (e.g.,
---
the City in which the Building is located);
(iii) All costs of interior design and finish schedule plans,
drawings and specifications including as-built drawings;
(iv) All direct and indirect costs of procuring and installing Tenant
Improvements in the Premises, including the contractor's fee for
overhead and profit, the cost of all of contractor's on-site
supervisory and administrative staff, office, equipment and
temporary services provided in connection with construction of
the Tenant Improvements;
(v) All fees payable to Landlord's architect, engineer or space
planner if they are required to redesign any portion of the
Tenant Improvements following Tenant's approval of the
preliminary or working drawings;
(vi) Sewer connection fees, if any;
(vii) The fee charged by any construction cost consultant and/or
construction manager employed in connection with the Tenant
Improvement; and
(viii) Fire and Builder's All-Risk insurance and public liability
insurance premiums and fees.
3. TENANT IMPROVEMENTS COST. If the total Tenant Improvements Cost is more
------------------------
than the Base Allowance then, the excess Tenant Improvements Cost shall be
paid by Tenant to Landlord, in cash, within ten (10) days after receipt of
a statement from Landlord, as additional rent. If the total Tenant
Improvements Cost is less than the Base Allowance, then the monthly Base
Rent specified in the Lease shall be reduced by an amount equal to the
product of $.015 multiplied by the amount that the Base Allowance exceeds
the total Tenant Improvements Cost.
25
<PAGE>
4. CHANGE REQUESTS.
---------------
(i) No changes to the Approved Working Drawings requested by Tenant shall be
made without Landlord's prior approval, which approval shall not be
unreasonably withheld; provided, however, that no change request shall
affect the structure of the Building. Any changes to the Approved Working
Drawings shall be in writing and shall be signed by both Landlord and
Tenant prior to the change being made. Tenant shall not instruct or
direct Contractor workmen, subcontractors, material suppliers, or others
performing the Tenant Improvements construction. Tenant shall direct all
inquiries and requests relating to the construction work to Landlord or
Landlord's designated agent. Tenant shall be responsible for any added
costs or delays resulting from Tenant's actions which are contrary to
this Paragraph 4.
(ii) (a) Tenant shall pay Landlord in cash, within thirty (30) days after
receipt of an itemized written bill from Landlord, any additional costs
for changes requested by Tenant, including, without limitation,
architectural fees and increases in construction costs caused by the
delay; (b) a change request shall constitute an agreement by Tenant to
any reasonable delay in substantial completion caused by reviewing,
processing and implementing the change; and (c) the Lease, at Landlord's
option, shall commence on the date it would have otherwise commenced but
for any such delays.
(iii) As soon as reasonably possible after receipt of a written change request
from Tenant, Landlord shall notify Tenant of Landlord's approval or
disapproval of the request; and, if the request is approved, of an
estimated increase or decrease in costs and an estimate of the effect the
change shall have on the projected date for substantial completion of the
Tenant Improvements.
(iv) Landlord shall have the authority, without the consent of Tenant, to
order minor changes (i.e. Contractor field changes required where it is
impractical to install the Tenant Improvements as specifically required
under the Approved Working Drawings) to the Tenant Improvements not
involving an increase in cost to Tenant or a delay in the Commencement
Date and not inconsistent with the intent of the Approved Working
Drawings. Landlord shall use prompt and diligent efforts to notify Tenant
of any such changes.
5. COOPERATION. Landlord and Tenant shall cooperate and diligently assist the
-----------
architect, engineer or space planner in completing the Approved Working
Drawings and specifications and the Contractor in completing construction
of the Tenant Improvements.
6. CONDITION OF TENANT IMPROVEMENTS. Within seven (7) days after the
--------------------------------
Commencement Date, Tenant shall "walk-through" the Premises with Landlord
and they shall complete a punch-list of items needing additional work by
Landlord. Other than the items specified in the punch-list, by taking
possession of the Premises, Tenant shall be deemed to have accepted the
Premises and the Building in good, clean and completed condition and
repair, subject to all applicable laws, codes and ordinances. The punch-
list shall not include any damage to the Premises or the Building caused by
Tenant's move-in, which damage shall be promptly repaired or corrected by
Tenant at its sole expense. If Tenant fails to complete a punch-list with
Landlord's cooperation within the seven (7) day period specified above, it
shall be deemed that there are no items needing additional work or repair.
Contractor shall complete all reasonable punch-list items within thirty
(30) days after the walk-through inspection or as soon as practicable
thereafter and upon notification of completion of the punch-list items,
Tenant shall approve or state its reasons for disapproval of the completed
items in writing to Landlord within seven (7) days or such items shall be
deemed approved by Tenant.
7. TENANT DELAYS. If the Commencement Date of this Lease has not occurred on
-------------
or before the date specified in the Basic Lease Information, and if the
cause of the delay in the occurrence of the Commencement Date is
attributable to Tenant, then the Commencement Date shall be the date the
Commencement would have occurred but for such delay. Payments for any
partial month shall be prorated on the basis of a thirty (30) day month.
Delays attributable to Tenant shall include those caused by:
(i) Tenant's failure to furnish information to Landlord for the
preparation of plans and drawings for the Tenant Improvements in
accordance with this Exhibit B;
---------
(ii) Tenant's request for special materials, finishes or installations
which are not readily available;
(iii) Tenant's failure to reasonably approve plans and working drawings in
accordance with this Exhibit B;
---------
26
<PAGE>
(iv) Tenant's change requests pursuant to this Exhibit B that result in
---------
delays;
(v) Tenant's failure to approve cost estimates if any approvals are
required pursuant to this Exhibit B; and
---------
(vi) Interference with Landlord's work caused by Tenant or by Tenant's
agents.
8. TENANT IMPROVEMENTS COST AND RENT ADJUSTMENT STATEMENT. Within one hundred
------------------------------------------------------
twenty (120) days after the Commencement Date, Landlord shall provide
Tenant with a statement of the Tenant Improvements Cost. The statement
shall include the balance due Landlord, if any (which shall be paid within
ten (10) days).
27
<PAGE>
EXHIBIT C
---------
COMMENCEMENT DATE MEMORANDUM
----------------------------
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey
corporation
TENANT: CONSILIUM, INC., a California corporation
LEASE DATE: ______________________, 1995
PREMISES:
Pursuant to Section 2.D. of the above-referenced Lease, the Commencement Date
hereby is established as _____________________, and the Expiration Date is
hereby established as _______________________.
LANDLORD
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
a New Jersey corporation
By __________________________________
Its Vice President
TENANT
CONSILIUM, INC.,
a California corporation
By___________________________________
Its_______________________________
28
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the outside or inside of the Building without
the prior written consent of Landlord. Landlord shall have the right to
remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule.
2. No awning shall be permitted on any part of the Premises, without
Landlord's prior written consent. Tenant shall not place anything against
or near glass partitions or doors or windows which may appear unsightly
from outside the Premises.
3. Tenant shall not obstruct any sidewalks, exits, entrances, elevators or
stairways of the Building.
4. Tenant shall not place a load upon any floor of the Premises which exceeds
the maximum load per square foot which the floor was designed to carry and
which is allowed by law.
5. Tenant shall not use or keep in the Premises any toxic or hazardous
materials or any kerosene, gasoline or inflammable or combustible fluid or
material other than those limited quantities reasonably necessary for the
operation or maintenance of and office and office equipment. Tenant shall
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the Premises to be occupied or used in a
manner unreasonably offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors or vibrations. No
animal, except seeing eye dogs when in the company of their masters, may be
brought into or kept in the Building.
6. Tenant shall cooperate fully with Landlord to comply with any governmental
energy-saving rules, laws or regulations.
7. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
8. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed, and no foreign substance of any kind whatsoever shall be
placed therein. The expense of any breakage, stoppage or damage resulting
from any violation of this rule shall be borne by the tenant who, or whose
employees or invitees, shall have caused it.
9. Tenant shall not install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building, without
Landlord's prior written approval.
10. Tenant shall store all its trash and garbage in a separate designated area.
11. Use by Tenant of Underwriters' Laboratory approved equipment for brewing
coffee, tea, hot chocolate and similar beverages and microwaving food shall
be permitted, provided that the equipment and use is in accordance with all
applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
12. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by any governmental agency and all
reasonable such procedures and regulations established by Landlord. Tenant
shall be responsible for any increased insurance premiums attributable to
Tenant's use of the Premises, Building or Property.
13. Tenant assumes any and all responsibility for protecting its Premises from
theft and robbery, which responsibility includes keeping doors locked and
other means of entry to the Premises closed.
14. Tenant shall not use the Premises, or suffer or permit anything to be done
on, in or about the Premises, which may result in an increase to Landlord
in the cost of insurance maintained by Landlord on the Building and Common
Areas.
15. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
16. Landlord reserves the right to make other reasonable Rules and Regulations
as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all Rules and Regulations
hereinabove stated and any additional rules and regulations which are
adopted.
17. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees, and
guests.
29
<PAGE>
EXHIBIT E
---------
ENVIRONMENTAL REPORTS
---------------------
Environmental Reports Pertaining to 485 Clyde Avenue
<TABLE>
<CAPTION>
Date Report Prepared By
- ---- ------ -----------
<S> <C> <C>
10/02/89 Soil Gas and Groundwater Invest Pacific Environmental Sol.
03/19/90 Hazardous Materials Facility Closure Plan Acurex Environmental
06/22/90 Level II Environmental Site Assessment Environ. Engin. Consultant
07/17/90 Hazardous Materials Facility Closure Acurex Environmental
07/17/90 Summary of Level II Environmental Site Assessment Environ. Engin. Consultant
08/06/90 Soil and Groundwater Evaluation Report Environ. Engin. Consultant
10/31/93 Semiannual Groundwater Monitoring Report Acurex Environmental
09/02/94 Annual Groundwater Monitoring Report Acurex Environmental
</TABLE>
30
<PAGE>
August 4, 1994
Ed Norton
355 Edgehill Way
San Francisco, CA 94127
Facsimile Delivery: 759-1435
Dear Ed:
We are pleased to offer you a position as Vice President of Services. This
position reports directly to Tom Tomasetti, President and Chief Executive
Officer, effective September 12, 1994.
The compensation and benefits you will receive upon employment include:
. $135,000 base salary per year
. Eligible for $20,000 Corporate Bonus (on an annual fiscal year basis):
- $10,000 if the company meets certain financial goals. The goals will
include both revenue and profits and are the same goals that all members of
the executive team will be measured against. These goals must be approved
by the Board of Directors.
- $10,000 if executive meets specific MBO goals. The customized objectives
will be determined by Tom Tomasetti.
. Eligible for additional $30,000 annual bonus based on revenue and profit of
the Consilium Service Department. After joining Consilium, executive and
Tom Tomasetti will mutually establish a revenue and profitability target
for 1995 against which executive's bonus will be measured. The bonus plan
will pay $30,000 at target and be structured in a way such that significant
over-achievement may result in additional payments of up to 100% of the on-
target amount. Bonuses under this plan can be structured to be paid out
quarterly. This program may not be fully outlined by the beginning of Q1
1995, however, any earned bonus will be retroactive to Q1 1995. (November
1, 1994)
. Management will recommend that the Board of Directors grant you an option
pursuant to the Company's Stock Option Plan to purchase 50,000 shares of
the Company's common stock at the purchase price equal to the fair market
value of the stock on the date of the grant. The option will be subject to
the Company's standard option agreements and plan, including vesting over a
four year term.
<PAGE>
. In the event that the Company terminates your employment with Consilium for
reasons other than gross misconduct as described in the Employee handbook,
you shall receive a severance package consisting of three month's salary
paid semi-monthly and health benefits. Except as expressly described in
this paragraph, you shall not be entitled to receive any other benefits
from Consilium.
. Medical, dental, vision, life and disability insurance as described in
Benefits Summary.
. Ability to participate in Consilium's Employee Stock Purchase Plan (ESPP)
. Ability to establish and contribute to your own savings and retirement
(401K) account
Consilium is dedicated to:
. Providing high quality, leading-edge computer integrated manufacturing
solutions that enable our customers to achieve their manufacturing
objectives
. Ensuring a positive, growth oriented team environment for our employees
. Providing an excellent return to our shareholders.
We are confident that you will use your skills at Consilium to help us continue
this mission.
Your employment with Consilium is voluntarily entered into and is for no
specified period of time. As a result, you are free to resign at any time, for
any reason or for no reason. Similarly, Consilium is free to conclude its at-
will employment relationship with you at any time, with or without cause.
In the event of any dispute or claim relating to or arising out of our
employment relationship or this agreement including but not limited to any
claims of wrongful termination or age or other discrimination, you and Consilium
agree that all such disputes shall be fully and finally resolved by binding
arbitration conducted by the American Arbitration Association in San Jose,
California. However, we agree that this arbitration provision shall not apply
to any dispute or claims relating to or arising out of the misuse or
misappropriation of Consilium's trade secrets or proprietary or confidential
information.
To satisfy Federal Immigration Laws, you must provide proof that you are a
United States citizen or are eligible for legal employment in the United States.
Documents which are acceptable for this purpose include:
. Driver's License and Birth Certificate/Social Security Card, or
Passport, or Alien Registration card with photograph.
You must provide Consilium with a copy of the requested document(s) within three
business days from your date of hire.
This letter, and any additional written proprietary rights agreement between
Consilium and you, define the terms of your employment and supersedes all prior
agreements, both written and verbal. This letter can not be modified or amended
unless done so in writing and signed by an authorized Consilium representative
and yourself.
<PAGE>
We are very happy to confirm your employment offer with this letter and we look
forward to you joining the Consilium staff. Please indicate your acceptance of
this offer by signing one copy of this letter and returning it to the Human
Resources Department. If you have any questions about the offer, please feel
free to contact me directly.
Sincerely,
/s/ Linda Kata Ujihara
Linda Kato Ujihara
Director, Human Resources
cc: T. Tomasetti
I agree to and accept employment with Consilium on the terms set out above, and
I certify that I have responded fully and accurately to all inquiries made of me
by Consilium during the pre-employment process with regard to employment history
and salary, education and criminal or civil lawsuits.
/s/ Edward Norton, August 5, 1994
- ---------------------------------
Signature & Date
<PAGE>
September 28, 1994
Richard H. Van Hoesen
19727 St. Anne Ct.
Saratoga, CA 95070
Dear Mr. Van Hoesen:
We are pleased to offer you a position as Vice President of Finance and
Administration. This position reports directly to Tom Tomasetti effective on
October 3, 1994.
This letter supersedes your offer letter dated September 19, 1994.
- ------------------------------------------------------------------
The compensation and benefits you will receive upon employment include:
. $135,000 base salary per year
. Eligible for $45,000 Executive bonus (on an annual fiscal year basis) -
- Two-thirds of this bonus will be paid if the company meets certain
financial goals. The goals will include both revenue and profits and are
the same goals that all members of the executive team will be measured
against. Those goals must be approved by the Board of Directors. An
Executive Bonus Plan document will be distributed detailing the specific
goals and upside opportunities. Eligibility begins with the 1995 Fiscal
Year beginning November 1, 1994.
- One-third of this bonus will be paid based on successful implementation
of customized objectives to be established and reviewed by Tom Tomasetti.
This bonus will be paid quarterly upon the discretion of Tom Tomasetti.
. Management has recommended that the Board of Directors grant you an option
pursuant to the Company's Stock Option Plan to purchase 70,000 shares of
the Company's common stock at the purchase price equal to the fair market
value of the stock on the date of the grant. The option will be subject to
the Company's standard option agreements and plan, including vesting over a
four year term.
. In the event that you or the Company terminate your employment with
Consilium, neither you nor the Company shall have any further right or
obligation under this agreement, except that you shall receive a severance
package consisting of four months base salary paid monthly, medical,
dental, vision, life and disability coverage for that same four month
period.
. Medical, dental, vision, life and disability insurance as described in
Benefits Summary.
. Ability to participate in Consilium's Employee Stock Purchase Plan (ESPP)
. Ability to establish and contribute to your own savings and retirement
(401K) account
<PAGE>
Consilium is dedicated to:
. Providing high quality, leading-edge computer integrated manufacturing
solutions that enable our customers to achieve their manufacturing
objectives
. Ensuring a positive, growth oriented team environment for our employees
. Providing an excellent return to our shareholders
We are confident that you will use your skills at Consilium to help us continue
this mission.
Your employment with Consilium is voluntarily entered into and is for no
specified period of time. As a result, you are free to resign at any time, for
any reason or for no reason. Similarly, Consilium is free to conclude its at-
will employment relationship with you at any time, with or without cause.
Thirty days notice of termination shall be provided by you or the Company in the
event that either elects to terminate the employment relationship. During such
thirty day period you shall continue to provide full and proper service to the
Company in your then current employment capacity.
In the event of any dispute or claim relating to or arising out of our
employment relationship or this agreement including but not limited to any
claims of wrongful termination or age or other discrimination, you and Consilium
agree that all such disputes shall be fully and finally resolved by binding
arbitration conducted by the American Arbitration Association in San Jose,
California. However, we agree that this arbitration provision shall not apply
to any dispute or claims relating to or arising out of the misuse or
misappropriation of Consilium's trade secrets or proprietary or confidential
information.
To satisfy Federal Immigration Laws, you must provide proof that you are a
United States citizen or are eligible for legal employment in the United States.
Documents which are acceptable for this purpose include:
. Driver's License and Birth Certificate/Social Security Card, or
Passport, or Alien Registration card with photograph.
You must provide Consilium with a copy of the requested document(s) within three
business days from your date of hire.
This letter, and any additional written proprietary rights agreement between
Consilium and you, define the terms of your employment and supersedes all prior
agreements, both written and verbal. This letter can not be modified or amended
unless done so in writing and signed by an authorized Consilium representative
and yourself.
We are very happy to confirm your employment offer with this letter and we look
forward to you joining the Consilium staff. Please indicate your acceptance of
this offer by signing one copy of this letter and returning it to the Human
Resources Department. If you have any questions about the offer, please feel
free to contact me directly.
<PAGE>
Sincerely,
/s/ Linda Kata Ujihara
Linda Kato Ujihara
Director, Human Resources
cc: T. Tomasetti
I agree to and accept employment with Consilium on the terms set out above, and
I certify that I have responded fully and accurately to all inquiries made of me
by Consilium during the pre-employment process with regard to employment history
and salary, education and criminal or civil lawsuits.
/s/ Richard H Van Hoesen, September 28, 1994
- --------------------------------------------
Signature & Date
<PAGE>
EXHIBIT 11.1
CONSILIUM, INC.
STATEMENT RE COMPUTATION OF INCOME/LOSS PER SHARE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net income/(loss) 627 ($6,248) ($5,283)
========== ========== ==========
Weighted average number of
shares outstanding 7,567 7,362 7,025
Weighted average number of shares
computed using the treasury
stock method (1) 345 -- --
---------- ---------- ----------
Weighted average number of shares
outstanding, as adjusted 7,912 7,362 7,025
========== ========== ==========
Income/(loss) per share $0.08 ($0.85) ($0.75)
========== ========== ==========
</TABLE>
(1) Stock options have not been included in the calculation of loss per share
as there effect would be anti-dilutive.
Note: There is no material difference in the calculation of primary and fully
diluted income (loss) per share.
<PAGE>
EXHIBIT 21.1
CONSILIUM, INC.
SCHEDULE OF SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION NAME
- -------------------- ------------------- -----------------------------------
<S> <C> <C>
Consilium Germany Germany Consilium GmbH
Consilium France France Consilium France SARL
Consilium FSC Virgin Islands Consilium Foreign Sales Corporation
Consilium Asia, Inc. California Consilium Asia, Inc.
Consilium Japan Japan Nihon Consilium, K.K.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Consilium, Inc., on Form S-8 (File Nos. 33-30381, 33-30382, 33-35363, 33-41312,
33-63346, 33-63512, 33-79474 and 33-79458) of our reports dated December 6,
1995, except for Note 10, for which the date is December 15, 1995, on our audits
of the consolidated financial statements and financial statement schedule of
Consilium, Inc., as of October 31, 1995 and 1994 and for each of the three years
in the period ended October 31, 1995, which reports are included in this
Form 10-K.
s/s Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
January 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 10,686
<SECURITIES> 0
<RECEIVABLES> 8,997
<ALLOWANCES> 650
<INVENTORY> 0
<CURRENT-ASSETS> 21,566
<PP&E> 2,425
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,437
<CURRENT-LIABILITIES> 12,068
<BONDS> 0
0
0
<COMMON> 15,869
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,437
<SALES> 33,857
<TOTAL-REVENUES> 33,857
<CGS> 7,780
<TOTAL-COSTS> 7,780
<OTHER-EXPENSES> 25,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10)
<INCOME-PRETAX> 1,150
<INCOME-TAX> 523
<INCOME-CONTINUING> 572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 627
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
