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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15325
INFORMIX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3011736
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4100 BOHANNON DRIVE, MENLO PARK, CA 94025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
650-926-6300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.01
PAR VALUE
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
the 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/A. / /
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 28, 1998 based on the closing sales price of the
Company's Common Stock, as reported on The Nasdaq Stock Market, was
approximately $1,297,423,211. Shares of Common Stock held by each officer and
director 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 February 28, 1998, Registrant had 166,903,848 shares of Common
Stock issued and outstanding.
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INFORMIX CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I....................................................................................................... 3
ITEM 1. BUSINESS.................................................................................. 3
ITEM 2. PROPERTIES................................................................................ 11
ITEM 3. LEGAL PROCEEDINGS......................................................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 15
PART II...................................................................................................... 16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................... 16
ITEM 6. SELECTED FINANCIAL DATA................................................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................... 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...... 50
PART III..................................................................................................... 51
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT............................................ 51
ITEM 11. EXECUTIVE COMPENSATION.................................................................... 55
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................ 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................ 65
PART IV...................................................................................................... 68
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................... 68
SIGNATURES................................................................................................... 73
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PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS REPORT.
BACKGROUND
The Company is a leading multinational supplier of information management
software. The Company designs, develops, manufactures, markets and supports
relational database management systems ("RDBMS"), connectivity interfaces and
gateways and application development tools for graphical and character-based
software applications as part of an RDBMS. Database management software permits
multiple individual users, employing different application software, to access
and manage the same data concurrently without corrupting the underlying
database. RDBMS software extends the functionality and utility of non-relational
database management software by simplifying the data retrieval process for end-
users, who do not require specific knowledge about the structure of the database
but need only to specify the data to be retrieved. Companies commonly employ
RDBMS software for use in storing, managing and retrieving the large amounts of
data necessary to support internal management information and decision-support
systems as well as mission-critical data processing applications.
The Company believes that technological advances, including the
development and commercialization of the Internet, will lead to increasingly
sophisticated customer requirements for data storage and management beyond the
functionality offered by conventional RDBMS products. In recent years, the types
and quantities of data required to be stored and managed has grown increasingly
complex and includes, in addition to conventional character data, audio, video,
text and three dimensional graphics. In 1996, the Company devoted substantial
resources in the development of object-relational database management systems
("ORDBMS") and tools for applications in multimedia and entertainment, digital
media publishing and financial services.
The Company markets its products to end-users on a worldwide basis
directly through its sales force and indirectly through application resellers,
OEMs and distributors. The principal geographic markets for the Company's
products are North America, Europe, the Asia/Pacific region and Latin America.
In recent years, approximately half of the Company's total revenues have been
generated outside North America. The Company's principal customers include
businesses ranging from small corporations to Fortune 1000 companies,
principally in the manufacturing, financial services, telecommunications, media,
retail/wholesale, hospitality and government services sectors.
The Company was initially incorporated in California in 1980 and was
reincorporated in Delaware in August 1986. Unless the context requires
otherwise, the terms "Company" and "Informix" refer to Informix Corporation and
its subsidiaries. The Company maintains its executive offices at 4100 Bohannon
Drive, Menlo Park, California 94025. Its telephone number at that location is
(650) 926-6300.
PRODUCTS
INFORMIX DYNAMIC SERVER
Informix Dynamic Server is a high performance, enterprise capable online
transaction processing database server. This product is based on Informix's
Dynamic Scalable Architecture and features parallel data processing capability,
replication and connectivity options built into its core. Informix Dynamic
Server is available in a variety of configurations based upon adding one or more
of the configuration options described below.
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Informix also provides a version of Informix Dynamic Server called the
Workgroup Edition, which has been adapted specifically for workgroup
environments.
SERVER CONFIGURATION OPTIONS
Informix makes available five server configuration options, which are
integrated in various combinations along with Informix Dynamic Server to meet
specific customer requirements.
The Advanced Decision Support Option extends Informix Dynamic Server with
a variety of decision support functions including summarization, sampling, and
"top-N."
The Extended Parallel Option adapts Informix Dynamic Server to work
within loosely coupled, share-nothing computing architectures, including
clusters of symmetric multiprocessing systems and parallel processing systems.
The Universal Data Option extends Informix Dynamic Server with support
for extensibility and SQL3. Extensibility includes the ability to add new
objects and data types, business specific procedures and logic, and new indexing
search methods to the server, as well as support for DataBlade modules, which
can include a related set of data types, functions and indexes for a specific
purpose.
The MetaCube ROLAP Option adds an on-line analytical processing engine to
Informix Dynamic Server that automatically preconsolidates data and provides a
multidimensional view of data without the constraints of two dimensional (row
and table) data model. This option also includes MetaCube Explorer; MetaCube
Scheduler for batch processing; MetaCube Queryback for running queries in the
background; MetaCube Aggregator for creating and maintaining aggregates in a
data warehouse; MetaCube for Excel which enables data Warehouse analysis in an
Excel spreadsheet environment; and MetaCube for the Web which brings MetaCube
analysis capabilities to intranets.
Finally, the Web Integration Option provides connectivity between Web
servers and Informix Dynamic Server. This option enables developers to create
intelligent web applications based upon database information that deliver
multimedia, tailored Web pages to users.
DATABLADE MODULES
DataBlade modules combine new data types, new functions or methods, and
new indexing operations, which taken together extend Informix Dynamic Server.
The DataBlade modules are used in conjunction with the Universal Data Option.
Informix sells the following DataBlade modules, and others are available through
Informix's partners:
The Informix Video Foundation DataBlade module provides an open and
scalable software architecture that allows strategic third-party development
partners to incorporate specific video technologies such as video servers,
external control devices, compression codes or cataloging tools into database
management applications with the Informix Dynamic Server. In addition, the video
data types and data model allow customers to explore new ways to manipulate
video and associated metadata, or information about the video.
The Informix TimeSeries DataBlade module expands the functionality of the
database by adding support for the management of time-series and temporal data.
The TimeSeries DataBlade module supports a regular or irregular repeating
time-stamped series of any datatype supported by Informix Dynamic Server or any
structure or combination of these. For example, a set of open, high, low, and
close currency values can be used to record a time-based series of stock prices.
The granularity of time recording can be adjusted to suit the unique
requirements of the application. The TimeSeries DataBlade module provides
support for three new datatypes, time-series, calendar and calendar pattern, and
over 80 functions to manage them. The time-series type stores sequences of
time-stamped information, and a related calendar allows access to specific
portions of the time series for update, analysis, display or other uses.
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The Informix Geodetic DataBlade module provides geo-spatial datatypes and
functions supporting two-dimensional representation of the earth's surface based
on a geodetic (longitude, latitude and datum) coordinate system. In addition to
two-dimensional geographic feature support, the Geodetic DataBlade Module allows
an altitude range and a time range to be specified.
CONNECTIVITY PRODUCTS
The Company's principal connectivity products include the following:
Informix--Enterprise Gateway Manager is a connectivity tool allowing
applications running on various operating systems to access data sources via
loadable gateway drivers. The Company also offers gateway drivers for Oracle and
Sybase databases. Drivers for additional data sources are available from various
third parties.
Informix--Enterprise Gateway with DRDA is a UNIX based connectivity tool
allowing interoperability to IBM databases such as DB2/MVS, DB2/VM and DB2/400
from Windows and UNIX clients. Informix-Gateway with DRDA allows applications
built with Informix application development tools to access and modify
information in Distributed Relational Database Architecture compliant database
management systems.
Informix--ESQL for C and COBOL are embedded SQL products which permit
developers to take advantage of SQL technology while building applications is in
C or COBOL.
Informix--CLI is a library of low level functions that provide high
performance direct access to Informix databases from applications built in C or
other third generation languages. Informix--CLI is compliant with Microsoft's
ODBC specifications.
DATABASE TOOLS
The Company offers a variety of database application development tools
designed to allow users to build applications. The Company's principal database
tools include:
Informix Data Director for Visual Basic enables developers to prototype,
build and extend workgroup and enterprise applications. Data Director for Visual
Basic reduces the amount of application code necessary for writing client/server
solutions by automating the data access operations for the client application.
This automation eliminates the time consuming task of writing data access code,
allows developers to incorporate sophisticated functionality without having to
be SQL experts and enables project teams to improve their time to market with
scalable applications. Data Director enables developers to create applications
that support user defined data types, including images, Web pages and spatial
data.
Informix--NewEra is a graphical, object-oriented development environment
designed for creating enterprise-wide multi-tier client/server database
applications. Informix--NewEra features a fourth generation object-oriented
programming language, reusable class libraries, application partitioning and
flexible application deployment and supports open connectivity to Informix and
non-Informix databases. Informix--NewEra is currently available for Microsoft
Windows and OSF Motif.
Informix--4GL is a character-based development environment, which
includes a fourth generation programming language with screen building, report
entry, and SQL database input/output capabilities. The Informix--4GL product
family is comprised of three core products: Informix--4GL Compiled,
Informix--4GL Rapid Development Systems and Informix--4GL interactive Debugger.
Informix--SQL is a package of five interactive tools for creating
character-based applications. Informix--SQL consists of a forms package, a
report writer, an interactive SQL editor, a menu building and an interactive
schema editor.
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SERVICES, CONSULTING AND CUSTOMER SUPPORT
The Company maintains field-based and centralized corporate technical
staffs to provide a comprehensive range of assistance to its customers. These
services include pre- and post-sales technical assistance, consulting, product
and sales training and technical support services. Consultants and trainers
provide services to customers to assist them in the use of the Company's
products and the design and development of applications that utilize the
Company's products.
The Company provides post-sales support to its customers on an optional
basis for annual fees which generally range from 12% to 18% of the license fees
paid by the customer. These support services usually include product updates.
During fiscal 1996 and the first quarter of fiscal 1997, as part of its
sales and marketing strategy, the Company launched a series of "Information
SuperStores." The Superstores were intended to demonstrate and offer the
Company's software products to customers on actual hardware platforms used by
those customers, thereby permitting the end-user to evaluate and monitor the
performance and functionality of the Company's products prior to purchase. In
addition, the Superstores offered application tools from leading third-party
tools and application vendors installed on a variety of platforms, including
Data General Corporation, Hewlett-Packard Company, International Business
Machines ("IBM"), NCR Corporation/Teradata ("NCR/Teradata"), Pyramid, Sequent
Computer Systems, Inc. ("Sequent"), Silicon Graphics and Sun Microsystems. In
connection with the Company's restructuring announced in the second quarter of
fiscal 1997, the Company scaled back its original plans and repositioned its
remaining sites as solution labs managed by the Company's consulting practice.
The decision to scale back the Superstores resulted in a charge to operations
during fiscal 1997.
MARKETING AND CUSTOMERS
The Company distributes its products through the channels of direct
end-user licensing, OEMs, application vendors addressing specific markets and
distributors. The Company has chosen a multiple channel distribution strategy to
maintain broad market coverage and product availability. The Company, therefore,
has generally avoided exclusive relationships with its licensees and other
resellers of its products. Discount policies and reseller licensing programs are
intended to support each distribution channel with a minimum of channel
conflict. The Company also provides a financing option to customers in
connection with the license of software. For fiscal 1997, sales of licenses
directly to end users accounted for 58% of total license revenues and sales to
OEM's and sales through resellers accounted for 42% of total license revenues.
At December 31, 1997, the Company's sales, marketing and support staff
totaled 986 regular employees in the North America region; 128 regular employees
in the Latin America region; 619 regular employees in Europe, the Middle East
and Africa; and 369 regular employees in the Asia/Pacific region.
LICENSING
END-USER LICENSING
The Company licenses its products to large companies and government
entities through its direct sales force, and to certain of these companies, as
well as smaller end-users, through its telemarketing sales force. The Company
believes that the common core technology of its database management system
products, based on standard operating systems and the SQL database language,
helps it sell into major corporations and government agencies that wish to
standardize their diverse computing environments. As a result, certain of these
end-user organizations have entered into general purchasing agreements with the
Company which offer volume discounts.
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APPLICATION VENDOR LICENSING
Since its inception, the Company has licensed application vendors to
distribute its products. A typical application vendor develops an application
product (E.G., an insurance agency management system) using one of the Company's
products and then licenses the resultant application software to its customers
in the target market. The application vendor customer purchases a license for
use of the Company's product to develop an applications program. Depending on
the application program developed, it may include a run-only license, a full
version license or even multiple product licenses.
Application vendors develop applications using a wide array of
application development tools, including products from the Company, such as
Informix--NewEra, Informix--4GL and Informix--SQL, as well as products offered
by third parties. Applications developed using the Company's products are
generally portable across various brands of computers and different operating
systems.
The Company has specialized programs to support the application vendor
distribution channel. Under these programs, the Company provides to selected
application vendors a combination of marketing development services, consulting
and technical marketing support and discounts.
OEM LICENSING
The Company's products are also marketed with the assistance of the sales
forces of its OEM customers who have concluded that "solution selling" of a
combination of software and hardware to their respective customers enhances the
sales of their computer equipment. The Company believes that the compatibility
and range of applications for its products are significant to this distribution
channel.
DISTRIBUTOR LICENSING
The Company has established a network of full service international
distributors who provide local service and support, as well as the Company's
products, to their respective national markets. Distributors are used to
supplement the Company's direct sales force and enable the Company to sell its
products and services in countries where the Company has not established a
direct sales force.
PRODUCT DEVELOPMENT
The computer software industry is highly competitive and rapidly
changing. Consequently, the Company dedicates considerable resources to research
and development efforts to enhance its existing product lines and to develop new
products to meet new market opportunities. Most of the Company's current
software products and accompanying documentation have been developed internally;
however, the Company has acquired certain software products from others and
plans to do so again in the future.
Major product releases resulting from research and development projects
in fiscal 1997 included the new releases of Informix Dynamic Server; Universal
Data Option; Extended Parallel Option; Advanced Decision Support Option;
Informix Dynamic Server, Workgroup Edition; and the initial release of Web
Integration Option.
The Company's current product development efforts are focused on (i)
improving and enhancing current products and new products, with particular
emphasis on parallel computer architecture, user-defined database extensions,
Web technology integration, graphical desk top and system administration; (ii)
improving the Company's products to provide greater speed and support for larger
numbers of concurrent users; and (iii) adapting new products to the broad range
of computer brands and operating systems the Company currently supports and
adapting current products to new brands of computers and operating systems which
represent attractive market opportunities for the Company's products.
There can be no assurance that the Company's product development efforts
will be successful or that any new products will achieve significant market
acceptance.
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As of December 31, 1997, the Company had 941 regular employees engaged in
research and development. In recent months, the Company has experienced high
attrition in its product development group and has had difficulty attracting
qualified replacement development personnel. Failure to attract and retain a
sufficient number of qualified development personnel would have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company's research and development expense for fiscal 1997, 1996 and
1995 was $139.3 million, $120.2 million and $85.6 million, respectively,
representing approximately 21%, 17% and 14% of revenues for such periods. In
addition, during fiscal 1997, 1996, and 1995 the Company capitalized product
development costs of $21.8 million, $28.4 million and $17.5 million,
respectively, in accordance with Statement of Financial Accounting Standards No.
86. See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Research and Development Expenses."
The market for the Company's products and services is characterized by
rapidly changing technology, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. The life cycles of the Company's products are difficult
to estimate. The Company's growth and future financial performance will depend
upon its ability to enhance its existing products and to introduce new products
on a timely and cost-effective basis and that meet dynamic customer
requirements. There can be no assurance that the Company will be successful in
developing new products or enhancing its existing products or that such new or
enhanced products will receive market acceptance or be delivered timely to the
market. The Company's product development efforts are expected to continue to
require substantial investments by the Company, and there can be no assurance
that the Company will have sufficient resources to make the necessary
investments. The Company has experienced product development delays in the past
and may experience delays in the future. Delays in the scheduled availability or
a lack of market acceptance of its products or failure to accurately anticipate
customer demand and meet customer performance requirements, including as a
result of recent attrition in the Company's product development group, could
have a material adverse effect on the Company's business results of operations
and financial condition. In addition, products as complex as those offered by
the Company may contain undetected errors or bugs when first introduced or as
new versions are released. There can be no assurance that, despite testing, new
products or new versions of existing products will not contain undetected errors
or bugs that will delay the introduction or commercial acceptance of such
products. A key determinative factor in the Company's success will continue to
be the ability of the Company's products to operate and perform well with
existing and future leading, industry-standard application software products
intended to be used in connection with RDBMS. Failure to meet existing or future
interoperability requirements of certain independent vendors and performance
requirements of certain independent vendors marketing such applications in a
timely manner could adversely affect the market for the Company's products.
Commercial acceptance of the Company's products and services could also be
adversely affected by critical or negative statements or reports by brokerage
firms, industry and financial analysts and industry periodicals concerning the
Company, its products, business or competitors or by the advertising or
marketing efforts of competitors, or other factors that could affect consumer
perception.
In recent years, the types and quantities of data required to be stored
and managed has grown increasingly complex and includes, in addition to
conventional character data, audio, video, text, and three dimensional graphics.
In 1996, the Company devoted substantial resources in developing the Company's
ORDBMS product line. The market for the products offering object-relational
database functionality is new and evolving, and its growth depends upon a
growing need to store and manage complex data and on broader market acceptance
of the Company's products as a solution for this need. There can be no assurance
that organizations will chose to make the transition from conventional RDBMS to
ORDBMS. Delays in market acceptance of object-relational database management
products offered by the Company could have an adverse effect on the Company's
results of operations and financial condition.
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COMPETITION
Competitors in the relational database software market compete primarily
on the basis of product price and performance characteristics, name recognition,
technical product support, product training and services. With respect to
product performance, the Company believes that the principal competitive factors
include (i) application development productivity (I.E., the speed with which
applications can be built); (ii) database performance (I.E., the speed at which
database storage and retrieval functions are executed); (iii) product function
and features; (iv) the ability to support large warehouses of information; (v)
reliability, availability and serviceability; (vi) the distribution of software
applications and data across networks of computers from multiple suppliers; and
increasingly (vii) the ability to manage complex data and solve more complex
business problems based on such data. Although the Company believes that it
currently competes favorably with respect to such factors, there can be no
assurance that the Company can maintain its competitive position against current
and potential competitors, especially those with greater financial, marketing,
service, support, technical and other resources. The Company believes that the
technical advantages of its products, its approach to sales and marketing, its
relations with application vendors, OEMs and distributors and its customer
service and support contribute to its ability to compete in this market.
The Company faces intense competition in the market for RDBMS software
products. The market for the Company's products is subject to rapid
technological change and frequent new product introductions and enhancements,
and the Company's competitors in the market include several large vendors that
develop and market databases, applications, development tools or decision
support products. The Company's principal competitors include Computer
Associates International, Inc. ("Computer Associates"), IBM, Microsoft
Corporation ("Microsoft"), NCR/Teradata, Oracle Corporation ("Oracle") and
Sybase, Inc. ("Sybase"). Several of these competitors have significantly greater
financial, technical, marketing and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than the Company. Any failure
by the Company to compete successfully with its existing competitors or future
competitors could have a material adverse effect on the Company's business,
results of operations and financial condition.
Several of the Company's competitors have announced the development of
enhanced versions of their principal database products that are intended to
improve the performance or expand the capabilities of their existing products.
New or enhanced products by existing competitors or new competitors could result
in greater price pressure on the Company's products. In addition, the industry
movement to new operating systems, like Windows NT, access through low-end
desktop computers, and access to data through the Internet may cause downward
pressure on prices of database software and related products. The bundling of
software products for promotional purposes or as a long-term pricing strategy by
certain of the Company's competitors could also result in reductions in the
price the Company may charge for its products. If such downward pressure on
prices were to occur, the Company's operating margins would be adversely
affected. Existing and future competition or changes in the Company's product or
service pricing structure or product or service offerings could result in an
immediate reduction in the prices of the Company's products or services. If
significant price reductions in the Company's products or services were to occur
and not be offset by increases in sales volume, the Company's business, results
of operation and financial condition would be adversely affected. There can be
no assurance that the Company will continue to compete successfully with its
existing competitors or will be able to compete successfully with new
competitors.
In addition, the Company's public announcement in August 1997 of the
pending restatement of its financial statements, delays in reporting operating
results for the second and third quarters of fiscal 1997 while the restatement
was being compiled, threatened de-listing of the Company's Common Stock from the
Nasdaq National Market as a result of the Company's failure to satisfy its
public reporting obligations, corporate actions to restructure operations and
reduce operating expenses and customer uncertainty
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regarding the Company's financial condition adversely affected the Company's
ability to sell its products in fiscal 1997. In addition, since the beginning of
1997, the Company and its competitors in the RDBMS industry have experienced
substantially slower growth in the market for RDBMS products. The financial
restatement has now been completed, its results have been publicly disclosed and
the Company is current with respect to its public reporting obligations. In
addition, the Company believes that it has effectively controlled its operating
expenses and significantly improved its financial condition. Nevertheless, there
can be no assurance that uncertainties resulting from the restatement, including
ongoing customer concern about the Company's financial condition, will not
continue to have a materially adverse effect on the Company's competitive
position and results of operations.
INTELLECTUAL PROPERTY
The Company's success depends on proprietary technology. To protect its
proprietary rights, the Company relies primarily on a combination of patent,
copyright and trademark laws, trade secrets, confidentiality procedures,
contractual provisions contained in its license agreements and technical
measures. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which provide only
limited protection. The Company holds one United States patent and several
pending applications. There can be no assurance that any other patents covering
the Company's inventions will issue or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringers.
The Company's products are generally licensed to end-users on a
"right-to-use" basis pursuant to a license that restricts the use of the
products for the customer's internal business purposes. The Company also relies
on "shrink wrap" licenses, which include a notice informing the end-user that,
by opening the product packaging, the end-user agrees to be bound by the
Company's license agreement printed on the package. Despite such precautions, it
may be possible for unauthorized third parties to copy aspects of its current or
future products or to obtain and use information that the Company regards as
proprietary. In particular, the Company has licensed the source code of its
products to certain customers under certain circumstances and for restricted
uses. The Company has also entered source code escrow agreements with a number
of its customers that generally require release of source code to the customer
in the event of the Company's bankruptcy, liquidation or otherwise ceasing to
conduct business. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar or superior technology.
Policing unauthorized use of the Company's software is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States, and
"shrink-wrap" licenses may be wholly or partially unenforceable under the laws
of certain jurisdictions. Litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
the Company's business, results of operations and financial condition.
The Company is not aware that any of its software product offerings
infringe the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim infringement by the Company with
respect to its current or future products. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
10
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had 3,489
regular employees worldwide, including 2,102 in sales, marketing and support;
941 in research and development; 69 in operations and 377 in administration and
finance. Of the Company's total employees at December 31, 1997, approximately
1,447 were located outside North America. None of the Company's U.S. employees
are represented by a labor union. A small number of employees located outside of
the United States are represented by labor unions, and the degree and scope of
representation varies from country to country. The Company has not experienced
any work stoppages either domestically or internationally.
Since the first quarter of fiscal 1997, the Company has experienced a
significant number of voluntary resignations and has taken selective actions to
reduce the number of employees in certain functional areas. The Company had
3,489 employees at December 31, 1997, compared to 4,491 at December 31, 1996. In
fiscal 1997, the Company experienced high attrition rates in its product
development and sales groups and has had trouble attracting qualified
replacement personnel. The competition for employees in the software industry is
intense, and the Company expects that such competition will continue for the
foreseeable future. The Company has experienced difficulty in locating
candidates with appropriate qualifications and believes that recent financial
and business developments at the Company have made recruitment more difficult.
ITEM 2. PROPERTIES
The Company's headquarters and its principal marketing, finance, sales,
administration, customer service and research and development operations are
located in five buildings in a corporate office park in Menlo Park, California.
The Company currently leases approximately 214,000 square feet of space in these
buildings. The leases for space in two of these buildings expire in September
2001. The leases for spaces in the remaining three of the buildings were
recently renewed for an additional five year term expiring in March 2003. In
addition, the Company leases space totalling approximately 33,000 square feet in
two additional buildings in close proximity. These leases expire in May 1998 and
October 2000. The Company anticipates renewing the lease expiring in May 1998 at
prevailing market rates.
In addition, certain of the Company's research and development
facilities, a portion of its customer service organization, its principal
domestic manufacturing facility and its telemarketing organization are located
in a 134,000 square foot facility in Lenexa, Kansas. The buildings are leased to
the Company under a lease expiring in April 2003, subject to renewal for up to
two additional five year terms. The Lenexa, Kansas facility was leased to the
Company by a partnership of which the Company held a 50% partnership interest.
The Company entered an agreement to sell 49.9% of its interest in the
partnership to the other partner. Such sale closed in the first quarter of
fiscal 1998. The Company also leases office space, principally for sales and
support offices, in a number of facilities in the United States, Canada and
outside North America. The Company believes that its current facilities are
adequate to meet its needs through the next twelve months.
Some of the research and development operations for the Company's tools
products and a portion of customer service and sales training are located in
Oakland, California. The Company leases approximately 130,000 square feet at
this site, and the lease expires in May 2003. The Company also leases 47,276
square feet in Portland, Oregon, primarily for its research and development
group. The lease on approximately one-half of this space expires on October 31,
1998. The lease on the remaining space expires in March 2000.
In December 1996, the Company announced plans to relocate its corporate
headquarters from the Menlo Park facilities to a new corporate campus in Santa
Clara, California. In January 1997, the Company entered into a two-year lease
for 27 acres of undeveloped commercial real estate in Santa Clara, which was
intended to be used for construction of the new headquarters facility. The
Company also obtained an option to purchase the land for $61.5 million. In order
to secure performance of its obligations under the
11
<PAGE>
lease, the Company pledged $61.5 million in cash collateral to the lessor. In
April 1997, the Company exercised its option to purchase the land, and in
December 1997 completed the sale of the real estate for net proceeds of
approximately $59.3 million. In addition, in November 1996, the Company had
leased approximately 200,000 square feet of office space in Santa Clara on
property located adjacent to the 27 acre undeveloped parcel. In December 1997,
the Company assigned its rights under such lease agreement to an unrelated third
party, although the Company remains contingently liable for the lease payments
thereunder.
ITEM 3. LEGAL PROCEEDINGS
ACTIONS ARISING UNDER FEDERAL AND STATE SECURITIES LAWS
Beginning on or about April 16, 1997, a total of 24 complaints alleging
violations of the federal securities laws were filed against the Company, Ernst
& Young LLP, the Company's independent auditors and certain Named Individual
Defendants (listed below) in the United States District Court for the Northern
District of California. Of the 24 complaints, 22 have been filed as purported
class actions by individuals who allege that they are individual investors who
purchased the Company's Common Stock during the purported class period; the
alleged class periods in the different complaints vary according to the date on
which the complaints were filed. The complaints name some or all of the
following current and former officers and directors of the Company as
defendants: Phillip E. White, Howard H. Graham, David H. Stanley, Ronald M.
Alvarez, Karen Blasing, D. Kenneth Coulter, Ira H. Dorf, Stephen E. Hill, Myron
(Mike) Saranga, Steven R. Sommer, Michael R. Stonebraker and Edwin C. Winder
(the "Named Individual Defendants"). On August 20, 1997, the District Court
entered an order consolidating all of the separately-filed class actions pending
at that time, designating the action as IN RE INFORMIX CORPORATION SECURITIES
LITIGATION, and designating as "related cases" all cases brought under the
federal securities laws then pending and any that may be filed after that date.
A consolidated amended class action complaint is set to be filed on April 3,
1998, and defendants will file a response to that consolidated, amended
complaint shortly thereafter. As required by the provisions of the Exchange Act,
as amended by the Private Securities Litigation Reform Act of 1995, the Court
has designated the lead plaintiffs in the federal action and has appointed lead
plaintiffs' counsel.
The existing federal court complaints allege that the Company, the Named
Individual Defendants and Ernst & Young issued false or misleading statements in
the Company's filings with the Commission, press releases, statements to
securities analysts and other public statements regarding its financial results
and business prospects. The alleged class periods vary among the complaints; the
longest class period extends from February 7, 1995 through November 18, 1997. In
particular, plaintiffs allege that defendants overstated the Company's revenue
and earnings during the time period by improperly recognizing revenue from sales
of software licenses. All of these actions allege that the defendants' false and
misleading statements violate section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder. The complaints further allege that the Named Individual
Defendants sold the Company's Common Stock while in the possession of adverse
material non-public information. The existing complaints, in general, do not
specify the amount of damages that plaintiffs seek.
Defendants have not filed any answers, motions to dismiss or other
responsive pleadings in the federal action. Until plaintiffs in IN RE INFORMIX
CORPORATION SECURITIES LITIGATION file their consolidated, amended complaint,
defendants are unable to specify their factual defenses in that action.
On or about March 19, 1998, a complaint alleging securities and common
law fraud and misrepresentation causes of action was filed in the United States
District Court for the Northern District of California. This complaint,
captioned WILLIAMS V. INFORMIX CORPORATION, ET AL., alleges both individual and
class claims on behalf of former securities holders of Illustra Information
Technologies, Inc. ("Illustra") who exchanged their Illustra securities for
securities of the Company in February 1996 in connection with the Company's
February 1996 acquisition of Illustra pursuant to an Agreement and Plan of
Reorganization
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<PAGE>
(the "Illustra Agreement"). The members of the purported class in WILLIAMS are
included within the definition of the class purportedly represented in the IN RE
INFORMIX CORPORATION SECURITIES LITIGATION action also pending in the Northern
District of California. The WILLIAMS complaint, like the previously-filed
federal complaints, alleges that the Company and certain of its former officers
and/or directors, and its independent auditors, issued false or misleading
statements regarding the Company's reported financial results and business
prospects.
Three purported securities class actions containing allegations similar
to the federal actions were filed in the Superior Court of the State of
California, County of San Mateo between May 19, 1997 and August 25, 1997. Those
actions, captioned RILEY V INFORMIX CORPORATION ET AL., DAYANI V. INFORMIX
CORPORATION ET AL., AND GOLDSTEIN V. WHITE ET AL., contained factual allegations
nearly identical to the allegations set forth in the federal court complaints.
The Superior Court has consolidated these actions and has appointed lead
plaintiffs' counsel. By stipulation, plaintiffs filed a consolidated, amended
complaint on December 23, 1997. The state court consolidated, amended complaint
names as defendants the Company, Ernst & Young and the Named Individual
Defendants. The claims in the consolidated amended state complaint arise under
California securities, fraud and unfair business practices statutes.
The state court consolidated, amended complaint alleges that the
defendants issued false financial statements which were not prepared in
conformity with Generally Accepted Accounting Principles for fiscal years 1996,
1995 and 1994, materially overstating the Company's revenue. Plaintiffs allege
that defendants recorded as revenue approximately $300 million from software
license sales which should not have been recorded because INTER ALIA, revenue
was recognized on sales to resellers before end-users were identified; revenue
was recognized in circumstances where customers had rights of return or
cancellation; and the Company recognized revenue from barter transactions in
which the Company allegedly exchanged software licenses for products that had no
value to the Company. Plaintiffs further allege that while the Company's stock
price was artificially inflated due to the overstatement of revenue, the
defendants used the Company's stock to make corporate acquisitions, and the
Named Individual Defendants sold stock while in possession of material adverse
non-public information. The alleged class period in the state court
consolidated, amended complaint is February 7, 1995 through November 18, 1997.
Defendants filed demurrers to the state court consolidated, amended
complaint on February 13, 1998. Defendants base their demurrers to the
consolidated, amended complaint in this action on the grounds that certain of
the individual defendants made no actionable statements during the alleged class
period, the Company did not engage in any market activity during the alleged
class period, the plaintiffs did not actually rely upon any of the alleged false
and misleading statements, the California statutory unfair business practices
claims are inapplicable to securities transactions, and the consolidated,
amended complaint fails to plead the alleged fraud with sufficient
particularity. The hearing on defendants' demurrers is set for May 5, 1998. The
Company will not file an answer in this action unless the Court overrules the
pending and any subsequent demurrers. Further, the Company is not in a position
to state its factual defenses to the consolidated, amended complaint until the
Court rules upon the pending and any subsequent demurrers.
DERIVATIVE ACTIONS
The Company also has been named as a nominal defendant in eight
derivative actions, purportedly brought on its behalf, filed in the Superior
Court of the State of California, County of San Mateo. The Court has appointed
lead plaintiff's counsel in all of these derivative actions, and the cases have
been consolidated under the caption IN RE INFORMIX CORPORATION DERIVATIVE
LITIGATION. The consolidated, amended complaint alleges that, based upon the
facts alleged in the federal and state securities class actions, defendants
breached their fiduciary duties to the Company, engaged in abuses of their
control of the Company, were unjustly enriched by their sales of the Company's
Common Stock, engaged in insider trading in violation of California law and
published false financial information in violation of California law. The
consolidated, amended complaint names as defendants Ernst & Young, the Named
Individual
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Defendants and Albert F. Knorp, Jr., James L. Koch, Thomas A. McDonnell and
Cyril J. Yansouni, non-management directors of the Company. The plaintiff seeks
unspecified damages on the Company's behalf from each of the defendants. On
December 18, 1997, plaintiffs served their first amended, consolidated
derivative complaint.
The Company, on whose purported behalf the derivative action is asserted,
and the individual defendants and Ernst & Young, against whom the claims are
alleged, filed demurrers to the consolidated derivative complaint on February 6,
1998. The Company's demurrer in this action is based upon the fact that the
plaintiff did not make demand on the Company's board prior to filing the
derivative action as is required by governing Delaware law. In addition, the
Company's current and former officers and directors have brought demurrers to
the consolidated, amended complaint on the grounds that plaintiffs fail to plead
any of their claims with sufficient particularity and that certain of
plaintiffs' California statutory causes of action do not apply, by their terms,
to officers and directors of a Delaware corporation. The hearing on the
Company's demurrers, which, if granted, would be dispositive, is set for March
19, 1998. The defendants' demurrers are scheduled for hearing on May 5, 1998.
The Company will not file an answer in this action unless the Court overrules
the pending or any subsequent demurrer. Further, the Company is not in a
position to state its factual defenses to the consolidated, amended complaint
until the Court rules upon the pending demurrer. Because of the nature of
derivative litigation, any recovery in the action would inure to the benefit of
the Company.
INDEMNIFICATION AGREEMENTS AND LIABILITY INSURANCE
Pursuant to Delaware law, the Company's Certificate of Incorporation, its
Bylaws and the indemnification agreements between the Company and each of its
current and former officers and directors, the Company is obligated to indemnify
its current and former officers and directors for certain liabilities arising
from their employment with or service to the Company. These indemnification
obligations require the Company to indemnify its current and former officers and
directors for any suit or other proceeding, threatened or actual, whether civil,
criminal, administrative, investigative, appellate or any other type of
proceeding, that arises as a result of any act or omission in the indemnitee's
capacity as an officer or director of the Company to the fullest extent
permitted under Delaware or any other applicable law. The indemnification
extends to any and all expenses (including but not limited to attorneys' fees
and costs, and any other out-of-pocket expense) and/or liabilities of any type
(including but not limited to judgments, fines, excise taxes or penalties under
the Employee Retirement Income Security Act ("ERISA"), and amounts paid in
settlement) reasonably incurred in connection with the investigation, defense,
settlement or appeal of such proceedings. The obligation to provide
indemnification does not apply if the indemnitee is adjudicated to be liable for
fraudulent or criminal conduct.
The Company has purchased directors' and officers' liability insurance to
reimburse it for the costs incurred in connection with its indemnification
obligations described above. For the period from August 1996 to August 1997, the
period in which most of the claims against the Company and certain of its
directors and officers were asserted, the Company had in place three directors
and officers liability insurance policies (the "1996 and 1997 D&O Policies"),
each providing $5 million in coverage for an aggregate of $15 million. The
primary policy and first excess policy were issued by Lloyds of London. The
second excess policy was issued by Admiral Insurance Company. The insurance
carriers have taken the position that litigation filed after the policy periods
of the 1996 and 1997 D&O Policies but arising from the same facts and
circumstances as claims filed during the period from August 1996 to August 1997,
"relates back" to the 1996 and 1997 D&O Policies. Thus, the issuance carriers
assert that actions filed after August 1997 do not implicate coverage under the
Company's D&O insurance policies for the period August 1997 to August 1998 (the
"Current D&O Policies"). The Current D&O Policies provide aggregate coverage of
$20 million, subject to various exclusions, including claims relating to the
restatement of the Company's financial statements. The 1996 and 1997 D&O
Policies provide that 100 percent of the costs incurred in defending claims
asserted jointly against the Company and its current and former officers and
14
<PAGE>
directors are allocable to the individuals' defense and, thus, are covered by
the policy. However, the 1996 and 1997 D&O Policies do not provide any separate
coverage for the Company. Moreover, the Company does not have separate insurance
to cover the costs of its own defense or to cover any liability for any claims
asserted against it. The Company has not currently set aside any financial
reserves relating to any of the above-referenced actions.
In addition, in July 1997, the Commission issued a formal order of
investigation of the Company and certain unidentified individuals associated
with the Company with respect to non-specified accounting matters, public
disclosures and trading activity in the Company's securities. The Company is
cooperating with the investigation and is providing all information subpoenaed
by the Commission.
ILLUSTRA ESCROW
In January 1997, pursuant to the Illustra Agreement, Informix made a
claim to certain shares held in an escrow fund. In response, the Illustra
shareholders have claimed that the Company wrongfully caused these shares to be
retained in escrow, thereby harming the Illustra shareholders. The Illustra
securities holders have filed a demand for arbitration with the private
arbitration service agreed upon by the parties to the Illustra Agreement;
however, at present, no litigation or arbitration proceedings have been
commenced with respect to the Illustra escrow. In March 1998, a complaint was
filed against the Company on behalf of former Illustra shareholders alleging
securities and common law fraud and misrepresentation causes of actions. See
"--Actions Arising Under Federal and State Securities Laws."
GENERAL
The pending federal and state securities actions are in the early stages
of discovery. Consequently, at this time it is not reasonably possible to
estimate the damages, or the range of damages, that the Company might incur in
connection with such actions. However, the uncertainty associated with
substantial unresolved litigation can be expected to have an adverse impact on
the Company's business. In particular, such litigation could impair the
Company's relationships with existing customers and its ability to obtain new
customers. Defending such litigation will likely result in a diversion of
management's time and attention away from business operations, which could have
a material adverse effect on the Company's results of operations. Such
litigation may also have the effect of discouraging potential acquirors from
bidding for the Company or reduce the consideration such acquirors would
otherwise be willing to pay in connection with an acquisition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders
during the fourth quarter of fiscal 1997.
15
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the National Market of The Nasdaq
Stock Market under the symbol "IFMX." The following table lists the high and low
closing sales prices of the Company's Common Stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter (through March 30, 1998)....................................................... $ 8.84 $ 5.28
FISCAL YEAR ENDING DECEMBER 31, 1997:
Fourth Quarter............................................................................... $ 8.03 $ 4.06
Third Quarter................................................................................ 12.20 6.28
Second Quarter............................................................................... 15.13 6.78
First Quarter................................................................................ 24.00 15.25
FISCAL YEAR ENDED DECEMBER 31, 1996:
Fourth Quarter............................................................................... $ 28.63 $ 17.63
Third Quarter................................................................................ 30.25 20.31
Second Quarter............................................................................... 26.88 18.38
First Quarter................................................................................ 35.88 26.38
</TABLE>
At December 31, 1997, there were approximately 3,800 stockholders of
record of the Company's common stock, as shown in the records of the Company's
transfer agent.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company expects to retain future earnings, if any, for use in the
operation of its business and does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future. The holders of the Company's Series
B Convertible Preferred Stock (the "Series B Preferred") are entitled to receive
a cumulative dividend at an annual rate of 5% of the face value of each share of
Series B Preferred, resulting in an aggregate annual dividend accrual of $2.5
million. As of December 31, 1997, aggregate accrued, but unpaid, dividends of
approximately $301,000 were owed to the holders of the Series B Preferred. The
dividend is generally payable upon the conversion or redemption of the Series B
Preferred and may be paid in cash or, at the Company's election and subject to
certain conditions, in shares of Common Stock. In addition, the Certificate of
Designation of the Series B Preferred prohibits the Company from paying any
dividend or other distribution on any security ranking junior to the Series B
Preferred. The Company's Series A-1 Convertible Preferred Stock (the "Series A-1
Preferred") is senior to the Series B Preferred. In the event the Company fails
to satisfy certain contractual obligations under the agreements pursuant to
which the Series A-1 Preferred was issued, the holders of the Series A-1
Preferred are entitled to a 15% annual dividend on the face value of each share
of Series A-1 Preferred which would, based on 160,000 shares of Series A-1
Preferred outstanding as of December 31, 1997, result in an aggregate annual
dividend of $6.0 million, payable quarterly in cash for so long as the Company
is in breach of such obligations. As of the date of this report, there were no
shares of Series A-1 Preferred outstanding. However, Fletcher International
Limited ("Fletcher") holds a presently exercisable warrant to purchase up to
80,000 shares of Series A-1 Preferred. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Recent Developments."
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RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued and sold the following unregistered securities
during the period covered by this report which have not previously been reported
in the Company's quarterly reports on Form 10-Q:
1. On August 12, 1997, pursuant to a Subscription Agreement dated of
even date (the "Subscription Agreement"), the Company sold 160,000 shares of its
Series A Convertible Preferred Stock (the "Series A Preferred") for aggregate
gross proceeds of $40,000,000 to Fletcher. The Series A Preferred was
convertible into shares of Common Stock at any time after issuance and would
have automatically converted into Common Stock 18 months following the date of
its issuance by the Company. At the holder's option, each share of Series A
Preferred, which had a face value of $250, was convertible into Common Stock at
a per share price equal to 101% of the Common Stock average price for the 30
trading days ending five trading days prior to the conversion, but not greater
than the lesser of (i) 105% of the Common Stock average price of the first five
trading days of such 30 day period, or (ii) $12. The number of shares of Common
Stock to be issued upon conversion varied based on future stock price movements.
In connection with the sale of the Series A Preferred, the Company issued a
warrant to purchase up to 140,000 shares of its Series A Preferred (the "Series
A Warrant") to Fletcher with an aggregate purchase price of $35,000,000. The
Series A Warrant was generally exercisable from and after August 13, 1997 to and
including February 15, 1998, with a provision for extension of the warrant
exercise period under certain circumstances.
2. On November 17, 1997, pursuant to an amendment to the Subscription
Agreement, the Registrant issued 160,000 shares of its Series A-1 Preferred to
Fletcher in exchange for the cancellation of the Series A Preferred that had
been issued in August 1997. The Series A-1 Preferred is generally convertible
according to the same terms as the Series A Preferred described above. In
connection with the issuance of the Series A-1 Preferred, the Company issued a
warrant to purchase up to 140,000 shares of its Series A-1 Preferred to Fletcher
with an aggregate purchase price of $35,000,000 in exchange for the cancellation
of the Series A Warrant (the "Series A-1 Warrant"). The Series A-1 Warrant is
generally exercisable from its date of issuance until April 15, 1999, with a
provision for extension of the warrant exercise period under certain
circumstances.
3. On November 19, 1997, pursuant to a Securities Purchase Agreement
dated November 17, 1997, the Company sold 50,000 shares of newly authorized
Series B Preferred for aggregate gross proceeds of $50,000,000 to an investor
group led by an affiliate of Credit Suisse First Boston. Upon conversion of the
Series B Preferred, the Company is required to issue a warrant to acquire a
number of shares equal to 20% of the shares of Common Stock issued upon the
conversion of the Series B Preferred but no less than 1,300,000 shares, together
with an additional increment of warrants to purchase 200,000 shares of Common
Stock (collectively, the "Series B Warrants"). The Series B Warrants may be
exercised until 2002. In connection with the sale of the Series B Preferred, the
Company issued 100,000 shares of its Common Stock to The Shemano Group, a
financial advisor to the Company ("Shemano"). In addition, the Company agreed to
issue Shemano a warrant to purchase up to 50,000 shares of the Company's Common
Stock if the closing sales price of the Company's Common Stock as reported on
The Nasdaq Stock Market on May 17, 1998 does not exceed $12.50.
4. On February 13, 1998, Fletcher exercised the Series A-1 Warrant in
part and the Company issued 60,000 shares of Series A-1 Preferred (the "Series
A-1 Warrant Stock") to Fletcher for aggregate gross proceeds of $15.0 million.
In addition, pursuant to the Subscription Agreement, Fletcher converted 220,000
shares of Series A-1 Preferred into 12,769,908 shares of the Company's Common
Stock.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Regulation S under the
Securities Act, Section 4(2) of the Securities Act, Regulation D promulgated
thereunder or Section 3(a)(9) of the Securities Act as transactions by an issuer
not involving a public offering or as an exchange of securities of the Company
with existing security holders where no commission or other renumerator is paid
or given directly or indirectly for soliciting such exchange. The
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<PAGE>
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and warrants issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Registrant.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL OVERVIEW
FIVE-YEAR SUMMARY (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997(2) 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues........................................ $ 662,298 $ 727,849 $ 632,770 $ 451,969 $ 353,115
Net income (loss)................................... (356,867) (73,565) 38,600 48,293 54,989
Net income (loss) per common share
Basic............................................. $ (2.36) $ (0.49) $ 0.27 $ 0.35 $ 0.42
Diluted........................................... $ (2.36) $ (0.49) $ 0.26 $ 0.34 $ 0.40
Retained earnings (accumulated deficit)............. $ (280,046) $ 78,723 $ 154,098 $ 115,668 $ 86,484
Total assets........................................ 563,244 881,998 682,445 447,769 328,001
Long-term obligations............................... 6,311 2,359 2,846 892 451
</TABLE>
- ------------------------
The Company has not paid and does not anticipate paying cash dividends on its
Common Stock. The Company is obligated to pay a cumulative dividend on its
outstanding Series B Preferred. The dividend accumulates at an annual rate of 5%
of the face value of the outstanding Series B Preferred and is generally payable
upon conversion. See "Market for Registrant's Common Equity and Related
Stockholder Matters--Dividend Policy" and "Factors That May Affect Future
Results--Risks Associated with Preferred Stock Financings."
(1) See Note 1 to Consolidated Financial Statements for information concerning
the Company's restatement of its financial statements. All financial data in
the table above as of and for fiscal 1996, 1995 and 1994 presented reflect
such restatement.
(2) In fiscal 1997, the Company recorded a restructuring charge of $108.2
million, a write-down of certain assets in Japan of $30.5 million and a
write-down of capitalized software of $14.7 million.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THIS ITEM 7 AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS REPORT.
OVERVIEW
The Company is a leading multinational supplier of information management
software. It derives license revenues principally from licensing its RDBMS
software and derives service revenues from providing technical product support
and product updates and consulting and training services to customers. The
Company's products are sold directly to end-users and indirectly through
application resellers, OEM's and distributors.
In the first quarter of fiscal 1997, the Company experienced a
substantial shortfall in license revenues compared to forecasts, resulting in a
substantial loss for that quarter. The shortfall in revenue was due to slow
growth in demand for RDBMS products as well as the Company's inability to close
a number of sales transactions that management anticipated would close by
quarter's end, particularly in Europe.
As a result of the shortfall in license revenues for the first quarter of
fiscal 1997, the Company, in the second quarter and again in the third quarter
of fiscal 1997, initiated an internal restructuring of its operations intended
to reduce operating expenses and improve the Company's financial condition.
These restructurings included selective reductions in headcount and leased
facilities and the downsizing, elimination or conversion into solution labs of
the Company's planned Information Superstores. Costs associated with the
restructurings totaled approximately $108.2 million and had a material adverse
effect on the Company's results of operations for fiscal 1997. In addition, the
Company issued newly designated series of Preferred Stock in two financing
transactions which resulted in aggregate net proceeds of $87.6 million to the
Company (excluding a $1.0 million fee paid to a financial advisor of the Company
in connection with the sale of the Series B Preferred) and entered into a senior
secured credit facility agreement with available proceeds of up to $75.0
million, of which the Company was eligible to borrow $47.0 million at December
31, 1997, based on certain eligibility criteria. See "Recent Sales of
Unregistered Securities" and "--Liquidity and Capital Resources."
In August 1997, the Company announced that it had become aware of errors
and irregularities that affected the timing and the dollar amount of reported
earned revenues from license transactions for all annual periods in the three
years ended December 31, 1996. These errors and irregularities included
unauthorized and undisclosed arrangements or agreements between Company
personnel and resellers, recognition of revenue on certain transactions in
reporting periods prior to contract acceptance, the recording of certain
transactions that lacked economic substance and the recording of maintenance
revenue as license revenue. The unauthorized and undisclosed agreements with
resellers introduced acceptance contingencies, permitted resellers to return
unsold licenses for refunds, extended payment terms or committed the Company to
assist resellers in selling the licenses to end-users. Accordingly, license
revenues from these transactions that were recorded at the time product was
delivered to resellers should have instead been recorded at the time all
conditions to the sale lapsed. Because of the pervasiveness of the unauthorized
arrangements with resellers in the 1994, 1995 and 1996 accounting periods, the
Company concluded that all revenue from license agreements with resellers,
except for those licenses sold and billed on a per copy basis, should be
recognized only when the licenses were resold or utilized by resellers and all
related obligations had been satisfied. In addition, amounts received from
resellers or financial institutions as prepayments of software license fees in
advance of revenue recognition should be recorded as advances
19
<PAGE>
on unearned license revenue. The financial review undertaken by the Company
resulted in the restatement of the Company's financial results for fiscal 1996,
1995 and 1994 and for the first quarter of fiscal 1997. The Company publicly
disclosed the results of the restatement in November 1997.
In connection with the errors and irregularities discussed above, a
number of conditions which collectively represented a material weakness in the
Company's internal accounting controls were identified. These conditions
included a deterioration in the Company's accounting controls at corporate and
regional management levels, and a related failure to stress the importance of
these controls, an inappropriate level of influence, principally by the
Company's sales organization, over the revenue recognition process and an
apparent lack of clarity and consistent understanding within the Company
concerning the application of the Company's revenue recognition policies to
large, complex reseller license transactions. To address the material weakness
represented by these conditions, the Company is implementing a plan to
strengthen the Company's internal accounting controls. This plan includes
updating the Company's revenue recognition policies regarding accounting and
reporting for large, complex reseller license transactions, developing and
conducting educational programs to help implement such policies, changing the
Company's corporate and regional accounting and reporting structure and
re-establishing the internal audit function reporting to the Company's Board of
Directors.
As a result of the restatement, total revenues were reduced from amounts
previously reported by $211.5 million from $939.3 million as originally reported
to $727.8 million, by $81.4 million from $714.2 million as originally reported
to $632.8 million, and by $18.1 million from $470.1 million as originally
reported to $452.0 million for fiscal 1996, 1995 and 1994, respectively. The
restatement also resulted in an increase in revenues of $15.5 million from
$133.7 million as originally reported to $149.2 million for the first quarter of
fiscal 1997. In addition, the restatement resulted in a reduction in net income
of $171.4 million from $97.8 million as originally reported to a loss of $73.6
million for fiscal 1996; a reduction in net income of $59.0 million from $97.6
million as originally reported to $38.6 million for fiscal 1995; and a reduction
in net income of $13.6 million from $61.9 million as originally reported to
$48.3 million for fiscal 1994. The restatement had a material adverse effect on
the Company's financial condition, most notably evidenced by substantial
reductions in retained earnings and working capital. At December 31, 1996, after
giving effect to the restatement, the Company's working capital decreased $255.3
million from $258.4 million as originally reported to $3.1 million. At December
31, 1997, the Company had a working capital deficit of $140.2 million. The
substantial reductions in working capital at December 31, 1997 and 1996 reflect
substantial operating losses and the addition of "advances on unearned license
revenue" as a current liability on the Company's balance sheet. Such advances
totaled $180.0 million at December 31, 1997 and $239.5 million at December 31,
1996.
The Company's public announcement of the pending restatement, delays in
reporting operating results for the second and third quarters of fiscal 1997
while the restatement was being compiled, threatened de-listing of the Company's
Common Stock from the Nasdaq National Market as a result of the Company's
failure to satisfy its public reporting obligations, corporate actions to
restructure operations and reduce operating expenses, and customer uncertainty
regarding the Company's financial condition adversely affected the Company's
ability to sell its products in fiscal 1997. The financial restatement has now
been completed, its results have been publicly disclosed and the Company is
current with respect to its public reporting obligations. In addition, the
Company believes that it has effectively controlled its operating expenses and
significantly improved its financial condition. Nevertheless, adverse market
conditions, including significant competitive pressures in the Company's markets
and ongoing customer uncertainty about the Company's financial condition and
business prospects, may continue to have an adverse effect on the Company's
ability to sell its products and results of operations.
20
<PAGE>
FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The following table sets forth operating results as a percentage of net
revenues for the three years ended December 31, 1997, respectively.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1997 1996 1995
----- ----- -----
PERCENT OF NET
REVENUE
---------------------
<S> <C> <C> <C>
Net revenues:
Licenses.......................................................................... 57% 68% 72%
Services.......................................................................... 43 32 28
----- ----- -----
Total net revenues............................................................ 100 100 100
Cost and expenses:
Cost of software distribution..................................................... 10 6 6
Cost of services.................................................................. 25 20 14
Sales and marketing............................................................... 63 57 48
Research and development.......................................................... 21 16 14
General and administrative........................................................ 13 9 8
Write-off of goodwill and long-term assets........................................ 5 -- --
Write-off of acquired research and development.................................... 1 -- --
Restructuring charges............................................................. 16 -- --
Merger expenses................................................................... -- 1 --
----- ----- -----
Total expenses................................................................ 154 109 90
----- ----- -----
Operating income (loss)............................................................. (54) (9) 10
----- ----- -----
Net income (loss)................................................................... (54)% (10)% 6%
----- ----- -----
----- ----- -----
</TABLE>
Informix's operating results for fiscal 1997 were significantly below the
prior year due to decreases in license revenue and increases in costs and
expenses. Revenue declined 9% for fiscal 1997 in comparison to fiscal 1996.
Revenue declined 9%, 7%, 9% and 2% in North America, Asia/Pacific, Europe and
Latin America, respectively. The increase in operating expenses reflects
continued expansion of product and customer support organizations through the
early months of fiscal 1997 as well as incremental legal and audit expenses
related to the stockholder lawsuits and the restatement process, charges of
$30.5 million related to the Company's Japanese operations, $108.2 million for
restructuring charges, $14.7 million for write-down to net realizable value of
previously capitalized software costs and $7.0 million for a write-off of
acquired research and development during the period. The lower revenues combined
with increased operating costs resulted in an operating loss of $357.3 million
for the year. See "Legal Proceedings," "--Cost of Software Distribution,"
"--Write-off of Acquired Research and Development," "--General and
Administrative Expenses" and "--Restructuring Charges."
Informix's operating results were affected negatively in fiscal 1996 as a
result of operating expenses growing more rapidly than revenues. Informix
continued to invest heavily in personnel in the areas of sales, marketing and
customer service and research and development and incurred integration expenses
and fees associated with the acquisition in February 1996 of Illustra. In
December 1996, Informix began shipping its Universal Server product. Informix
incurred significant marketing expenses in connection with the initial
announcement and launch of the Universal Server in fiscal 1996. These
development, integration and marketing expenses adversely affected Informix's
operating margins in fiscal 1996.
REVENUES
The Company derives revenues from licensing its software and providing
post-license technical product support and updates to customers and from
consulting and training services. License revenues may
21
<PAGE>
involve the shipment of product by the Company or the granting of a license to a
customer to manufacture products. Service revenues consist of customer telephone
or direct support, product update rights, consulting and training fees. Total
net revenues were $662.3 million, $727.8 million and $632.8 million for fiscal
1997, 1996 and 1995, respectively. Between December 31, 1996 and 1997, total net
revenues decreased by 9% or $65.5 million, primarily as a result of a
substantial decrease in license revenues, partially offset by an increase in
service revenues. Between December 31, 1995 and 1996, total net revenues
increased by 15% or $95.1 million.
LICENSE REVENUES
The Company sells its products directly to end-users as well as through
resellers, including OEM's, distributors and VAR's. During fiscal 1996, the
Company increased the focus on its reseller channels to establish partnerships
with hardware and application vendors in order to utilize their sales force,
obtain access to their installed base of customers and benefit from their
consulting and systems integration organizations. The Company recognizes license
revenue from resellers, except for those sold and billed on a per copy basis,
when the licenses are resold or utilized by the reseller and all related
obligations have been satisfied. License revenues accounted for 57%, 68% and 72%
of total revenues in fiscal 1997, 1996 and 1995, respectively. The year-to-year
declines in license revenues as a percentage of total revenues reflect the fact
that service revenues have grown at a faster pace than license revenues, and
that license revenues declined substantially in fiscal 1997.
License revenue declined by 24% to $376.6 million for fiscal 1997 from
$496.0 million for fiscal 1996. In the first quarter of fiscal 1997, license
revenues decreased 43% compared to the fourth quarter of fiscal 1996. This
decrease was primarily due to slow growth in demand for RDBMS products as well
as the Company's inability to close a number of sales transactions that
management anticipated would close by quarter's end, particularly in Europe. In
the second quarter of fiscal 1997, license revenue increased 27% compared to the
first quarter, principally as a result of stronger product license sales in
North America. In the third quarter of fiscal 1997, license revenues decreased
29% compared to the second quarter. The decrease in the third quarter was
attributable to a significant extent to decreased product license sales in
Europe and Latin America and customer uncertainties resulting from the Company's
announcement of the restatement of its financial statements in August 1997 and
restructuring activities in September 1997. During the fourth quarter of fiscal
1997, license revenues increased 36% as compared to the third quarter of fiscal
1997. The increase in the fourth quarter of fiscal 1997 was principally due to
increased license sales in Europe and Latin America, which the Company believes
was due to improved customer confidence about the Company and its financial
condition following the announcement of its restated financial statements.
The Company does not believe that the decrease in license revenue in
fiscal 1997 compared to fiscal 1996 reflects a reduced acceptance of the
Company's products or a reduced competitive advantage of its products. The
Company believes that this decrease was primarily attributable to the slowing
growth in the market for RDBMS products and customer uncertainty about the
Company's financial condition and viability, due to the Company's operating
losses in the first three quarters of fiscal 1997, the announcement of the
restatement, the delays in reporting operating results for the second and third
quarters of fiscal 1997, the threatened de-listing of the Company's Common Stock
from the Nasdaq National Market as a result of the Company's failure to satisfy
its public reporting obligations, and the Company's actions to restructure
operations and reduce operating expenses. In addition, the Company experienced a
significant turnover in senior management sales positions during 1997, which
adversely affected sales. During the fourth quarter of fiscal 1997, the Company
filled certain key sales positions through new hires, internal promotion and
reorganization of its sales force.
License revenues increased 8% to $496.0 million for fiscal 1996 from
$458.3 million for fiscal 1995. The license revenue growth during fiscal 1996
reflects an increase in sales of the Company's server products, particularly the
Company's flagship database server, OnLine Dynamic Server, partially offset by
22
<PAGE>
a decrease in license revenues from its database tool products. The increase in
server product revenues during fiscal 1996 reflected continued acceptance of the
Company's server products. The Company believes that the RDBMS industry has
benefited from market acceptance of UNIX, Windows, Windows NT and other open
operating environments and trends to downsize from large proprietary computer
systems. The Company believes that the decline in license revenues derived from
its database tool products is primarily the result of competitive product
offerings from other companies.
At December 31, 1997, 1996 and 1995 licenses not resold by resellers
representing approximately $180.0 million, $239.5 million and $83.6 million,
respectively, were recorded as advances on unearned license revenues and had not
been recognized as earned revenue. Licenses originally recorded as advances on
unearned license revenue representing approximately $64.8 million, $58.2 million
and $34.2 million were sold through reseller channels to end users during fiscal
1997, 1996 and 1995, respectively, and recognized as earned revenue. The Company
estimates that approximately $50 to $70 million of the advances on unearned
license revenues of $180.0 million at December 31, 1997 will be sold through to
end-users during fiscal 1998. Nevertheless, there can be no assurances that such
licenses will be resold. If the underlying license agreements expire and are not
renewed prior to resellers' selling all licenses to end users and the Company
has no remaining obligations, the remaining revenue relating to customers'
advances will be recognized in the quarter following the expiration of the
reseller license agreements.
The Company's license transactions can be relatively large in size and
difficult to forecast both in timing and dollar value. As a result, these
transactions have caused fluctuations in net revenues and net income (loss)
because of the relatively high gross margin on such revenues. As is common in
the industry, a disproportional amount of the Company's license revenue is
derived from transactions that close in the last weeks or days of a quarter. The
timing of closing large license agreements also increases the risk of
quarter-to-quarter fluctuations. The Company expects that these types of
transactions and the resulting fluctuations will continue.
The Company is currently unable to forecast whether the decreases in
license revenue experienced in fiscal 1997 will continue in fiscal 1998. During
1997, substantial uncertainty existed about the Company's business and financial
condition. The Company believes that various actions taken by the Company during
1997 have substantially improved its financial condition. See "--Restructuring
Charges" and "--Liquidity and Capital Resources." Nevertheless, adverse market
conditions, including significant competive pressures and ongoing customer
uncertainty about the Company's financial condition and business prospects,
could continue to have an adverse effect on license revenues and results of
operations.
SERVICE REVENUES
Service revenues increased 23% to $285.7 million for fiscal 1997 from
$231.8 million for fiscal 1996. Service revenues increased 33% to $231.8 million
for fiscal 1996 from $174.5 million for fiscal 1995. Service revenues accounted
for 43%, 32% and 28% of total revenues in fiscal 1997, 1996 and 1995,
respectively. As the Company's products become more complex, more support
services are expected to be required. The Company intends to satisfy this
requirement through internal support, third-party services and OEM support.
Service revenues are comprised of maintenance, consulting and training revenues.
The Company continues to emphasize support services as a source of revenue and
the growth achieved in absolute dollars reflects the growth in the Company's
installed base and strategic focus on providing consulting services for its
customers. The year-to-year increases in service revenues as a percentage of
total revenues reflect the fact that service revenues have continued to grow
while license revenues declined substantially in fiscal 1997.
Revenue derived from post-contract technical support and fees for
software updates increased 18% to $188.1 million in fiscal 1997 from $159.5
million in fiscal 1996 and 31% in fiscal 1996 from $121.9 million in fiscal
1995. This increase is attributable principally to maintenance contracts for new
license sales in each year as well as the renewal of existing maintenance
contracts. In the event the
23
<PAGE>
Company continues to experience substantial declines in license revenue, such
declines would be expected to have an adverse effect on growth in service
revenues.
Consulting and training revenues increased 35% to $97.6 million in fiscal
1997 from $72.3 million in fiscal 1996 and 38% in fiscal 1996 from $52.6 million
in fiscal 1995. The growth in the consulting and training practice was driven by
increased demand for consulting services primarily in North America and in
Europe. Some significant one-time large consulting contracts were also executed
in fiscal 1997 and contributed to the significant increase of consulting
revenues year over year. There can be no assurances that similar one-time large
consulting contracts will be entered into in future periods. Failure to secure
such contracts may have an adverse impact on the growth of service revenues.
GEOGRAPHIC DISTRIBUTION
The Company's distribution markets are organized into four general
markets: North America; Europe, the Middle East and Africa; Latin America; and
the Asia/Pacific region, including Japan. The North America, Europe, Latin
America and Asia/Pacific organizations contributed 46%, 34%, 8% and 12% of the
Company's net revenues, respectively, in fiscal 1997, compared to 46%, 34%, 7%
and 13%, respectively, in fiscal 1996 and 45%, 36%, 6% and 13%, respectively, in
fiscal 1995.
Approximately 54%, 54% and 55% of Informix's net revenues were derived
from sales to foreign customers in fiscal 1997, 1996 and 1995, respectively.
Informix expects that foreign revenues will continue to provide a significant
portion of total revenues. However, changes in foreign currency exchange rates,
the condition of local economies, and the general volatility of software markets
may result in a higher or lower proportion of foreign revenues in the future. In
Europe and Asia/Pacific most revenues and expenses are now denominated in local
currencies. The U.S. dollar strengthened in fiscal 1997 against the major
European and Asia/Pacific currencies, which resulted in lower revenue and
expenses recorded when translated into U.S. dollars, compared with the prior
year periods. Although the Company has also increased its direct presence in
Latin America, a significant percentage of this region's revenue is still
denominated in U.S. dollars. Although the effect was not significant in fiscal
1997, the Company has in the past experienced significant currency fluctuations
in Mexico, and to a lesser extent, other Latin American countries, and expects
such fluctuations may occur in the future. The Company's operating and pricing
strategies take into account changes in exchange rates over time; however, the
Company's results of operations may be significantly affected in the short term
by fluctuations in foreign currency exchange rates. In addition, the current
continued weakness observed in Asian currencies may result in reduced revenues
from the countries affected by this condition, thus having a negative impact on
the overall performance of the Company.
CONCURRENT TRANSACTIONS
Principally during fiscal 1996, the Company entered into software license
agreements with certain computer and service vendors where the Company
concurrently committed to acquire goods and services. These concurrent
transactions in fiscal 1996 included license agreements of approximately $170.0
million and a commitment by the Company to acquire goods and services in the
aggregate of approximately $130.0 million. Concurrent transactions in 1997
included license agreements of approximately $21 million and a commitment by the
Company to acquire goods and services in the aggregate of approximately $50
million. See Notes 1 and 2 of Notes to Consolidated Financial Statements.
24
<PAGE>
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
1997 CHANGE 1996 CHANGE 1995
--------- --------- --------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Manufactured cost of software distribution........................... $ 26.9 (16)% $ 32.2 26% $ 25.6
Percentage of license revenue........................................ 7% 6% 6%
Amortization of capitalized software................................. $ 21.4 47% $ 14.6 21% $ 12.0
Percentage of license revenue........................................ 6% 3% 3%
Write-down to net realizable value................................... $ 14.7 N.M. -- N.M. --
Percentage of license revenue........................................ 4%
Total cost of software distribution.................................. $ 63.0 35% $ 46.8 24% $ 37.6
Percentage of license revenue........................................ 17% 9% 8%
</TABLE>
- ------------------------
N.M. = Not meaningful
Cost of software distribution increased to $63.0 million for fiscal 1997
from $46.8 million and $37.6 million for fiscal 1996 and 1995, respectively.
Software distribution costs consist primarily of (i) manufacturing and related
costs such as media, documentation, product assembly and purchasing costs,
freight, customs, and third-party royalties and (ii) amortization of previously
capitalized software development costs including adjustments to the carrying
value of such capitalized costs based on changes to the Company's estimates of
the net realizable value of related products.
Excluding amortization and the write-down to net realizable value of
previously capitalized software development costs, cost of software distribution
as a percentage of license revenue was 7% for fiscal 1997 and 6% for both fiscal
1996 and 1995. In the future, the cost of software distribution as a percentage
of revenue may vary depending upon the extent to which the product is reproduced
by the Company or by its customers.
Amortization of capitalized software costs commences the quarter
following product introduction. Capitalized software amortization increased 47%
to $21.4 million for fiscal 1997 from $14.6 million for the prior year period.
The increase in amortization of capitalized software in absolute dollars and as
a percentage of net revenues is due to the release of the Company's Universal
Server products in the fourth quarter of fiscal 1996. The absolute value of
amortization of capitalized software will vary period to period as new products
are released and other products become fully amortized.
Amortization of capitalized software increased 21% in fiscal 1996
compared to fiscal 1995 due to the release of several products in the latter
half of fiscal 1995 and 1996. The absolute value of amortization of capitalized
software will vary from quarter to quarter as new products are released and
other product development costs become fully amortized.
The write-down to net realizable value of $14.7 million during the first
quarter of fiscal 1997 was due to the Company's acquisition of CenterView
Software, Inc. ("CenterView") and the related announcements of its revised tool
strategy. In accordance with Financial Accounting Standards Board Statement No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," a net realizable value test was performed on certain of the
Company's database tool products and resulted in a write-down of $14.7 million
of previously capitalized software costs. In addition to this write-down, the
Company recorded separately a $7.0 million charge for write-off of Acquired
Research and Development in connection with the Company's acquisition of
CenterView. See "--Write-off of Acquired Research and Development."
25
<PAGE>
COST OF SERVICES
Cost of services consists primarily of maintenance, consulting and
training expenses. Cost of services increased 15% to $166.9 million for fiscal
1997 from $144.9 million for fiscal 1996. Cost of services increased 58% to
$144.9 million for fiscal 1996 from $91.5 million for fiscal 1995. The overall
growth in cost of services of 15% between fiscal 1996 and 1997 is consistent
with the 23% growth in service revenues over the same period. The cost of
services increased significantly in fiscal 1996 as the Company substantially
expanded its consulting practice in the United States and Europe as well as its
technical support organization in order to provide customer assistance for the
Online Dynamic Server product line. Cost of services decreased as a percentage
of service revenues to 58% for fiscal 1997 compared to 62% for the same period
in 1996. During fiscal 1997, gross margins increased relative to both support
revenue and consulting/training revenue, particularly in the third and fourth
quarters of that year. The Company believes that the increased margins during
fiscal 1997 were principally attributable to more efficient delivery of
services. The increase in cost of services in fiscal 1996 in absolute dollars
and as a percentage of net revenues compared to the prior year is primarily due
to the Company's expansion of consulting and support service capabilities as
products have become more complex.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased less than 1% to $417.2 million for
fiscal 1997 from $413.7 million for fiscal 1996. Sales and marketing expenses
increased 37% to $413.7 million for fiscal 1996 from $301.9 million for fiscal
1995. As a percentage of revenues, sales and marketing expenses increased to 63%
in fiscal 1997 from 57% in fiscal 1996, due to a reduction in net revenues. As a
percentage of revenues, sales and marketing expenses increased to 57% in fiscal
1996 from 48% in fiscal 1995, due to significant increases in sales and
marketing personnel and marketing programs starting in late 1996.
During the late months of fiscal 1996 and in the early months of fiscal
1997, there were significant increases in personnel and expenses as the Company
continued to expand its sales force for anticipated license revenue growth and
continued to implement various marketing programs, including its Information
Superstore program. The Information Superstore program, which was launched in
fiscal 1996 and through the early months of 1997, resulted in increased
depreciation expense due to the fixed asset purchases related to the program.
The slight increase in sales and marketing expense in fiscal 1997 in absolute
dollars compared to fiscal 1996 was a result of continued increased expenses in
the early months of fiscal 1997, offset by a significant reduction in overall
sales and marketing expenses in the second half of fiscal 1997 in connection
with the restructuring plan executed by the Company.
Due to the significant revenue shortfall in the first quarter of fiscal
1997, the Company executed internal restructuring plans in the second quarter
and again in the third quarter, which included reducing headcount, consolidating
facilities and operations, and downsizing, eliminating or converting Information
Superstores into solution labs managed by the Company's consulting practice. The
Company had significantly lower sales and marketing costs in the fourth quarter
of fiscal 1997 as a result of these measures. In the fourth quarter of fiscal
1997, sales and marketing expenses were reduced to $69.3 million. Costs in the
fourth quarter of fiscal 1997 were 43% lower than the prior year quarter and 32%
lower than the third quarter of fiscal 1997.
The significant increase in sales and marketing expenses in fiscal 1996
in absolute dollars compared to fiscal 1995 was a result of the addition of new
sales offices and sales personnel worldwide as the Company expanded its
worldwide sales organization, the opening of new foreign offices, higher
commission expense associated with the increase of revenues prior to the
restatement and increased marketing programs associated with new product
launches.
26
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
1997 CHANGE 1996 CHANGE 1995
--------- --------- --------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Incurred product development expenditures......................... $ 161.1 8% $ 148.6 44% $ 103.1
Expenditures capitalized.......................................... 21.8 (23)% 28.4 62% 17.5
Research and development expenses................................. $ 139.3 16% $ 120.2 40% $ 85.6
Expenditures capitalized as a percentage of incurred.............. 14% 19% 17%
</TABLE>
Research and development expenses increased 16% to $139.3 million for
fiscal 1997 from $120.2 million for fiscal 1996. Research and development
expenses increased 40% to $120.2 million for fiscal 1996 from $85.6 million for
fiscal 1996. The year-to-year increase in research and development expenses in
absolute dollars for fiscal 1997, is attributable principally to an increase in
staff which occurred during the early part of fiscal 1997, working on new
products and product extensions. The year-to-year increase in research and
development expenses in absolute dollars for fiscal 1996 is attributable
principally to an increase in staff, working on the development of new products
and product extensions, including Universal Server.
Informix accounts for its software development expenses in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." This
statement requires that, once technological feasibility of a developing product
has been established, all subsequent costs incurred in developing that product
to a commercially acceptable level be capitalized and amortized ratably over the
revenue life of the product.
Prior to fiscal 1997, the higher capitalization in absolute dollars of
product development expenditures from year to year resulted from an increase in
the work involved in projects having already reached technological feasibility
as they neared their release dates, including Universal Data Options formerly
Informix Universal Server.
The Company believes that research and development expenditures are
essential to maintaining its competitive position in its primary markets and
expects the expenditure levels to continue to constitute a significant
percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
In fiscal 1997, general and administrative expenses increased 36% to
$87.5 million from $64.4 million for fiscal 1996. In fiscal 1996, general and
administrative expenses increased 26% to $64.4 million from $51.1 million for
fiscal 1995. The increase in fiscal 1997 in general and administrative expenses
in absolute dollars and as a percentage of net revenue was primarily the result
of the continued expansion of the Company's international operations, higher bad
debt expense of $4.6 million, incremental legal and auditing expenses of $8
million resulting from the stockholders' litigation and the restatement of the
Company's financial statements, and the write-off of certain assets of $2.2
million. General and administrative expenses increased in absolute dollars in
1996 compared to 1995 as a result of the continued expansion of the Company's
international operations.
WRITE-OFF OF GOODWILL AND OTHER LONG-TERM ASSETS
In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company records impairment losses on long-lived
assets used in its operations when events and circumstances indicate that the
assets might be impaired and the estimated future undiscounted cash flows to be
generated by those assets are less than the assets' carrying amounts.
In the first quarter of fiscal 1997, the Company's Japanese subsidiary
experienced a significant shortfall in business activity compared to historical
levels. This fact, coupled with continuing competitive
27
<PAGE>
pressures in the Japanese market, resulted in the Company adjusting its
forecasts of the subsidiary's future cash flows and further led the Company to
evaluate the recoverability of the subsidiary's long-lived assets, including
computer and other equipment, acquired intangible assets and goodwill. As a
result of this evaluation, the Company determined that the carrying value of
these long-lived assets had been impaired and, accordingly, recorded a charge in
the first quarter of $30.5 million to write-down the assets' carrying value to
their estimated fair value. Fair value was determined using estimated future
discounted cash flows of the subsidiary and/or resale values as appropriate.
WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT
In February 1997, the Company acquired all of the outstanding capital
stock of CenterView, a privately owned corporation that provides software tools
for application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been accounted for as a purchase and,
based on an independent appraisal of all the assets acquired and liabilities
assumed, the purchase price was allocated to the specifically identifiable
tangible and intangible assets acquired, including approximately $7.0 million of
purchased research and development which has been charged to operations in the
period the acquisition was consummated, the first quarter of fiscal 1997.
Based on a review of CenterView's current suite of products, the
Company's management identified and classified future versions of the Company's
Data Director product as in-process technology, specifically Versions 3.0 and
4.0, as of the date of its acquisition. Data Director is an integrated
development extension for Microsoft Visual Basic that enables companies to build
corporate Intranet and client/server applications in a single environment. Data
Director enhances Visual Basic with a model-driven data access engine that
manages all database interactions between client and server, eliminating the
complexity traditionally associated with client/server development and enabling
companies to build client/ server applications faster and more efficiently than
with Visual Basic alone.
Based on discussions with CenterView management, including project
development project managers regarding the stage of development of Versions 3.0
and 4.0, it was determined that these projects had not reached technological
feasibility as of the date of the CenterView acquisition, nor did these projects
have any alternative future use. This determination was based primarily on an
assessment of the history of the research and development schedules for the
projects, their current stage of development, the risks inherent in completing
the incremental research and development efforts necessary to reach
technological feasibility, and the planned general release dates. Version 3.0
was scheduled for first customer release in July 1997 while Version 4.0 was
anticipated to reach first customer release in April 1998. Based on the
discussions with CenterView management regarding historical product releases, it
was determined that commercial release occurs approximately two to three months
after first customer introduction of the product. The projects are expected to
produce positive levels of cash flow during the year ended December 31, 1998.
Moreover, the Company estimated that the costs to complete these projects would
be approximately $8.4 million in fiscal 1997 and approximately $4.2 million in
fiscal 1998. These figures were estimated by considering (i) the development
schedules of the in-process projects; (ii) complexity of the identified
development projects; and (iii) number of engineer hours per project, per year.
The market for the Company's Data Director product is characterized by
rapidly changing technology, frequent new product introductions and evolving
market and customer demands. Although CenterView successfully developed and
marketed Data Director Version 2.1 and previous versions, there can be no
assurance that the Company will be successful in developing and marketing the
enhanced versions of the Data Director product. As such, the in-process
technology embedded in Data Director Versions 3.0 and 4.0 was valued utilizing
risk-adjusted cash flows to incorporate these and other uncertainties associated
with the Company's product development efforts. Failure to successfully complete
these
28
<PAGE>
efforts in a timely manner could adversely affect the market potential for the
acquired CenterView products.
RESTRUCTURING CHARGES
In June and again in September 1997, the Company approved plans to
restructure its operations in order to bring expenses in line with forecasted
revenues. In connection with these restructurings, the Company substantially
reduced its worldwide headcount and consolidated facilities and operations to
improve efficiency. The following analysis sets forth the significant components
of the restructuring reserve at December 31, 1997:
<TABLE>
<CAPTION>
RESTRUCTURING NON-CASH CASH ACCRUAL BALANCE AT
EXPENSE COSTS PAYMENTS DECEMBER 31, 1997
------------- ----------- ----------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and benefits............... $ 21.9 $ -- $ 19.5 $ 2.4
Write-off of assets.................. 48.2 48.2 -- --
Facility charges..................... 34.7 7.7 3.8 23.2
Other................................ 3.4 2.2 .2 1.0
------ ----- ----- -----
$ 108.2 $ 58.1 $ 23.5 $ 26.6
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
Severance and benefits represent the reduction of approximately 670
employees, primarily sales and marketing personnel, on a worldwide basis.
Temporary employees and contractors were also reduced. Write-off of assets
include the write-off or write-down in carrying value of equipment as a result
of the Company's decision to reduce the number of Information Superstores
throughout the world, as well as the write-off of equipment associated with
headcount reductions. The equipment subject to the write-offs and write-downs
consists primarily of computer servers, workstations, and personal computers
that will no longer be utilized in the Company's operations. These assets were
written down to their fair value less cost to sell. Facility charges include
early termination costs associated with the closing of certain domestic and
international sales offices.
The total Restructuring Expense decreased by $1.2 million during the
fourth quarter of fiscal 1997 primarily due to adjusting the original estimate
of the loss to be incurred on the sale of land to the actual loss.
The Company expects to complete most of the actions associated with
restructuring by the end of the second quarter of fiscal 1998.
MERGER EXPENSES
In the first quarter of fiscal 1996, the Company recorded expenses of
approximately $5.9 million as a result of the acquisition of Illustra, which was
accounted for as a pooling of interests. These costs consisted primarily of
investment banking, legal and accounting fees.
INTEREST INCOME
Interest income was $5.6 million as compared to $9.9 million and $8.1
million for fiscal 1997, 1996 and 1995, respectively. The decline in fiscal 1997
in comparison to fiscal 1996 resulted from a reduction in the average
interest-bearing cash and short-term investments balances in fiscal 1997. The
reduction in cash is due to lower sales and higher expenses. The increase in
interest income from fiscal 1995 to fiscal 1996 was due to higher balances of
cash and cash equivalents and short-term investments, offset by slightly lower
interest rates.
29
<PAGE>
INTEREST EXPENSE
Interest expense increased to $7.8 million from $5.8 million and $2.5
million for fiscal 1997, 1996 and 1995, respectively. Interest expense
principally relates to interest charges incurred in connection with financing of
customer accounts receivable and has increased due to an increase in the average
balance of receivables financed. These financing costs are expensed ratably over
the term of the financing arrangement.
OTHER INCOME, NET
Other income, net, increased to $10.5 million for fiscal 1997 from $2.9
million and $0.1 million in fiscal 1996 and 1995, respectively. The increase
from fiscal 1996 was due primarily to $8.1 million of net gains on the sale of
marketable securities and $8.0 million of foreign currency transaction gains,
offset partially by adjustments of $4.5 million to the carrying value of
strategic investments and $1.1 million of other expenses. Other income, net, in
fiscal 1996 consisted of $3.9 million of gain on sale of marketable securities
offset by other net expenses of $1.0 million.
The restatement of the 1996, 1995 and 1994 financial statements resulted
in a change in the Company's foreign currency denominated intercompany accounts
payable and accounts receivable balances. As a result, certain foreign currency
transaction gains and losses realized due to fluctuation in the related asset
and liability currency exchange rates were not offset by underlying gains and
losses on forward foreign currency exchange contracts used to hedge those
foreign currency exposures. The Company recorded net foreign currency
transaction gains of approximately $8.0 million, $.3 million and $.2 million in
fiscal 1997, 1996 and 1995, respectively; the restatement of the Company's
financial statements affected the recorded net foreign currency transaction
gains and (losses) as follows: $7.5 million, $(0.7) million, $0.1 million, and
$(0.5) million in fiscal 1997, 1996, 1995 and 1994, respectively.
INCOME TAXES
In fiscal 1997, income tax expense resulted primarily from foreign
withholding taxes and taxable earnings in certain foreign jurisdictions. The
expected tax benefit computed by applying the federal statutory rate to the loss
before income taxes was substantially offset by a corresponding increase in the
valuation allowance for net deferred tax assets. The Company has provided a
valuation allowance for the net deferred tax assets in excess of amounts
recoverable through carryback of net operating losses. Accordingly, realization
of the net deferred tax asset at December 31, 1997 of $34 million is not
dependent on future taxable income.
In fiscal 1996, income tax expense resulted from an increase in the
valuation allowance for deferred tax assets attributable to foreign net
operating loss carryforwards, foreign withholding taxes and taxable earnings in
certain foreign jurisdictions.
30
<PAGE>
IMPACT OF RESTATEMENT ON QUARTERLY FINANCIAL INFORMATION
The restatement of the financial statements for fiscal 1996, 1995 and
1994 and the first quarter of fiscal 1997 had the following impact on previously
reported quarterly financial information.
<TABLE>
<CAPTION>
FOURTH
FIRST QUARTER SECOND QUARTER THIRD QUARTER QUARTER
------------------------ ----------------------- ----------------------- ------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED
------------ ---------- ------------ --------- ------------ --------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Net revenues.......................... $ 133,664 $ 149,223 $ 182,012 -- $ 149,911 -- $ 181,152
Gross profit (1)(2)................... 63,185 78,937 123,527 -- 97,625 -- 132,266
Net income (loss) (1)(2).............. (140,107) (144,161) (111,377) -- (110,523) -- 9,194
Preferred stock dividend.............. -- -- -- -- -- -- (301)
Value assigned to warrants............ -- -- -- -- -- -- (1,601)
------------ ---------- ------------ --------- ------------ --------- ------------
Net income (loss) applicable to common
stockholders........................ (140,107) (144,161) (111,377) -- (110,523) -- 7,292
Net income (loss) per common share:
Basic............................... $ (0.93) $ (0.95) $ (0.73) -- $ (0.73) -- $ 0.05
Diluted............................. (0.93) (0.95) (0.73) -- (0.73) -- 0.04
Year ended December 31, 1996
Net revenues.......................... $ 204,021 $ 164,605 $ 226,282 $ 159,323 $ 238,180 $ 187,073 $ 270,828
Gross profit.......................... 160,584 121,378 178,474 112,074 189,003 138,092 218,342
Net income (loss)..................... 15,891 (15,377) 21,628 (34,083) 26,181 (17,095) 34,118
Net income (loss) per share:
Basic............................... $ 0.11 $ (0.10) $ 0.15 $ (0.23) $ 0.17 $ (0.11) $ 0.23
Diluted............................. 0.10 (0.10) 0.14 (0.23) 0.17 (0.11) 0.22
Year ended December 31, 1995
Net revenues.......................... $ 148,037 $ 146,120 $ 164,068 $ 141,175 $ 182,701 $ 166,929 $ 219,413
Gross profit.......................... 121,893 120,138 134,042 111,226 150,183 136,595 178,396
Net income (loss)..................... 17,646 16,177 20,184 (2,731) 23,896 7,759 35,918
Net income (loss) per share:
Basic............................... $ 0.12 $ 0.11 $ 0.14 $ (0.02) $ 0.16 $ 0.05 $ 0.24
Diluted............................. 0.12 0.11 0.14 (0.02) 0.16 0.05 0.23
Year ended December 31, 1994
Net revenues.......................... $ 96,242 $ 92,763 $ 106,214 $ 96,217 $ 117,081 $ 111,428 $ 150,575
Gross profit.......................... 81,429 77,950 89,765 79,768 98,106 92,453 129,520
Net income (loss)..................... 11,540 8,922 12,210 4,686 15,446 11,191 22,752
Net income (loss) per share:
Basic............................... $ 0.09 $ 0.07 $ 0.09 $ 0.03 $ 0.11 $ 0.08 $ 0.16
Diluted............................. 0.08 0.06 0.09 0.03 0.11 0.08 0.16
<CAPTION>
RESTATED
---------
<S> <C>
Year ended December 31, 1997
Net revenues.......................... --
Gross profit (1)(2)................... --
Net income (loss) (1)(2).............. --
Preferred stock dividend.............. --
Value assigned to warrants............ --
---------
Net income (loss) applicable to common
stockholders........................ --
Net income (loss) per common share:
Basic............................... --
Diluted............................. --
Year ended December 31, 1996
Net revenues.......................... $ 216,848
Gross profit.......................... 164,669
Net income (loss)..................... (7,010)
Net income (loss) per share:
Basic............................... $ (0.05)
Diluted............................. (0.05)
Year ended December 31, 1995
Net revenues.......................... $ 178,546
Gross profit.......................... 137,678
Net income (loss)..................... 17,372
Net income (loss) per share:
Basic............................... $ 0.12
Diluted............................. 0.11
Year ended December 31, 1994
Net revenues.......................... $ 151,561
Gross profit.......................... 130,506
Net income (loss)..................... 23,494
Net income (loss) per share:
Basic............................... $ 0.17
Diluted............................. 0.16
</TABLE>
- ------------------------
(1) The Company recorded in the second quarter and again in the third quarter of
fiscal 1997, restructuring charges of $59.6 million and $49.7 million,
respectively. The total restructuring expenses decreased by $1.2 million
during the fourth quarter of fiscal 1997 primarily due to adjusting the
original estimate of the loss to be incurred on the sale of land to the
actual loss. (See Note 13 to the Consolidated Financial Statements)
(2) In the first quarter of fiscal 1997, the Company recorded a charge of $30.5
million to write down the carrying values of certain of its Japanese
subsidiary's long-lived assets to their fair values. During the same
quarter, the Company also recorded a charge of $14.7 million to write down
the carrying value of capitalized software development costs for certain
products to their net realizable values.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments................................. $ 155.5 $ 261.0 $ 253.2
Working capital (deficit)......................................................... (140.2) 3.1 163.6
Cash and cash equivalents used in operations...................................... (144.8) (29.4) 59.3
Cash and cash equivalents used for investment activities.......................... (63.1) (145.3) (157.7)
Cash and cash equivalents provided by financing activities........................ 115.2 228.7 136.8
</TABLE>
OPERATING CASH FLOWS
Cash used by operations increased significantly to $144.8 million for the
year ended December 31, 1997 from $29.4 million in 1996 due to operating
expenses in excess of revenues. Cash from operations did not provide sufficient
resources to fund the Company's operations in fiscal 1997 and 1996.
The net loss of $356.9 million for fiscal 1997, included a number of
non-cash transactions. These non-cash transactions included write-downs of long
term assets, capitalized software, goodwill and acquired research and
development and certain non-cash restructuring charges which partially offset
the net loss resulting in net cash used by operations of $144.8 million.
Net accounts receivable decreased by $52.5 million to $142.0 million as
of December 31, 1997 from December 31, 1996. This decrease resulted from a $35.7
million decrease in revenues during the fourth quarter of fiscal 1997 as
compared to the fourth quarter of fiscal 1996 partially offset by a reduction in
its financing programs with third-party financial institutions in fiscal 1997.
Days sales outstanding ("DSO") was 71, 83 and 79 at December 31, 1997, 1996 and
1995, respectively. The Company increased its efforts to improve cash
collections in fiscal 1997 in response to its deteriorating cash position during
the year. The Company expects DSO in 1998 to approximate or to slightly increase
from the fiscal 1997 levels. Cash received from customers and third-party
financial institutions in advance of revenue being recognized is recorded as
advances on unearned license revenue.
INVESTING CASH FLOWS
Net cash and cash equivalents used in investing activities decreased for
the year ended December 31, 1997 compared with the same period in 1996. The
decrease was due in large part to lower investments of excess cash due to the
significant decline in cash balances over the year. Significant investing
activities, excluding the investment of excess cash, during the year included
additions to software costs of $20.8 million, the sale of available-for-sale
securities for $46.0 million, purchase of the Santa Clara property and capital
equipment of $92.2 million, the purchase of CenterView for $8.7 million and net
proceeds from selling the Santa Clara property of $59.3 million.
The Company sold its interest in a strategic investment during fiscal
1997 which resulted in net proceeds of $10.4 million.
The Company planned on relocating its corporate headquarters to Santa
Clara, California, approximately 15 miles to the south of the Company's
headquarters. In January 1997, the Company entered into a two year lease for 27
acres of undeveloped commercial real estate which required a pledge of $61.5
million in cash into a non-interest bearing collateral account controlled by an
affiliate of the lessor. In April 1997, the Company exercised its option to
purchase the land for $61.5 million with the intent to arrange for the sale of
the parcels to unrelated third parties. The $61.5 million is reflected in the
"purchases of land and property and equipment" line of the cash flow statement.
The land sales closed in the fourth quarter of fiscal 1997, and $59.3 million is
disclosed on the "proceeds from disposal of land and property and equipment."
32
<PAGE>
In addition, during fiscal 1997, the Company acquired $30.7 million of
capital equipment consisting primarily of computer equipment, computer software
and office equipment. Capital equipment purchases were primarily the result of
the Company's expected expansion during the first half of fiscal 1997.
In February 1997, the Company acquired all of the outstanding capital
stock of Centerview, a privately owned corporation that provides software tools
for application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been accounted for as a purchase and,
based on an independent appraisal of all the assets acquired and liabilities
assumed, the purchase price was allocated to the specifically identifiable
intangible assets acquired, including approximately $7.0 million of purchased
research and development which has been charged to operations in the period the
acquisition was consummated the first quarter of fiscal 1997.
FINANCING
Net cash and cash equivalents provided by financing activities in fiscal
1997 decreased in comparison to the same period in 1996. A significant portion
of the decrease was the decline in advances on unearned license revenue,
partially offset by the proceeds from issuances of preferred and common stock.
Proceeds from common stock represent stock options exercised and
purchases under the employee stock purchase plan. In September 1997, the
Company's Board of Directors authorized the repricing of outstanding stock
options to purchase Common Stock under the Company's stock option plans so that
the exercise price of repriced options would equal the closing sales price of
the Company's Common Stock as reported on The Nasdaq Stock Market on November
17, 1997, which was $7.1563. See "Executive Compensation--Stock Option
Repricing."
In August 1997, the Company raised net proceeds of $37.6 million through
the issuance of the Series A Preferred. In November 1997, the Company raised an
additional $50.0 million in net proceeds (excluding a $1.0 million fee paid to a
financial advisor of the Company) through the issuance of the Series B
Preferred. Simultaneously with the closing of the Series B Preferred, the
holders of the Series A Preferred exchanged all their outstanding shares of
Series A Preferred for the newly designated Series A-1 Preferred, having
substantially similar rights, preferences and privileges as the Series A
Preferred with the exception of certain amendments, including revisions to the
terms under which such shares become mandatorily redeemable.
The Company assigned its leasehold interest and its related obligations
under an office space lease in Santa Clara, California to an unrelated third
party. The lease term was for fifteen years and minimum lease payments amount to
$96.0 million over the term. The Company remains contingently liable for minimum
lease payments under the terms of the assignment.
As of December 31, 1997, the Company was contractually obligated to
purchase approximately $4.4 million of various computer equipment.
The Company has several active software development and service provider
contracts with third-party technology providers. These agreements contain
financial commitments by the Company of $15.1 million, $11.4 million, $10.4
million, $7.3 million and $3.5 million in fiscal 1998, 1999, 2000, 2001 and
2002, respectively.
In December 1997, Informix Software, Inc., a Delaware corporation and the
Company's principal operating subsidiary ("Informix Software"), entered into a
Senior Secured Credit Agreement with a syndicate of commercial banks, including
BankBoston, N.A. as administrative agent and Canadian Imperial Bank of
Commercial as syndication agent, providing for a revolving credit facility of up
to $75 million (the "Credit Facility"). The actual amount available under the
Credit Facility, for either direct
33
<PAGE>
borrowings or issuances of letters of credit, is based on 80 percent of the
eligible domestic accounts receivable and 50 percent of the eligible foreign
accounts receivable. Accounts receivable for an account debtor are ineligible
for purposes of the Credit Facility when (a) such account receivable is
outstanding for longer than 60 days, (b) the account debtor or any other person
obligated to make payment thereon asserts any defense, offset, counterclaim or
other right to avoid or reduce the amount of the account receivable, but only to
the extent the lenders reasonably determine a valid defense, offset,
counterclaim or other right exists and then only to the extent of such right,
(c) the account debtor or other person required to make payment thereon is
insolvent, subject to bankruptcy or receivership proceedings or has made an
assignment for the benefit of creditors or whose credit standing is unacceptable
to the lenders, and the lenders have so notified the Company (d) the account
debtor is a lender under the Credit Facility, (e) 30 percent or more of the
accounts receivable of any account debtor is deemed ineligible because such
accounts are outstanding for longer than 60 days thus rendering all the accounts
receivable of that debtor ineligible, and (f) the lender reasonably deems not to
qualify an account receivable as eligible and provides a reasonably detailed
written explanation to the Company. Under the Credit Facility, foreign accounts
receivable that are backed by a letter of credit issued or confirmed by a
financial institution approved by the lenders are deemed to be domestic accounts
receivable. As a result, the aggregate amount available under the Credit
Facility will vary from time to time based on the amount and eligibility of the
Company's receivables. As of December 31, 1997, no borrowings were outstanding
under the Credit Facility, the Company's accounts receivable totaled $142
million and its borrowing base under the Credit Facility was $47 million. The
purpose of the Credit Facility is to provide the Company working capital and
finance general corporate purposes. The term of the Credit Facility is two
years. Amounts outstanding under the Credit Facility bear interest at a premium
over one of two alternative variable rates selected by the Company. The "Base
Rate" equals the greater of (i) the rate of interest announced by BankBoston,
N.A. as its "base rate" and (ii) the Federal Funds Effective Rate plus 1/2 of 1%
per year. The "Adjusted LIBOR Rate" equals (i) the London Interbank Offered Rate
divided by (ii) one minus the applicable reserve requirement under Regulation D
of the Federal Reserve Board. The maximum premium over the Base Rate is 1.25%,
and the maximum premium over the LIBOR Rate is 2.50%, subject to downward
adjustment based on the Company's realizing certain financial thresholds. The
Credit Facility is secured by all of the assets of Informix Software and the
capital stock of the Company's subsidiaries that are domiciled in the United
States, including Informix Software. The availability of the Credit Facility is
also subject to the Company's compliance with certain covenants, including the
following financial covenants requiring the Company to: (a) maintain a ratio of
1.25 to 1.00 in respect of the sum of cash and acounts receivable to the
difference of current liabilities less deferred and unearned revenues, (b)
maintain quarterly revenues of $150.0 million through June 1998 and $160.0
million thereafter, (c) maintain quarterly operating loss of no more than $10.0
million through the quarter ending March 31, 1998 and a quarterly operating
profit of at least $10 million for the quarter ending June 30, 1998 and a
quarterly operating profit of at least $15 million thereafter. (d) maintain, for
the quarter ending June 30, 1998 and each quarter thereafter, a positive
quarterly cash flow consisting of operating income greater than the sum of
restated revenue, capitalized software costs, capital expenditures, cash outlays
in respect of accrued expenses arising from restructuring charges, and the sum
of depreciation and amortization, (e) an interest coverage ratio of 1.25 to 1.00
in respect of quarterly operating cash flow to interest expense plus scheduled
amortization of debt, (f) refrain from making additional investments in fixed or
capital assets, in any fiscal year, in excess of $15.0 million, less any carry
forward amount, and (g) refrain from entering into any merger, consolidation,
reorganization or other transaction resulting in a fundamental change. At
December 31, 1997, the Company was in compliance with all financial covenants
under the Credit Facility.
34
<PAGE>
DISCLOSURES ABOUT MARKET RATE RISK
INTEREST RATE RISK. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default, market and reinvestment risk. The table below
presents the amounts and related weighted interest rates of the Company's
investment portfolio at December 31, 1997:
<TABLE>
<CAPTION>
AVERAGE
INTEREST RATE COST FAIR VALUE
--------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash equivalents
Fixed rate................................................................. 6.02% $ 71,161 $ 71,178
Variable rate.............................................................. 5.59 1,353 1,353
Short-term investments
Fixed rate................................................................. 5.61 15,899 15,898
Variable rate.............................................................. 5.73 117 117
</TABLE>
FOREIGN CURRENCY RISK. The Company enters into forward foreign exchange
contracts primarily to hedge the value of accounts receivable or accounts
payable denominated in foreign currencies (mainly European and Asian foreign
currencies) against fluctuations in exchange rates until such receivables are
collected or such payables are disbursed. The Company does not enter into
forward foreign exchange contracts for speculative or trading purposes. The
Company's accounting policies for these contracts are based on the Company's
designation of the contracts as hedging transactions. The criteria the Company
uses for designating a contract as a hedge include the contract's effectiveness
in risk reduction and one-to-one matching of derivative instruments to
underlying transactions. Gains and losses on forward foreign exchange contracts
are deferred and recognized in income in the same period as losses and gains on
the underlying transactions are recognized and generally offset. If an
underlying hedged transaction is terminated earlier than initially anticipated,
the offsetting gain or loss on the related forward foreign exchange contract
would be recognized in income in the same period. Subsequent gains or losses on
the related contract would be recognized in income in each period until the
contract matures, is terminated or sold. The Company operates in certain
countries in Latin America, Eastern Europe and Asia Pacific where there are
limited forward currency exchange markets and thus the Company has unhedged
transaction exposures in these currencies. However, such exposures are not
material to the Company's financial statements for any period presented. The
table below provides information about the Company's foreign currency forward
exchange contracts. The information is provided in U.S. Dollar equivalents and
presents the notional amount and the weighted average contractual foreign
currency exchange rates. All contracts mature within twelve months.
35
<PAGE>
FORWARD CONTRACTS
<TABLE>
<CAPTION>
AVERAGE
AT DECEMBER 31, 1997 CONTRACT RATE
- --------------------------------------------------------------- CONTRACT VALUE -------------
--------------
(IN THOUSANDS)
<S> <C> <C>
Forward currency contracts sold:
British Pound................................................ $ 55,740 $ 0.60
Deutsche Mark................................................ 17,050 1.77
French Franc................................................. 14,139 5.91
Italian Lira................................................. 3,901 1,742.34
Spanish Peseta............................................... 3,166 149.76
Swedish Krona................................................ 1,682 7.76
Other (individually less than $1 million).................... 2,090 NM
--------------
Total.......................................................... $ 97,768
--------------
--------------
Forward currency contracts purchased:
Swiss Franc.................................................. $ 1,636 1.42
Dutch Guilder................................................ 1,096 1.99
Other (individually less than $1 million).................... 2,208 NM
--------------
Total.......................................................... $ 4,940
--------------
--------------
Grand Total.................................................... $ 102,708
--------------
--------------
</TABLE>
SUMMARY
The Company believes that its current cash balances, cash available under
the Credit Facility and cash flow from operations will be sufficient to meet its
working capital requirements for at least the next 12 months.
RECENT DEVELOPMENTS
On February 13, 1998, Fletcher exercised the Series A-1 Warrant in part,
and the Company issued 60,000 shares of Series A-1 Preferred to Fletcher for net
proceeds of $14.1 million. The sale of the Series A-1 Warrant Stock was not
registered under the Securities Act pursuant to the exemption provided by
Regulation S.
On February 13, 1998, pursuant to the Subscription Agreement, Fletcher
converted 220,000 shares of Series A-1 Preferred into 12,769,908 shares of the
Company's Common Stock.
In December 1997, the Company's Board of Directors authorized a second
option repricing of outstanding stock options under the Company's stock option
plans so that the exercise price of the repriced options would equal the closing
sales price of the Company's Common Stock as reported on The Nasdaq Stock Market
on January 9, 1998, $5.094. See "Executive Compensation--Stock Option
Repricing."
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition" as amended
by Statement of Position 98-4 (SOP 98-4). The Company will be required to adopt
the provisions of the SOPs' as of January 1, 1998. The adoption may, in certain
circumstances, result in the deferral of software license revenues that would
have been recognized upon delivery of the related software under preceding
accounting standards. In response to these SOPs', the Company will likely change
its business practices and, consequently, at this time the Company cannot
quantify the effect the SOPs' will have on its operating results, financial
position or cash flows.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income (FAS No. 130) and Statement No. 131,
Disclosures About Segments of An
36
<PAGE>
Enterprise and Related Information (FAS No. 131). FAS No. 130 establishes rules
for reporting and displaying comprehensive income. FAS No. 131 will require the
Company to use the "management approach" in disclosing segment information. Both
statements are effective for the Company during 1998. The Company does not
believe that the adoption of either FAS No. 130 or FAS No. 131 will have a
material impact on the Company's results of operations, financial position or
cash flows.
FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS REPORT, INCLUDING THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS AND OTHER PROSPECTIVE
INFORMATION RELATING TO FUTURE EVENTS. THESE FORWARD-LOOKING STATEMENTS AND
OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED
RESULTS, INCLUDING THE FOLLOWING:
UNCERTAIN IMPACT OF RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the filing with the Commission of its Quarterly Report on
Form 10-Q for the quarter ended March 30, 1997, the Company became aware of
errors and irregularities that affected the timing and dollar amount of reported
earned revenues from license transactions for all annual periods in the three
years ended December 31, 1996, in particular transactions involving unauthorized
or undisclosed arrangements or agreements with resellers. As a result of its
investigation into these errors and irregularities, in August 1997, the Company
announced that it would restate its financial results for fiscal 1996 and 1995.
The financial review undertaken by the Company to determine the extent of the
restatement ultimately resulted in the restatement of the Company's financial
results for fiscal 1996, 1995 and 1994 and for the first quarter of fiscal 1997.
The Company publicly disclosed the results of the restatement in November 1997.
The restatement had a material adverse effect on the Company's financial
condition, most notably evidenced by substantial reductions in retained earnings
and working capital. For a description of the errors and irregularities
identified and the impact of the restatement on the Company's reported revenues
and net income for fiscal 1996, 1995 and 1994 and the first quarter of fiscal
1997, see "--Working Capital Deficit" and "Management's Discussion and Analysis
of Financial Condition and Result of Operations."
In connection with the errors and irregularities discussed above, a
number of conditions which collectively represented a material weakness in the
Company's internal accounting controls were identified. These conditions
included a deterioration in the Company's accounting controls at corporate and
regional management levels, and a related failure to stress the importance of
these controls, an inappropriate level of influence, principally by the
Company's sales organization, over the revenue recognition process and an
apparent lack of clarity and consistent understanding within the Company
concerning the application of the Company's revenue recognition policies to
large, complex reseller license transactions. To address the material weakness
represented by these conditions, the Company is adopting a plan to strengthen
the Company's internal accounting controls. This plan includes updating the
Company's revenue recognition policies regarding accounting and reporting for
large, complex reseller license transactions, developing and conducting
educational programs to help implement such policies, changing the Company's
corporate and regional accounting and reporting structure, and re-establishing
the internal audit function reporting to the Company's Board of Directors. Such
implementation is expected to require substantial management attention. See
"--Dependence on Key Personnel; Personnel Changes; Ability to Recruit
Personnel."
The Company's public announcement in August 1997 of the pending
restatement, delays in reporting operating results for the second and third
quarters of fiscal 1997 while the restatement was being compiled, threatened
de-listing of the Company's Common Stock from the Nasdaq National Market as a
result of the Company's failure to satisfy its public reporting obligations,
corporate actions to restructure operations and reduce operating expenses, and
customer uncertainty regarding the Company's financial condition adversely
affected the Company's ability to sell its products in fiscal 1997. In addition,
since the
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beginning of 1997, the Company and its competitors in the RDBMS industry have
experienced substantially slower growth in the market for RDBMS products. The
financial restatement has now been completed, its results have been publicly
disclosed, and the Company is current with respect to its public reporting
obligations. In addition, the Company believes that it has effectively
controlled its operating expenses and significantly improved its financial
condition. Nevertheless, adverse market conditions, including significant
competitive pressures in the Company's markets and ongoing customer uncertainty
about the Company's financial condition and business prospects, may continue to
have an adverse effect on the Company's ability to sell its products and results
of operations. See "--Fluctuations in Quarterly Results; Seasonality."
NEED FOR ADDITIONAL FINANCING; CUSTOMER FINANCING
During fiscal 1997, the Company experienced substantial short-term
liquidity problems as its cash, cash equivalents and short term investments
declined to a quarter-end low of $104.4 million at June 29, 1997 from $261.0
million at December 31, 1996. The Company raised net proceeds of $37.6 million
in August 1997 and $50.0 million (excluding a $1.0 million fee paid to a
financial advisor of the Company) in November 1997 in separate financing
transactions in which the Company issued newly authorized series of convertible
Preferred Stock. In the fourth quarter of 1997, the Company raised aggregate net
proceeds of $59.3 million through the sale of real property it had purchased
earlier in the year. As a result of such financing activities during the second
half of 1997, the Company's cash, cash equivalents and short term investments
increased to $155.5 million at December 31, 1997. In addition, in the first
quarter of fiscal 1998, the Company raised aggregate net proceeds of $14.1
million in connection with the exercise of a warrant to acquire additional
shares of the Company's convertible Preferred Stock. The Company believes that
these actions have substantially improved its financial condition since early
1997. Nevertheless, adverse market conditions, including continued slower growth
rates in the markets for RDBMS products or on-going customer uncertainty about
the Company's financial condition and business prospects, could continue to have
an adverse effect on license revenues and results of operations. In addition,
recent instability in the Asian-Pacific economies and financial markets, which
accounted for approximately 12% and 13% of the Company's total revenues for the
years ended December 31, 1997 and 1996, respectively, has created further
uncertainty concerning the Company's revenues, cash flows and results of
operations.
In December 1997, Informix Software entered into the Credit Facility
providing for a revolving credit line of up to $75 million. The actual amount
available under the Credit Facility, for either direct borrowings or issuances
of letters of credit, is based on 80 percent of the eligible domestic accounts
receivable and 50 percent of the eligible foreign accounts receivable. As of
December 31, 1997, no borrowings were outstanding under the Credit Facility, the
Company's accounts receivable totaled $142 million and its borrowing base under
the Credit Facility was $47 million. The purpose of the Credit Facility is to
provide the Company working capital and finance general corporate purposes. The
term of the Credit Facility is two years. Amounts outstanding under the Credit
Facility bear interest at a premium over one of two alternative variable rates
selected by the Company. The Credit Facility is secured by all of the assets of
Informix Software and the capital stock of the Company's subsidiaries that are
domiciled in the United States, including Informix Software. The availability of
the Credit Facility is also subject to the Company's compliance with certain
financial covenants. For a description of the accounts receivable eligibility
criteria, the alternative variable interest rates and the financial covenants
associated with the Credit Facility, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
There can be no assurance that amounts raised in connection with the
Preferred Stock financing and real property sales transactions described above
and amounts available under the Credit Facility will be sufficient to cover the
Company's working capital needs or that the Company will not require additional
debt or equity financing in the future. In addition, there can be no assurance
that additional debt or equity financing will be available, if and when needed
or that, if available, such financing could be completed on commercially
favorable terms. Failure to obtain additional financing, if and when needed,
could have a
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material adverse effect on the Company's business, results of operations and
financial condition. To the extent the terms of any available financing are
materially unfavorable to the Company, such a financing could impair the
Company's ability to obtain additional financing in the future, to implement its
business plan, or to engage in various corporate transactions, including
potential acquisitions of the Company. See "--Working Capital Deficit," "--Risks
Associated with Preferred Stock Financings" and "--Antitakeover Protections."
In the normal course of its business, the Company arranges for
non-recourse financing through the sale of customer accounts receivable to
third-party financial institutions. The Company has traditionally relied on a
limited number of financial institutions for most of the customer financings it
arranges. The terms of the Credit Facility prevent the Company from selling
accounts receivable with an aggregate face value in excess of $20 million during
any twelve month period. See "--Working Capital Deficit" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WORKING CAPITAL DEFICIT
The restatement of the Company's financial statements has had a material
adverse effect on the Company's financial condition, most notably evidenced by
substantial reductions in retained earnings and working capital. At December 31,
1996, after giving effect to the restatement, the Company's working capital
totaled $3.1 million, compared to $258.4 million as originally reported. At
December 31, 1997, the Company had a working capital deficit of $140.2 million.
The substantial reduction in working capital, as restated, at December 31, 1996
reflects net losses in fiscal 1996 of $73.6 million and the addition of $239.5
million of "advances on unearned license revenue" as a current liability on the
Company's balance sheet. The working capital deficit at December 31, 1997
reflects net losses of $356.9 million for the year ended December 31, 1997,
$180.0 million in advances on unearned license revenue as of such date, and
substantial uses of cash as a result of the Company's internal restructuring,
which commenced in the second quarter of fiscal 1997.
"Advances on unearned license revenues" reflects amounts previously
received from customers or in connection with accounts receivable financing
transactions with third party financial institutions in advance of revenue being
recognized. Prior to the restatement, these amounts were improperly recognized
as earned but have now been designated as advances. A substantial majority of
such revenues arose in connection with license agreements between the Company
and OEMs, distributors and other resellers. In connection with the review of its
historical financial results, the Company determined that sufficient post-
contractual contingencies existed in connection with certain reseller license
arrangements so as to preclude recognizing revenue. In addition, the Company
concluded that informal or otherwise undisclosed arrangements with a number of
resellers have resulted or could result in significant concessions or allowances
that were not accounted for when revenue was originally reported as earned.
Although the Company's license agreements provide for a non-refundable fee
payable by the customer in single or multiple installments at the beginning or
over the term of the license arrangements, amounts received by the Company under
its license agreements could be subject to refund in the event the Company fails
to satisfy certain post-signing obligations. The Company is presently unable to
estimate what portion, if any, of such advances may be subject to potential
refund. At December 31, 1997 approximately $23 million of such amounts received
from customers were subject to commercial disputes, several of which have
proceeded to litigation. Of the $23 million subject to commercial disputes, $6.0
million has been reflected on the balance sheet as accrued expenses, and the
Company believes that the remainder is properly booked as advances on unearned
license revenues as the Company believes the likelihood of refund is remote. Any
such refunds, were they to occur, would not have a material effect on the
Company's results of operations as revenue has not been recognized on such
transactions.
The Company has abandoned its plans to construct a new headquarters
facility and in December 1997 sold the real property it had purchased earlier in
the year, raising aggregate net proceeds of approximately $59.3 million. In
August 1997 and November 1997, the Company sold and issued newly designated
series of Preferred Stock in two separate financing transactions, raising net
proceeds of
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approximately $87.6 million (excluding of a $1.0 million fee paid to a financial
advisor of the Company in connection with the sale of the Series B Preferred).
In addition, in the fourth quarter of 1997, the Company entered into the Credit
Facility in the amount of $75.0 million with a syndicate of commercial banks
with BankBoston N.A., as Administrative Agent and Canadian Imperial Bank of
Commerce, as Syndication Agent. The term of the Credit Facility is two years.
Although these financing transactions have improved the Company's working
capital position, in the event the Company continues to maintain a substantial
working capital deficit, such a deficit could materially impair the Company's
ability to sell its products as a result of customer uncertainty about the
Company's financial condition. See "--Uncertain Impact of Restatement of
Financial Statements," "--Need for Additional Financing; Customer Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's quarterly operating results have varied significantly in
the past and may vary significantly in the future depending upon a number of
factors, many of which are beyond the Company's control. These factors include,
among others, (i) customer uncertainty about the Company's financial condition
and business prospects, (ii) market demand for the Company's software, including
changes in industry growth rates for the Company's products, (iii) changes in
pricing policies by the Company or its competitors, including aggressive price
discounting to encourage volume purchase by customers, (iv) the size, timing and
contractual terms of significant orders, the effect of which may be exacerbated
by aggressive price discounting, (v) the timing of the introduction of new
products or product enhancements by the Company or its competitors, (vi)
budgeting cycles of customers and potential customers, (vii) changes in the mix
of revenues attributable to domestic and international sales, and (viii)
seasonal trends in technology purchases and other general economic conditions.
In particular, the Company's quarterly results may be adversely affected by the
industry's historical practice of aggressively discounting the price of its
products to encourage volume purchasing by customers. In the event the Company
experiences substantial pricing pressure with respect to one or more large
transactions in any given quarter, such pressure could result in a substantial
shortfall in revenues. The Company has operated historically with little or no
backlog and has generally recognized a substantial portion of its revenues in
the last weeks or days of a quarter. As a result, license revenues in any
quarter are substantially dependent on orders booked and shipped in the last
weeks or days of that quarter. In addition, the sales cycle for the Company's
products is relatively long and may vary depending on a number of factors,
including the size of the transaction and the level of competition the Company
encounters in its selling activities. Due to the foregoing factors, quarterly
revenues and operating results are not predictable with any significant degree
of accuracy. In the event of any downturn in potential customers' businesses,
the domestic economy in general, or in international economies where the Company
derives substantial revenues, planned purchases of the Company's products may be
deferred or canceled, which could have a material adverse effect on the
Company's business, operating results, and financial condition. Because the
Company's operating expenses are based on anticipated revenue levels and because
a high percentage of the Company's expenses are relatively fixed, delays in the
recognition of revenues from even a limited number of license transactions could
cause significant variations in operating results from quarter to quarter and
could cause net income to fall significantly short of anticipated levels. In the
quarters ended September 28, 1997 and June 29, 1997, costs associated with the
Company's internal restructuring, aggregating $109.4 million, had a material
adverse effect on results of operations. The total restructuring charges
decreased by $1.2 million during the fourth quarter of fiscal 1997 primarily due
to adjusting the original estimate of the loss to be incurred on the sale of
land to the actual loss. Management continues to evaluate the Company's cost
structure in light of projected revenues and cash-flows, both of which are
variable and uncertain. There can be no assurance that the Company will not be
required to undertake additional restructuring activities in the future, which
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's business has experienced and is expected to continue to
experience seasonality. International revenues comprise a significant percentage
of the Company's total revenues, and the
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Company may experience additional variability in demand associated with seasonal
buying patterns in foreign markets. In particular, the Company's third quarter
tends to reflect the effects of summer slowing of international business
activity, particularly in Europe. In addition, variability and seasonality in
the Company's business may result from customer capital spending cycles, which
tend to peak in the Company's fourth quarter, and the Company's sales incentive
plans for sales personnel, which are measured on a calendar year basis. See
"--Competition; Pricing Risks," "--International Operations; Currency
Fluctuations" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
LITIGATION
Beginning on or about April 16, 1997, a total of 24 complaints alleging
violations of the federal securities laws were filed against the Company, Ernst
& Young LLP, the Company's independent auditors and certain Named Individual
Defendants (listed below) in the United States District Court for the Northern
District of California. Of the 24 complaints, 22 have been filed as purported
class actions by individuals who allege that they are individual investors who
purchased the Company's Common Stock during the purported class period; the
alleged class periods in the different complaints vary according to the date on
which the complaints were filed. The complaints name some or all of the
following current and former officers and directors of the Company as
defendants: Phillip E. White, Howard H. Graham, David H. Stanley, Ronald M.
Alvarez, Karen Blasing, D. Kenneth Coulter, Ira H. Dorf, Stephen E. Hill, Myron
(Mike) Saranga, Steven R. Sommer, Michael R. Stonebraker and Edwin C. Winder
(the "Named Individual Defendants"). On August 20, 1997, the District Court
entered an order consolidating all of the separately-filed class actions pending
at that time, designating the action as IN RE INFORMIX CORPORATION SECURITIES
LITIGATION, and designating as "related cases" all cases brought under the
federal securities laws then pending and any that may be filed after that date.
A consolidated amended class action complaint is set to be filed on April 3,
1998, and defendants will file a response to that consolidated, amended
complaint shortly thereafter. As required by the provisions of the Exchange Act,
as amended by the Private Securities Litigation Reform Act of 1995, the Court
has designated the lead plaintiffs in the federal action and has appointed lead
plaintiffs' counsel. For further description of these matters see "Legal
Proceedings--Actions Arising Under Federal and State Securities Laws."
The Company also has been named as a nominal defendant in eight
derivative actions, purportedly brought on its behalf, filed in the Superior
Court of the State of California, County of San Mateo. The Court has appointed
lead plaintiff's counsel in all of these derivative actions, and the cases have
been consolidated under the caption IN RE INFORMIX CORPORATION DERIVATIVE
LITIGATION. The consolidated, amended complaint alleges that, based upon the
facts alleged in the federal and state securities class actions, defendants
breached their fiduciary duties to the Company, engaged in abuses of their
control of the Company, were unjustly enriched by their sales of the Company's
Common Stock, engaged in insider trading in violation of California law and
published false financial information in violation of California law. The
consolidated, amended complaint names as defendants Ernst & Young, the Named
Individual Defendants and Albert F. Knorp, Jr., James L. Koch, Thomas A.
McDonnell and Cyril J. Yansouni, the Company's non-management directors. The
plaintiff seeks unspecified damages on the Company's behalf from each of the
defendants. For further description of these matters see "Legal
Proceedings--Derivative Actions."
Pursuant to Delaware law, the Company's Certificate of Incorporation, its
Bylaws and the indemnification agreements between the Company and each of its
current and former officers and directors, the Company is obligated to indemnify
its current and former officers and directors for certain liabilities arising
from their employment with or service to the Company. These indemnification
obligations require the Company to indemnify its current and former officers and
directors for any suit or other proceeding, threatened or actual, whether civil,
criminal, administrative, investigative, appellate or any other type of
proceeding, that arises as a result of any act or omission in the indemnitee's
capacity as an officer or director of the Company to the fullest extent
permitted under Delaware or any other applicable
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law. The indemnification extends to any and all expenses (including but not
limited to attorneys' fees and costs, and any other out-of-pocket expense)
and/or liabilities of any type (including but not limited to judgments, fines,
excise taxes or penalties under ERISA, and amounts paid in settlement)
reasonably incurred in connection with the investigation, defense, settlement or
appeal of such proceedings. The obligation to provide indemnification does not
apply if the indemnitee is adjudicated to be liable for fraudulent or criminal
conduct.
The Company has purchased directors' and officers' liability insurance to
reimburse it for the costs incurred in connection with its indemnification
obligations described above. For the period from August 1996 to August 1997, the
period in which most of the claims against the Company and certain of its
directors and officers were asserted, the Company had in place three directors
and officers liability insurance policies (the "1996 and 1997 D&O Policies"),
each providing $5 million in coverage for an aggregate of $15 million. The
primary policy and first excess policy were issued by Lloyds of London. The
second excess policy was issued by Admiral Insurance Company. The insurance
carriers have taken the position that litigation filed after the policy periods
of the 1996 and 1997 D&O Policies but arising from the same facts and
circumstances as claims filed during the period from August 1996 to August 1997,
"relates back" to the 1996 and 1997 D&O Policies. Thus, the issuance carriers
assert that actions filed after August 1997 do not implicate coverage under the
Company's D&O insurance policies for the period August 1997 to August 1998 (the
"Current D&O Policies"). The Current D&O Policies provide aggregate coverage of
$20 million, subject to various exclusions, including claims relating to the
restatement of the Company's financial reports. The 1996 and 1997 D&O Policies
provide that 100 percent of the costs incurred in defending claims asserted
jointly against the Company and its current and former officers and directors
are allocable to the individuals' defense and, thus, are covered by the policy.
However, the 1996 and 1997 D&O Policies do not provide any separate coverage for
the Company. Moreover, the Company does not have separate insurance to cover the
costs of its own defense or to cover any liability for any claims asserted
against it. The Company has not currently set aside any financial reserves
relating to any of the above-referenced actions.
In addition, in July 1997, the Securities and Exchange Commission issued
a formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
The pending federal and state securities actions are in the early stages
of discovery. Consequently, at this time it is not reasonably possible to
estimate the damages, or the range of damages, that the Company might incur in
connection with such actions. However, the uncertainty associated with
substantial unresolved litigation can be expected to have an adverse impact on
the Company's business. In particular, such litigation could impair the
Company's relationships with existing customers and its ability to obtain new
customers. Defending such litigation will likely result in a diversion of
management's time and attention away from business operations, which could have
a material adverse effect on the Company's results of operations. Such
litigation may also have the effect of discouraging potential acquirors from
bidding for the Company or reducing the consideration such acquirors would
otherwise be willing to pay in connection with an acquisition.
DEPENDENCE ON KEY PERSONNEL; PERSONNEL CHANGES; ABILITY TO RECRUIT PERSONNEL
The Company's future performance will depend to a significant extent on
its ability to attract and retain highly skilled technical, sales, consulting,
marketing and management personnel. In particular, the Company is dependent upon
a number of key management and technical personnel, including Robert J.
Finocchio, Jr., the Company's Chairman, President and Chief Executive Officer,
Jean-Yves F. Dexmier, the Company's Executive Vice President and Chief Financial
Officer, and Myron (Mike) Saranga, the Company's Senior Vice President, Product
Management and Development. Mr. Finocchio and Mr. Dexmier have only recently
joined the Company, and of the officers and key employees, only
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Mr. Finocchio is bound by an employment agreement, the terms of which are
nonetheless at-will. The loss of the services of one or more of the Company's
executive officers or key employees could have a material adverse effect on the
Company's business, results of operations and financial condition.
Since the beginning of 1997, a number of senior management personnel and
other key employees have departed the Company, and to date, the Company has been
able to replace only some of the positions that have been vacated. Since the
first quarter of 1997, the Company has experienced a significant number of
voluntary resignations and has taken selective actions to reduce the number of
employees in certain functional areas. The Company had approximately 3,489
regular employees at December 31, 1997, compared to approximately 4,491 at
December 31, 1996. Voluntary attrition has remained high across all functional
areas. In fiscal 1997, the Company experienced high attrition rates in its
product development and sales groups and has had trouble attracting qualified
replacement personnel. The competition for employees in the software industry is
intense, and the Company expects that such competition will continue for the
foreseeable future. The Company has experienced difficulty in locating
candidates with appropriate qualifications and believes that recent financial
and business developments at the Company have made recruitment more difficult.
In November 1997, the Company implemented an option repricing program in an
effort to retain existing employees and, following further declines in the price
of its Common Stock, announced a second repricing in December 1997, which was
effective in January 1998. There can be no assurance that such programs will be
effective in retaining existing employees. There can be no assurance that the
Company will be successful in attracting, training and retaining qualified
personnel, and the failure to do so, particularly in key functional areas such
as product development and sales, could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
new employees hired by the Company generally require substantial training in the
use and implementation of the Company's products and in the Company's
procedures. As a result, substantial employee turnover could have an adverse
effect on results of operations in future quarters.
RISKS ASSOCIATED WITH PREFERRED STOCK FINANCINGS
In August 1997, the Company raised net proceeds of $37.6 million through
the issuance of newly designated Series A Preferred. In November 1997, the
Company raised an additional $50.0 million in net proceeds (excluding of a $1.0
million fee paid to a financial advisor of the Company) through the issuance of
the Series B Preferred. Simultaneously with the closing of the Series B
Preferred, the holders of the Series A Preferred exchanged all their outstanding
shares of Series A Preferred for newly designated Series A-1 Preferred, having
substantially similar rights, preferences and privileges as the Series A
Preferred with the exception of certain amendments, including revisions to the
terms under which such shares become mandatorily redeemable.
While the issuance of the Preferred Stock in these transactions provided
the Company with additional working capital required to fund the Company's
continuing operations, the Company's agreements with the purchasers of the
Series A-1 Preferred and the Series B Preferred contain covenants that could
impair the Company's ability to engage in various corporate transactions in the
future, including financing transactions and certain transactions involving a
change-in-control or acquisition of the Company, or that could otherwise
disadvantage the Company and the holders of its Common Stock. In particular,
acquisitions of the Company may not be affected without the consent of the
holders of the outstanding Preferred Stock or without requiring the acquiring
entity to assume the Preferred Stock or cause such Preferred Stock to be
redeemed. These provisions are likely to make an acquisition of the Company more
difficult and expensive and could discourage potential acquirors. Certain
covenants of the Company, made in connection with the issuance of the Preferred
Stock, may also have the effect of limiting the Company's ability to obtain
additional financing by, for example, providing the holders of Preferred Stock
certain rights of first offer and prohibiting the Company from issuing
additional Preferred Stock without the consent of such holders.
The terms of the financing agreements pursuant to which the Preferred
Stock was issued also include certain penalty provisions that are triggered in
the event the Company fails to satisfy certain
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obligations. In particular, the holders of the Series A-1 Preferred will become
entitled to an annual dividend of $6.0 million, payable quarterly in cash, in
the event the Company fails to satisfy certain covenants, including the failure
to have a registration statement covering the Common Stock issuable upon
conversion of the Series A-1 Preferred declared effective by the Commission
within 180 days of a registration request from the holders of Series A-1
Preferred; the failure to obtain stockholder approval of the issuance of the
Common Stock issuable upon conversion of the Series A-1 Preferred in the event
that such approval becomes required by the rules of the Nasdaq National Market;
and the failure to redeem any shares of Series A-1 Preferred held by a holder of
Series A-1 Preferred who objects to a change-in-control transaction, if the
transaction does not satisfy certain financial thresholds relating to the market
capitalization and trading volume of any acquiring entity. In the event the
Company becomes obligated to pay such dividends, the holders of the Series A-1
Preferred will become immediately entitled to designate a number of members of
the Company's Board of Directors corresponding, as a percentage of the total
number of members, to the percentage of the Company's outstanding Common Stock
held by such holders (assuming the conversion into Common Stock of the
outstanding Series A-1 Preferred). The holders of the Series B Preferred are
entitled to receive a cumulative dividend at an annual rate of 5% of the face
value of each share of Series B Preferred, resulting in an aggregate annual
dividend of $2.5 million. The dividend is generally payable upon the conversion
of the Series B Preferred or redemption of the Series B Preferred and may be
paid in cash or, at the Company's election and subject to certain conditions, in
shares of Common Stock. In the event the holders of Preferred Stock become
entitled to receive cash dividends or to have their Preferred Stock redeemed,
there can be no assurances that the Company will be able to fund such a payment
or redemption, and even if funding is available, substantial dividend payments
could have a material adverse effect on the Company's business and financial
condition. See "--Need for Additional Financing; Customer Financing" and
"--Antitakeover Protection."
Both the Series A-1 Preferred and the Series B Preferred are convertible
into shares of the Company's Common Stock based on the trading prices of the
Common Stock during future periods that are described in the respective
financing agreements. The number of shares of Common Stock that may ultimately
be issued upon conversion is therefore presently indeterminate. If, in
accordance with the terms of the financing agreements, the conversion price of
the Preferred Stock is determined during a period when the trading price of the
Common Stock is low, the resulting number of shares of Common Stock issuable
upon conversion of the Preferred Stock could result in substantial dilution to
the holders of Common Stock. In addition, the Company issued the Series A-1
Warrant to the holders of the Series A-1 Preferred to acquire up to an
additional 140,000 shares of Series A-1 Preferred for an aggregate purchase
price of $35 million. The Series A-1 Warrant was exercised in part in February
1998 for 60,000 shares of Series A-1 Preferred, resulting in $14.1 million in
net proceeds to the Company. In February 1998, all 220,000 shares of Series A-1
Preferred which were outstanding were converted into 12,769,208 shares of Common
Stock. The Company is also obligated to issue the Series B Warrants upon
conversion of the Series B Preferred. The Series A-1 Warrant and the Series B
Warrants, to the extent exercised, will have a further dilutive effect.
COMPETITION; PRICING RISKS
The Company faces intense competition in the market for RDBMS software
products. The market for the Company's products is subject to rapid
technological change and frequent new product introductions and enhancements,
and the Company's competitors in the market include several large vendors that
develop and market databases, applications, development tools or decision
support products. The Company's principal competitors include Computers
Associates, IBM, Microsoft, NCR/Teradata, Oracle and Sybase. Several of the
Company's competitors have significantly greater financial, technical, marketing
and other resources than the Company. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their products than the Company. Any failure by the Company to compete
successfully with its existing competitors or future competitors could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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Several of the Company's competitors have announced the development of
enhanced versions of their principal database products that are intended to
improve the performance or expand the capabilities of their existing products.
New or enhanced products by existing competitors or new competitors could result
in greater price pressure on the Company's products. In addition, the industry
movement to new operating systems, like Windows NT, access through low-end
desktop computers, and access to data through the Internet may cause downward
pressure on prices of database software and related products. The bundling of
software products for promotional purposes or as a long-term pricing strategy by
certain of the Company's competitors could also result in reductions in the
price the Company may charge for its products. In addition, the Company's own
practices of bundling its software products for enterprise licenses or for
promotional purposes with the Company's partners could also result in reduction
in the price the Company may charge for its products. In particular, the pricing
strategies of competitors in the industry have historically been characterized
by aggressive price discounting to encourage volume purchasing by customers. If
such downward pressure on prices were to occur, the Company's operating margins
would be adversely affected. Existing and future competition or changes in the
Company's product or service pricing structure or product or service offerings
could result in an immediate reduction in the prices of the Company's products
or services. If significant price reductions in the Company's products or
services were to occur and not be offset by increases in sales volume, the
Company's business, results of operations and financial condition would be
adversely affected. There can be no assurance that the Company will continue to
compete successfully with its existing competitors or will be able to compete
successfully with new competitors.
UNCERTAIN GROWTH RATES; TECHNOLOGICAL CHANGE AND NEW PRODUCTS
Over the last several years, the RDBMS industry has expanded at
significant growth rates, due in part to the continuing development of new
technologies and products responsive to customer requirements. Recently,
however, both industry analysts and competitors have predicted that such high
growth rates will not be maintained in future periods. Recent instability in the
Asian-Pacific economies and financial markets, which had previously been cited
as a potentially strong source of revenue growth for relational database
software companies, has introduced additional uncertainty concerning industry
growth rates. In the event industry growth rates should decline for any reason,
the markets for the Company's products would likely be adversely affected, which
would have a negative impact on the Company's business, results of operations,
financial condition and cash flows. See "--Fluctuations in Quarterly Results;
Seasonality" and "--International Operations; Currency Fluctuations."
In addition, the market for the Company's products and services is
characterized by rapidly changing technology, changing customer needs, frequent
new product introductions and evolving industry standards that may render
existing products and services obsolete. The life cycles of the Company's
products are difficult to estimate. The Company's growth and future financial
performance will depend upon its ability to enhance its existing products and to
introduce new products on a timely and cost-effective basis that meet dynamic
customer requirements. There can be no assurance that the Company will be
successful in developing new products or enhancing its existing products or that
such new or enhanced products will receive market acceptance or be delivered
timely to the market. The Company's product development efforts are expected to
continue to require substantial investments by the Company, and there can be no
assurance that the Company will have sufficient resources to make the necessary
investments. The Company has experienced product development delays in the past
and may experience delays in the future. Delays in the scheduled availability or
a lack of market acceptance of its products or failure to accurately anticipate
customer demand and meet customer performance requirements could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, products as complex as those offered by the Company may
contain undetected errors or bugs when first introduced or as new versions are
released. There can be no assurance that, despite testing, new products or new
versions of existing products will not contain undetected errors or bugs that
will delay the introduction or commercial acceptance of such products. A key
determinative factor in the Company's success will continue to be the ability of
the Company's products to operate and perform well with existing
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and future leading, industry-standard application software products intended to
be used in connection with RDBMS. Failure to meet in a timely manner existing or
future interoperability requirements of certain independent vendors could
adversely affect the market for the Company's products. Commercial acceptance of
the Company's products and services could also be adversely affected by critical
or negative statements or reports by brokerage firms, industry and financial
analysts and industry periodicals concerning the Company, its products, business
or competitors or by the advertising or marketing efforts of competitors, or
other factors that could affect consumer perception. See "Uncertain Impact of
Restatement of Financial Statements," "--Need for Additional Financing; Customer
Financing," "--Working Capital Deficit" and "--Dependence on Key Personnel;
Personnel Changes; Ability to Recruit Personnel."
In recent years, the types and quantities of data required to be stored
and managed has grown increasingly complex and includes, in addition to
conventional character data, audio, video, text, and three-dimensional graphics
in a high-performance scalable environment. During fiscal 1996, the Company
invested substantial resources in developing its ORDBMS product line. The market
for products offering object-relational database functionality is new and
evolving, and its growth depends upon a growing need to store and manage complex
data and on broader market acceptance of the Company's products as a solution
for this need. As a result, there can be no assurance that organizations will
choose to make the transition from conventional RDBMS to ORDBMS. Delays in
market acceptance of object-relational database management products offered by
the Company could have an adverse effect on the Company's results of operations
and financial condition. See "Business--Products" and "--Product Development."
INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS
International sales represented approximately 54% of total revenues for
both fiscal 1997 and 1996. The Company's international operations and financial
results could be significantly affected by factors associated with international
operations such as changes in foreign currency exchange rates and uncertainties
relative to regional, political and economic circumstances, as well as by other
factors associated with international activities. In particular, recent
instability in the Asian-Pacific economies and financial markets, which
accounted for approximately 12% and 13% of the Company's total revenues in
fiscal 1997 and 1996, respectively, could have an adverse effect on the
Company's operating results in future quarters. Most of the Company's
international revenue and expenses are denominated in local currencies. Due to
the substantial volatility of currency exchange rates, among other factors, the
Company cannot predict the effect of exchange rate fluctuations on future
operating results. Although the Company takes into account changes in exchange
rates over time in its pricing strategy, it does so only on an annual basis,
resulting in substantial pricing exposure as a result of foreign exchange
volatility during the period between annual pricing reviews. In addition, the
sales cycles for the Company's products is relatively long, depending on a
number of factors including the level of competition and the size of the
transaction. Foreign currency fluctuations could, therefore, result in
substantial changes in the financial impact of a specific transaction between
the time of initial customer contact and revenue recognition. As a result of the
foregoing factors, the Company's business, results of operations and financial
condition could be materially and adversely affected by fluctuations in foreign
currency exchange rates. See "--Fluctuations in Quarterly Results; Seasonality."
The Company has implemented a foreign exchange hedging program consisting
principally of the purchase of forward foreign exchange contracts, which is
intended to hedge the value of accounts receivable or accounts payable
denominated in foreign currencies against fluctuations in exchange rates until
such receivables are collected or payables are disbursed. This program involves
the use of forward contracts in the primary European and Asian currencies. The
Company has limited unhedged transaction exposures in certain secondary
currencies in Latin America, Eastern Europe and Asia because there are limited
forward currency exchange markets in these currencies. The Company does not
attempt to hedge the translation to United States dollars of foreign denominated
revenues and expenses not yet earned or incurred. Notwithstanding the Company's
efforts to manage foreign exchange risk, there can be no assurances that the
Company's hedging activities will adequately protect the Company against the
risks
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associated with foreign currency fluctuations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Income, Net."
YEAR 2000 IMPACT ON INFORMATION TECHNOLOGY BUDGETS
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
The Company has recently commenced a program, to be substantially
completed by the Fall of 1999, to review the Year 2000 compliance status of the
software and systems used in its internal business processes, to obtain
appropriate assurances of compliance from the manufacturers of these products
and agreement to modify or replace all non-compliant products. In addition, the
Company is considering converting certain of its software and systems to
commercial products that are known to be Year 2000 compliant. Implementation of
software products of third parties, however, will require the dedication of
substantial administrative and management information resources, the assistance
of consulting personnel from third party software vendors and the training of
the Company's personnel using such systems. Based on the information available
to date, the Company believes it will be able to complete its Year 2000
compliance review and make necessary modifications prior to the end of 1999.
Software or systems which are deemed critical to the Company's business are
scheduled to be Year 2000 compliant by the end of 1998. Nevertheless,
particularly to the extent the Company is relying on the products of other
vendors to resolve Year 2000 issues, there can be no assurances that the Company
will not experience delays in implementing such products. If key systems, or a
significant number of systems were to fail as a result of Year 2000 problems or
the Company were to experience delays implementing Year 2000 compliant software
products, the Company could incur substantial costs and disruption of its
business, which would potentially have a material adverse effect on the
Company's business and results of operations.
The Company in its ordinary course of business tests and evaluates its
own software products. The Company believes that its software products are
generally Year 2000 compliant, meaning that the use or occurrence of dates on or
after January 1, 2000 will not materially affect the performance of the
Company's software products with respect to four digit date dependent data or
the ability of such products to correctly create, store, process and output
information related to such date data. To the extent the Company's software
products are not fully Year 2000 compliant, there can be no assurance that the
Company's software products contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. In addition, in certain circumstances, the Company has
warranted that the use or occurrence of dates on or after January 1, 2000 will
not adversely affect the performance of the Company's products with respect to
four digit date dependent data or the ability to create, store, process and
output information related to such data. If any of the Company's licensees
experience Year 2000 problems, such licensees could assert claims for damages
against the Company. The Company's license agreements in most cases limit
liability to prevent unlimited exposure from such claims.
To date the Company has not identified a separate budget for
investigating and remedying issues related to Year 2000 compliance whether
involving the Company's own software products or the software or systems used in
its internal operations. There can be no assurances that Company resources spent
on investigating and remedying Year 2000 compliance issues will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, the purchasing patterns of customers and potential customers
may be affected by Year 2000 issues. Many companies are expending significant
resources to correct their current software systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase software
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products such as those offered by the Company, which could have an adverse
effect on the Company's business, results of operations and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company's success depends on proprietary technology. To protect its
proprietary rights, the Company relies primarily on a combination of patent,
copyright and trademark laws, trade secrets, confidentiality procedures,
contractual provisions contained in its license agreements and technical
measures. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which provide only
limited protection. The Company holds one United States patent and several
pending applications. There can be no assurance that any other patents covering
the Company's inventions will issue or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringers.
The Company's products are generally licensed to end-users on a
"right-to-use" basis pursuant to a license that restricts the use of the
products for the customer's internal business purposes. The Company also relies
on "shrink wrap" licenses, which include a notice informing the end-user that,
by opening the product packaging, the end-user agrees to be bound by the
Company's license agreement printed on the package. Despite such precautions, it
may be possible for unauthorized third parties to copy aspects of its current or
future products or to obtain and use information that the Company regards as
proprietary. In particular, the Company has licensed the source code of its
products to certain customers under certain circumstances and for restricted
uses. The Company has also entered source code escrow agreements with a number
of its customers that generally require release of source code to the customer
in the event of the Company's bankruptcy, liquidation or otherwise ceasing to
conduct business. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar or superior technology.
Policing unauthorized use of the Company's software is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States, and
"shrink-wrap" licenses may be wholly or partially unenforceable under the laws
of certain jurisdictions. Litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
the Company's business, results of operations and financial condition.
The Company is not aware that any of its software product offerings
infringes the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim infringement by the Company with
respect to its current or future products. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Intellectual Property."
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective
under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be
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no assurance that the Company will not be subject to such claims in the future.
A product liability claim brought against the Company could have a material
adverse effect on the Company's business, operating results and financial
condition.
ANTITAKEOVER PROTECTIONS
The Company is authorized to issue 5,000,000 shares of undesignated
Preferred Stock, of which 440,000 shares have been designated Series A
Preferred, none of which is outstanding; of which 440,000 shares have been
designated Series A-1 Preferred, of which 220,000 shares were previously
outstanding (including 60,000 shares of Series A-1 Preferred which were issued
upon partial exercise of the Series A-1 Warrant) and converted into 12,769,208
shares of Common Stock in February 1998 and of which 80,000 shares remain
issuable upon exercise of the Series A-1 Warrant; and of which 50,000 shares
have been designated Series B Preferred, of which 50,000 shares are outstanding.
Subject to the prior consent of the holders of the Series A-1 Preferred and the
Series B Preferred, the Board of Directors has the authority to issue additional
shares of Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
a series or the designation of such series, without any further vote or action
by the Company's stockholders. To date, the Company has used its ability to
designate and issue new series of Preferred Stock in transactions intended to
raise additional capital for the Company. The ability to issue additional shares
of Preferred Stock, however, also provides desirable flexibility in connection
with possible acquisitions and other corporate purposes but could also have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders and may adversely affect the market
price of the Common Stock and the voting and other rights of the holders of
Common Stock. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. In particular, certain rights, preferences
and privileges of the Series A-1 Preferred and Series B Preferred could have the
effect of preventing or discouraging potential bids to acquire the Company
unless the terms of such acquisition are approved by such stockholders. See
"--Risks Associated with Convertible Preferred Stock Financings."
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws eliminate the right of stockholders to act by written
consent without a meeting and specify certain procedures for nominating
directors and submitting proposals for consideration at stockholder meetings.
The Board of Directors of the Company is divided into three classes, with each
class standing for election once every three years. Such provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions which may involve an actual or
threatened change of control of the Company. Such provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and, accordingly, could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions are also
intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for the Company's shares and, consequently, may also inhibit fluctuations in the
market price of the Company's Common Stock that could result from actual or
rumored takeover attempts. These provisions may also have the effect of
preventing changes in the management of the Company. In addition, the Company
has adopted a Rights Agreement (the "Rights Agreement"), commonly referred to as
a "poison pill," which could also discourage potential acquirors.
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from engaging,
under certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of the Antitakeover Law, a "business
combination" includes, among other things, a merger or consolidation
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involving the Company and the interested stockholder and the sale of more than
10% of the Company's assets. In general, the Antitakeover Law defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of the Company and any entity or person
affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the Antitakeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from amendments approved
by the holders of at least a majority of the company's outstanding voting
shares. The Company has not "opted out" of the provisions of the Antitakeover
Law.
STOCK PRICE VOLATILITY
The market price of the Company's Common Stock has in the past been
highly volatile and is expected to continue to be subject to significant price
and volume fluctuations in the future based on a number of factors, including
market uncertainty about the Company's financial condition or business prospects
or the prospects for the RDBMS market in general; shortfalls in the revenues or
results of operations of the Company or its principal competitors from revenues
or results of operations expected by securities analysts; announcements of new
products by the Company or its competitors; quarterly fluctuations in the
Company's financial results or the results of other software companies,
including those of direct competitors of the Company; changes in analysts'
estimates of the Company's financial performance, the financial performance of
competitors, or the financial performance of software companies in general; the
introduction of new products or product enhancements by the Company or its
competitors; general conditions in the software industry; changes in prices for
the Company's products or competitors' products; changes in revenue growth rates
for the Company, its competitors or the RDBMS market in general; changes in the
mix of revenues attributable to domestic and international sales; and seasonal
trends in technology purchases and other general economic conditions. In
addition, the stock market may from time to time experience extreme price and
volume fluctuations, which particularly affect the market for the securities of
many technology companies and which have often been unrelated to the operating
performance of the specific companies. There can be no assurance that the market
price of the Company's Common Stock will not experience significant fluctuations
in the future. See "--Uncertain Impact of Restatement of Financial Statements,"
"--Need for Additional Financing; Customer Financing" and "--Fluctuations in
Quarterly Results; Seasonality."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in the Company's
Financial Statements and Notes thereto beginning at page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the
Company's executive officers and directors as of December 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert J. Finocchio, Jr.............................. 46 President, Chief Executive Officer and Chairman of
the Board of Directors-- Class III, term to expire
at 1999 Annual Stockholder Meeting
Jean-Yves F. Dexmier................................. 46 Executive Vice President and Chief Financial Officer
Karen Blasing........................................ 41 Vice President and Corporate Controller
Susan T. Daniel(a)................................... 57 Vice President, Human Resources
James F. Engle....................................... 51 Vice President and Treasurer
Diane L. Fraiman(b).................................. 42 Vice President, Corporate Marketing
J.F. Hendrickson, Jr................................. 58 Vice President, Customer Services, and Lenexa
(Kansas) Site General Manager
Stephen E. Hill(c)................................... 39 Vice President, and General Manager, Tools Business
Unit
Gary Lloyd(d)........................................ 50 Vice President, Legal, General Counsel and Secretary
Wesley Raffel........................................ 42 Vice President, North American Field Operations
Myron (Mike) Saranga................................. 60 Senior Vice President, Product Management and
Development
Michael R. Stonebraker............................... 54 Vice President and Chief Technology Officer
Leslie G. Denend..................................... 56 Director--Class I, term to expire at 2000 Annual
Stockholder Meeting
Albert F. Knorp, Jr.................................. 62 Assistant Secretary and Director Class III, term to
expire at 1999 Annual Stockholder Meeting
James L. Koch........................................ 53 Director--Class II, term to expire at 1998 Annual
Stockholder Meeting
Thomas A. McDonnell.................................. 52 Director--Class II, term to expire at 1998 Annual
Stockholder Meeting
Cyril J. Yansouni.................................... 55 Director--Class I, term to expire at 2000 Annual
Stockholder Meeting
</TABLE>
- ------------------------
(a) Ms. Daniel became the Company's Vice President, Human Resources on February
9, 1998
(b) Ms. Fraiman will become the Company's Vice President, Corporate Marketing
beginning April 1998
(c) Mr. Hill was promoted to Vice President, Tools Business Units in January
1998 from the position of Vice President, Advanced Technology
(d) Mr. Lloyd became the Company's Vice President, Legal, and General Counsel on
January 23, 1998 and its Secretary on February 26, 1998
ROBERT J. FINOCCHIO, JR. has served as Chairman, President and Chief
Executive Officer since July 1997. From December 1988 until May 1997, Mr.
Finocchio was employed with 3Com Corporation ("3Com"), a global data networking
company, where he held various positions, most recently serving as
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President, 3Com Systems. Prior to his employment with 3Com, Mr. Finocchio held
various executive positions in sales and service with Rolm Communications, a
telecommunications and networking company, most recently as Vice President of
Rolm Systems Marketing. Mr. Finocchio also serves as a director of Latitude
Communications, a teleconferencing company. Mr. Finocchio is also a Regent of
Santa Clara University. Mr. Finocchio holds a B.S. in economics from Santa Clara
University and an M.B.A. from the Harvard Business School.
JEAN-YVES F. DEXMIER has served as the Company's Executive Vice President
and Chief Financial Officer since October 1997. Mr. Dexmier also served as the
Company's Secretary from October 1997 to February 1998. Mr. Dexmier served as a
strategy consultant to high technology companies from February 1997 to September
1997. From November 1995 until February 1997, Mr. Dexmier served as Senior Vice
President and Chief Financial Officer of Octel Communications Corporation, a
provider of voice messaging systems ("Octel"). From April 1995 to October 1995,
Mr. Dexmier served as Chief Financial Officer for Kenetech Corporation, a wind
energy company. From May 1994 to March 1995, Mr. Dexmier served as Chief
Financial Officer for Air Liquide America Corporation, a U.S. subsidiary of the
French-based group Air Liquide, a worldwide producer of industrial gases. From
January 1991 to January 1994, Mr. Dexmier served as Chief Financial Officer for
Thomson Consumer Electronics, Inc., a subsidiary of Thomson SA, a worldwide
electronics manufacturer. Mr. Dexmier holds a B.S. in mathematics from Lycee
Pasteur, a Ph.D. in electronics from the Ecole Nationale Superieure de
l'Aeronautique et de l'Espace and an M.B.A. in economics and finance from the
Ecole Polytechnique. In addition, he attended the executive management program
at the University of Michigan School of Business Administration.
KAREN BLASING has served as the Company's Corporate Controller since June
1996 and as a Vice President since August 1997. Ms. Blasing joined the Company
in November 1992 as its Director of Financial Planning and Analysis. From
January 1989 to October 1992, Ms. Blasing was a Senior Financial Manager at
Oracle Corporation, a provider of information management software and services.
Ms. Blasing holds a B.S. in both economics and business from the University of
Montana and an M.B.A. from the University of Washington.
SUSAN T. DANIEL has served as the Company's Vice President, Human
Resources since February 1998. From March 1981 until February 1998, Ms. Daniel
served in a variety of positions at Advanced Micro Devices, Inc., a
semiconductor manufacturer, most recently as Vice President, Human Resource
Operations. Ms. Daniel holds a B.A. in History from Queens College, an M.A. in
social sciences from Syracuse and J.D. from Santa Clara University.
JAMES F. ENGLE has served as the Company's Vice President and Treasurer
since December 1997. From 1991 until December 1997, Mr. Engle served as a Vice
President and the Corporate Treasurer of Octel. Mr. Engle holds a B.A. in
economics from the University of Missouri and an M.B.A. in international
business and corporate finance from the Columbia University Graduate School of
Business.
DIANE L. FRAIMAN will serve as the Company's Vice President, Corporate
Marketing beginning April 1998. From September 1996 to March 1998, Ms. Fraiman
served as Vice President, Marketing Video & Networking Division, at Tektronix,
Inc., a producer of hardware and software networking and video products. From
May 1994 to August 1996, Ms. Fraiman was Director of Marketing at Sequent, a
manufacturer of large-scale multiprocessor systems. From 1978 to April 1994, Ms.
Fraiman worked in a variety of positions at Digital Equipment Corporation, a
global networking company, most recently as its Director, Corporate
Digital/Microsoft Alliance. Ms. Fraiman holds a B.S. in biomedical engineering
from Vanderbilt University.
J.F. HENDRICKSON, JR. has served as the Company's Vice President,
Customer Services, since July 1992 and as its Lenexa (Kansas) Site General
Manager since February 1995. From 1991 until the time he joined the Company, Mr.
Hendrickson was Senior Vice President of Sales and Support at Image Business
Systems, a developer of document image management software for client/server
systems.
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Mr. Hendrickson holds a B.S. in mechanical engineering from Stanford University
and an M.B.A. in business and administration from the University of California,
Los Angeles.
STEPHEN E. HILL has served as the Company's Vice President and General
Manager, Tools Business Unit since January 1998. Prior to assuming that
position, Mr. Hill served as the Company's Vice President, Advanced Technology
since December 1995. Mr. Hill has been employed with the Company since 1985 and
has served in various strategic planning and marketing positions. Prior to
joining the Company, Mr. Hill held various product development positions at
General Electric Company, a diversified electronics and manufacturing company,
Software Publishing Corporation, a supplier of business productivity software,
and Human Edge Software, a business software company. Mr. Hill holds a B.S. in
electrical engineering from the University of Vermont.
GARY LLOYD has served as the Company's Vice President, Legal and General
Counsel since January 1998 and as its Secretary since February 1998. From
November 1997 until January 1998, Mr. Lloyd served as the Company's interim
General Counsel. From March 1994 until October 1997, Mr. Lloyd was with the law
firm of Farella Braun & Martel L.L.P. From 1984 until February 1994 Mr. Lloyd
served in a variety of positions at the Securities and Exchange Commission, most
recently as its Assistant Director, Division of Enforcement. Mr. Lloyd holds a
B.A. in political science and English from Kent State University and a J.D. from
Case Western Reserve University.
WESLEY RAFFEL has served as the Company's Vice President, North American
Field Operations since September 1997. From January 1996 to January 1997, Mr.
Raffel served as Senior Vice President, Sales and Marketing, and was the acting
Chief Executive Officer of AssureNet Pathways, Inc., a network security company.
From October 1992 to September 1995, Mr. Raffel was Vice President, Sales, of
Global Village Communication, Inc., a designer of integrated communications
products for personal computers ("Global Village"). Prior to joining Global
Village, Mr. Raffel held a variety of positions at 3Com, most recently as its
Vice President, Intercontinental Operations. Mr. Raffel holds a B.A. in general
studies from Harvard University and an M.B.A. from the University of Chicago
Graduate School of Business.
MYRON (MIKE) SARANGA has served as the Company's Senior Vice President,
Product Management and Development, since May 1993. Prior to joining the
Company, Mr. Saranga was employed by IBM for 30 years, where he held various
positions, most recently as Assistant General Manager of Programming Systems.
Mr. Saranga holds a B.A. in economics from Northeastern University.
MICHAEL R. STONEBRAKER has served as the Company's Vice President and
Chief Technology Officer since February 1996. Dr. Stonebraker co-founded
Illustra and served in a consulting capacity with Illustra as its Chief
Technology Officer until February 1996. Dr. Stonebraker is the professor
emeritus of Electrical Engineering and Computer Sciences at the University of
California, Berkeley, where he joined the faculty in 1971. Dr. Stonebraker holds
a B.S. in electrical engineering from Princeton University and an M.S. and Ph.D.
in computer information and control engineering from the University of Michigan.
LESLIE G. DENEND has served as a member of the Company's Board of
Directors since December 1997. Since December 1997, Mr. Denend has served as
President of Network Associates, Inc., a provider of network security and
management software, that resulted from the merger of McAfee Associates, Inc.
and Network General Corporation ("Network General"). From June 1993 to December
1997, Mr. Denend served as President and Chief Executive Officer of Network
General. He also served as Network General's Senior Vice President of Products
from February 1993 to June 1993. From November 1990 to December 1992, he was
President of Vitalink Communications, a manufacturer of networking products.
From January 1989 to October 1990, Mr. Denend served in a variety of positions
at 3Com, most recently as Executive Vice President for Product Operations. Mr.
Denend is also a director of Rational Software Inc., a provider of
component-based development software systems, and Proxim, Inc., a designer of
wireless local area networking products. Mr. Denend is a graduate of the United
States Air Force Academy and holds an M.B.A. and Ph.D. in economics, public
policy and business from Stanford University. Mr. Denend was also a Fulbright
Scholar in economics at Bonn University.
53
<PAGE>
ALBERT F. KNORP, JR. has served as a member of the Company's Board of
Directors since 1984 and as its Assistant Secretary since 1985. Mr. Knorp is a
general partner in Seaport Ventures, L.P., a family partnership. Since November
1994, Mr. Knorp has been of counsel to the law firm of Gray Cary Ware &
Freidenrich. He had previously been a partner in the law firm of Lewis, Knorp,
Walsh & Kavalaris. Mr. Knorp holds a B.A. in social studies from Stanford
University and an L.L.B. from Santa Clara University.
JAMES L. KOCH has served as a member of the Company's Board of Directors
since May 1991. Since July 1990, Mr. Koch has served in various positions at
Santa Clara University. Since February 1997, Mr. Koch has been its Director of
the Center for Science, Technology and Society and, since July 1990, a Professor
of Management and Corporate Strategy. In addition, from July 1990 to July 1996,
Mr. Koch served as Dean of the Leavey School of Business Administration at Santa
Clara University. Mr. Koch holds a B.A. in business administration from San
Francisco State University and an M.B.A. and Ph.D. in business administration
from the University of California, Los Angeles.
THOMAS A. MCDONNELL has served as a member of the Company's Board of
Directors since February 1988. Since 1971, Mr. McDonnell has served as Chief
Executive Officer of DST Systems, Inc. ("DST"), a transfer agent for mutual
funds, stocks and bonds, and since October 1984 as a director of DST. Mr.
McDonnell is also President of DST, a position he has held since 1973; Mr.
McDonnell also served as Treasurer of DST from 1973 to September 1995. From
August 1983 to November 1995, Mr. McDonnell was Executive Vice President and a
director of Kansas City Southern Industries, Inc., a holding company and the
former parent of DST. Mr. McDonnell is also director of BHA Group, Inc., a
manufacturer of pollution control devices, Cerner Corporation, a provider of
software and technology to the health care industry, Computer Sciences
Corporation, an information technology company, Euronet Services, Inc., an
operator of automatic teller machines, Janus Capital Corporation, a registered
investment advisor and Nellcor-Puritan-Bennett Corporation, a medical device
company. Mr. McDonnell holds a B.S. and B.A. in accounting from Rockhurst
College and an M.B.A. from the Wharton School of the University of Pennsylvania.
CYRIL J. YANSOUNI has served as a member of the Company's Board of
Directors since May 1991. Since March 1991, Mr. Yansouni has been the Chief
Executive Officer and Chairman of the Board of Directors of Read-Rite
Corporation, a manufacturer of thin film magnetic recording heads. He also is a
member of the Advisory Board of both the Leavey School of Business
Administration at Santa Clara University and the San Jose State University
School of Engineering. Mr. Yansouni is a director of PeopleSoft, Inc., a
provider of client/server business software, Raychem Corporation, an
international manufacturer and marketer of products for electronics, industrial
and telecommunications applications, and ActivCard, a French company that
develops authentication communication software. Mr. Yansouni holds a B.S. degree
in electrical and mechanical engineering from the University of Louvain, Belgium
and an M.S. degree in electrical engineering from Stanford University. In
addition, he attended the executive management program at Stanford University.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires the Company's officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Commission. Such officers, directors, and
10% shareholders are also required by Commission rules to furnish the Company
with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons, the Company believes
that, during the year ended December 31, 1997, except as noted below, all
Section 16(a) filing requirements applicable to its officers, directors, and 10%
54
<PAGE>
stockholders were satisfied on a timely basis. In making these statements, the
Company has relied upon the written representations of its officers and
directors.
Thomas McDonnell, a member of the Company's Board of Directors, failed to
file a report on Form 4 on a timely basis for a transaction involving the
exercise of an option under the 1994 Plan. Such transaction was reported on Mr.
McDonnell's Form 5 for the year ended December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the total compensation awarded to, earned
by, or paid for services rendered to the Company in all capacities during each
of fiscal 1997, 1996 and 1995, respectively, by the "Named Executive Officers"
who include (i) the Company's Chairman, President and Chief Executive Officer,
(ii) each of the Company's four most highly compensated executive officers other
than its Chief Executive Officer who were serving as officers of the Company at
the end of the fiscal year ended December 31, 1997 and whose salary and bonus
for fiscal 1997 exceeded $100,000; and (iii) the Company's former President and
Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ---------------
SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------------------------------- ----------- ---------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert J. Finocchio, Jr. (2) ...................... 1997 $ 185,278 $ -- 1,500,000 5,000(12)
Chairman, President and Chief 1996 -- -- -- --
Executive Officer 1995 -- -- -- --
J. F. Hendrickson, Jr. (3) ........................ 1997 192,667 39,600 83,560(8) 5,977(13)
Vice President, Customer 1996 179,667 -- 30,000 6,013
Services, and Lenexa (Kansas) 1995 171,667 95,000 40,000 5,395
Site General Manager
Stephen E. Hill (4) ............................... 1997 163,667 33,400 56,000(9) 2,533(14)
Vice President and General 1996 154,569 -- 30,000 2,500
Manager, Tools Business Unit 1995 145,667 85,000 40,000 2,429
Myron (Mike) Saranga (5) .......................... 1997 267,667 69,000 409,000(10) 43,886(15)
Senior Vice President, Product 1996 245,667 -- 100,000 45,875
Management and Development 1995 229,333 168,000 130,000 5,525
Michael R. Stonebraker (6) ........................ 1997 209,200 42,400 135,000(11) 2,592(16)
Vice President and Chief 1996 155,000 -- 75,000 1,620
Technology Officer 1995 -- -- -- --
FORMER EXECUTIVE OFFICERS
Phillip E. White (7) .............................. 1997 277,083 -- -- 203,967(17)
Chairman, President and Chief 1996 461,667 -- 200,000 4,484
Executive Officer 1995 421,667 400,000 250,000 4,256
</TABLE>
- ------------------------------
(1) Other than the salary and bonus described herein, the Company did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1997, 1996 or 1995.
55
<PAGE>
(2) Mr. Finocchio became Chairman, President and Chief Executive Officer in
July 1997. Accordingly, he received no reportable income from the Company
for fiscal 1996 or 1995. Mr. Finocchio's salary and other compensation for
fiscal 1997 were determined in accordance with the provisions of his
Employment Agreement with the Company. See "--Employment Agreements and
Change in Control Arrangements." In January 1998, the Company granted Mr.
Finocchio an additional option under the 1994 Plan to acquire 500,000
shares of Common Stock, subject to vesting in equal annual installments
over four years.
(3) Mr. Hendrickson became Vice President, Customer Services, in July 1992 and
Lenexa (Kansas) Site General Manager in February 1995.
(4) Mr. Hill was promoted to Vice President and General Manager, Tools Business
Unit in January 1998 from Vice President, Advanced Technology, a position
he had held since December 1995.
(5) Mr. Saranga became Senior Vice President, Product Management and
Development in May 1993.
(6) Dr. Stonebraker became Vice President and Chief Technology Officer in
February 1996. Accordingly, he received no reportable income for fiscal
1995.
(7) Mr. White resigned as Chairman, President and Chief Executive Officer in
July 1997.
(8) Includes options to purchase 56,000 shares that Mr. Hendrickson elected to
reprice under the Company's November 1997 option repricing program. In
connection with such repricing, Mr. Hendrickson forfeited the right to
purchase 14,000 shares of Common Stock under options previously granted to
him. See "--Stock Option Repricing."
(9) Fiscal 1997 figure includes 56,000 shares that Mr. Hill elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Hill forfeited the right to purchase 14,000 shares
of Common Stock under options previously granted to him. See "--Stock
Option Repricing." In January 1998, the Company granted Mr. Hill an
additional option under the 1994 Plan to acquire 100,000 shares of Common
Stock, subject to vesting in equal installments over four years.
(10) Fiscal 1997 figure includes 184,000 shares Mr. Saranga elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Saranga forfeited the right to purchase 46,000
shares of Common Stock under options previously granted to him. See
"--Stock Option Repricing." Fiscal 1997 figure also includes 100,000 option
shares of which will vest on December 31, 2000 if Mr. Saranga remains an
employee of the Company on such date. In January 1998, the Company granted
Mr. Saranga the right to receive 35,000 performance shares of Common Stock
under the 1994 Plan during each of the next three years if certain
financial milestones are met as of January 1, 1999, 2000 and 2001. Such
performance shares are subject to a right of repurchase in favor of the
Company which shall lapse if Mr. Saranga remains an employee of the Company
on January 1, 2001.
(11) Fiscal 1997 figure includes options to purchase 60,000 shares Dr.
Stonebraker elected to reprice under the Company's November 1997 option
repricing program. In connection with such repricing, Dr. Stonebraker
forfeited the right to purchase 15,000 shares of Common Stock under options
previously granted to him. See "--Stock Option Repricing."
(12) Represents reimbursement by the Company of $5,000 in legal fees incurred in
connection with the negotiation of Mr. Finocchio's Employment Agreement.
See "Employment Agreements and Change in Control Arrangements."
(13) Represents $4,050, $4,013 and $3,395 in group life insurance paid by the
Company in fiscal 1997, 1996 and 1995, respectively, and $1,927, $2,000 and
$2,000 in matching contributions under the Company's 401(k) Plan by the
Company in fiscal 1997, 1996 and 1995, respectively.
(14) Represents $533, $500 and $429 in group life insurance paid by the Company
in fiscal 1997, 1996 and 1995, respectively, and $2,000, $2,000 and $2,000
in matching contributions under the Company's 401(k) Plan by the Company in
fiscal 1997, 1996 and 1995, respectively.
(15) Represents $6,318, $4,050 and $3,525 in group life insurance paid by the
Company in fiscal 1997, 1996 and 1995, respectively and $2,000, $2,000, and
$2,000 in matching contributions under the Company's 401(k) plan in fiscal
1997, 1996 and 1995, respectively. Includes $35,568 and $39,825 in
forgiveness by the Company in fiscal 1997 and 1996, respectively, of
outstanding principal and accrued interest (such forgiveness amounts were
not grossed up to satisfy tax obligations) under a promissory note
delivered by Mr. Saranga to the Company. See "Certain Relationships and
Related Transactions."
(16) Represents $2,592 and $1,620 in group life insurance paid by the Company in
fiscal 1997 and 1996, respectively.
(17) Represents $4,050, $2,484 and $2,256 in group life insurance paid by the
Company in fiscal 1997, 1996 and 1995, respectively; and $2,000, $2,000 and
$2,000 in matching contributions under the Company's 401(k) plan paid by
the Company in fiscal 1997, 1996 and 1995, respectively. Fiscal 1997 figure
also includes $197,917 paid by the Company in connection with Mr. White's
resignation pursuant to the terms of his Employment Agreement with the
Company. See "--Employment Agreements and Change in Control Arrangements"
and "Certain Relationships and Related Transactions."
56
<PAGE>
STOCK OPTION GRANTS
The following table provides information relating to stock options
awarded to each of the Named Executive Officers during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUES
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTIONS TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
GRANTED FISCAL 1997(2) SHARE(3) DATE(4) 5% 10%
---------- --------------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert J. Finocchio, Jr. (5).......... 1,500,000 11.44% $ 10.8125 07/22/07 $ 10,199,885 $ 25,848,511
J. F. Hendrickson, Jr. (6)............ 27,500 0.21 9.0313 06/18/07 156,193 395,823
32,000 0.24 7.1563 04/18/05 99,665 234,842
24,000 0.18 7.1563 05/16/06 88,044 213,728
Stephen E. Hill(7).................... 50,000 0.38 9.0313 06/18/07 283,987 719,678
32,000 0.24 7.1563 04/18/05 99,665 234,842
24,800 0.18 7.1563 05/16/06 88,044 213,728
Myron (Mike) Saranga (8).............. 125,000 0.95 9.0313 06/18/07 709,967 1,799,196
100,000 0.76 9.5000 09/15/07 597,450 1,514,055
104,000 0.79 7.1563 04/18/05 323,911 763,235
80,000 0.61 7.1563 05/16/06 293,481 712,425
Michael R. Stonebraker (9)............ 75,000 0.57 9.0313 06/18/07 425,980 1,079,517
60,000 0.46 7.1563 04/15/06 217,424 526,549
FORMER EXECUTIVE OFFICERS
Phillip E. White...................... -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth.
(2) Based on options to acquire 13,107,338 shares granted under the 1994 Plan,
the Director Plan and the Company's 1987 Non-Statutory Stock Option Plan.
Such option grants include shares granted as a result of the Company's
November 1997 option repricing program. See "--Stock Option Repricing."
Unless otherwise specified herein, all options granted to the Named
Executive Officers were under the 1994 Plan.
(3) Options were granted at an exercise price equal to not less than the fair
market value of the Company's Common Stock on the date of grant as reported
on the Nasdaq National Stock Market. The exercise price may be paid in cash,
check, by delivery of already-owned shares of the Company's Common Stock
subject to certain conditions or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(4) Twenty-five percent (25%) of the shares issuable upon exercise of options
granted under the 1994 Plan become vested on the first anniversary of the
date of grant, and the remaining shares vest over three years at the rate of
25% of the shares subject to option vesting on each successive anniversary
of the option grant date. Unless otherwise specified, options granted to
Named Executive Officers in fiscal 1997, including options granted outside
the 1994 Plan, are subject to the Company's standard four year vesting
schedule described above.
(5) The options to purchase 1,500,000 option shares of Common Stock granted to
Mr. Finocchio were issued in connection with his Employment Agreement with
the Company. See "Employment Agreements and Change in Control Arrangements."
Of the 1,500,000 option shares granted to Mr. Finocchio, 1,000,000 were
granted under the 1994 Plan and 500,000 were granted under the Company's
1997 Non-Statutory Stock Option Plan. In addition, in January 1998, the
Company granted Mr. Finocchio an additional option under the 1994 Plan to
acquire 500,000 shares of Common Stock, subject to vesting in equal annual
installments over four years.
57
<PAGE>
(6) Option grant figures includes 56,000 shares Mr. Hendrickson elected to
reprice under the Company's November 1997 option repricing program. In
connection with such repricing, Mr. Hendrickson forfeited the right to
purchase 14,000 shares of Common Stock under options previously granted to
him. See "--Stock Option Repricing."
(7) Option grant figures includes 56,000 shares Mr. Hill elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Hill forfeited the right to purchase 14,000 shares
of Common Stock under options previously granted to him. See "--Stock Option
Repricing." In addition, in January 1998, the Company granted Mr. Hill an
additional option under the 1994 Plan to acquire 100,000 shares of Common
Stock, subject to vesting in equal annual installments over four years.
(8) Option grant figures includes 184,000 shares Mr. Saranga elected to reprice
under the Company's November 1997 option repricing program. In connection
with such repricing, Mr. Saranga forfeited the right to purchase 46,000
shares of Common Stock under options previously granted to him. See "--Stock
Option Repricing." Mr. Saranga's option to purchase up to 100,000 shares of
the Common Stock of the Company granted in September 1997 under the 1994
Plan will become vested on December 31, 2000 if Mr. Saranga remains an
employee of the Company on such date. In January 1998, the Company granted
Mr. Saranga the right to receive 35,000 performance shares of Common Stock
under the 1994 Plan each of the next three years if certain financial
milestones are met as of January 1, 1999, 2000 and 2001. Such performance
shares are subject to a right of repurchase in favor of the Company which
shall lapse if Mr. Saranga remains an employee of the Company on January 1,
2001.
(9) Option grant figures includes 60,000 shares Dr. Stonebraker elected to
reprice under the Company's November 1997 option repricing program. In
connection with such repricing, Dr. Stonebraker forfeited the right to
purchase 15,000 shares of Common Stock under options previously granted to
him. See "--Stock Option Repricing."
OPTION EXERCISES AND FISCAL 1997 YEAR-END VALUES
The following table sets forth certain information regarding the exercise
of stock options by the Named Executive Officers during fiscal 1997 and stock
options held as of December 31, 1997 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
SHARES 1997 AT DECEMBER 31, 1997(2)
ACQUIRED OR VALUE -------------------------- ---------------------------
EXERCISED REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert J. Finocchio, Jr.(3)....... -- $ -- -- 1,500,000 $ -- $ --
J. F. Hendrickson, Jr............. -- -- 320,000 93,500 132,800 --
Stephen E. Hill (4)............... 15,000 142,188 62,500 116,000 -- --
Myron (Mike) Saranga (5).......... -- -- 135,000 429,000 -- --
Michael R. Stonebraker............ -- -- -- 135,000 -- --
FORMER EXECUTIVE OFFICERS
Phillip E. White.................. 50,000 63,810 1,245,000(6) -- 624,348(6) --
</TABLE>
- ------------------------------
(1) Market value at the time of exercise less the applicable exercise price.
(2) Based on the closing sales price of $4.750 of the underlying securities as
of December 31, 1997 as reported on the Nasdaq National Stock Market minus
the exercise price.
(3) In January 1998, the Company granted Mr. Finocchio an additional option to
purchase 500,000 shares of Common Stock under the 1994 Plan, subject to
vesting in equal installments over four years.
(4) In January 1998, the Company granted Mr. Hill an additional option to
purchase 100,000 shares of Common Stock under the 1994 Plan, subject to
vesting in equal installments over four years.
(5) In January 1998, the Company granted Mr. Saranga the right to receive 35,000
performance shares of Common Stock under the 1994 Plan each of the next
three years if certain financial milestones are met as of January 1, 1999,
2000 and 2001. Such performance shares are subject to a right of repurchase
in favor of the Company which shall lapse if Mr. Saranga remains an employee
of the Company on January 1, 2001.
(6) All of Mr. White's options expired in February 1998. Prior to the expiration
of such options, Mr. White exercised options to acquire an aggregate of
540,000 shares of Common Stock in January and February 1998 with a realized
value of approximately $1,161,380.
58
<PAGE>
STOCK OPTION REPRICING
In September 1997, the Company's Board of Directors authorized the
repricing of outstanding options to purchase Common Stock under the Company's
stock option plans. Employees, including Named Executive Officers, were eligible
to participate only if they remained actively employed at the effective date of
the repricing and were only permitted to exchange options outstanding prior to
May 1, 1997. The repricing/option exchange was effective November 21, 1997 (the
"Repricing Effective Date"). The repricing program offered eligible employees
the opportunity to exchange eligible outstanding options with exercise prices in
excess of the closing sales price of the Company's Common Stock on the Repricing
Effective Date for a new option with an exercise price equal to such price.
Other than the exercise price, each new option issued upon exchange has terms
substantially equivalent to the surrendered option, including with respect to
the number of shares, vesting terms and expiration. Options issued in connection
with the exchange may not be exercised for a period of one year from the
Repricing Effective Date, however. In addition, officers of the Company
participating in the option exchange were required to forfeit 20% of the shares
subject to each option being surrendered. The exercise price for repriced
options was $7.1563, the closing sales price of the Company's Common Stock on
the Repricing Effective Date. The following table provides information with
respect to the November 1997 repricing for the Named Executive Officers and for
other executive officers of the Company who elected to reprice options. These
are the only executive officers of the Company who had their options repriced.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE LENGTH OF
UNDERLYING OF STOCK AT EXERCISE ORIGINAL OPTION
OPTIONS/SARS TIME OF PRICE AT TIME NEW TERM REMAINING
REPRICED OR REPRICING OR OF REPRICING EXERCISE AT DATE OF
AMENDED AMENDMENT OR AMENDMENT PRICE REPRICING OR
NAME DATE (#)(1) ($) ($) ($) AMENDMENT
- ------------------------------------ --------- ------------- ------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Robert F. Finocchio, Jr.(2)....... -- -- -- -- -- --
Karen Blasing(3).................. 11/21/97 4,200 7.1563 18.250 7.1563 7.41
11/21/97 4,800 7.1563 18.250 7.1563 8.49
11/21/97 8,000 7.1563 18.250 7.1563 8.54
J. F. Hendrickson, Jr.(4)......... 11/21/97 32,000 7.1563 18.250 7.1563 7.41
11/21/97 24,000 7.1563 24.125 7.1563 8.48
Stephen E. Hill(5)................ 11/21/97 32,000 7.1563 18.250 7.1563 7.41
11/21/97 24,000 7.1563 24.125 7.1563 8.48
Myron (Mike) Saranga(6)........... 11/21/97 104,000 7.1563 18.250 7.1563 7.41
11/21/97 80,000 7.1563 24.125 7.1563 8.48
Michael R. Stonebraker(7)......... 11/21/97 60,000 7.1563 19.375 7.1563 8.40
FORMER EXECUTIVE OFFICERS
Philip E. White(8)................ -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) All options repriced by the Named Executive Officers and other executive
officers listed in the above table were granted under the 1994 Plan.
(2) Mr. Finocchio became Chairman, President and Chief Executive Officer in July
1997; consequently, he was not eligible to participate in the November 1997
repricing.
(3) Ms. Blasing has served as the Company's Corporate Controller since June 1996
and as a Vice President since August 1997. Ms. Blasing forfeited the right
to purchase 4,250 shares of Common Stock as a result of the repricing. At
the time of the repricing, 4,600 of the 17,000 options Ms. Blasing elected
to reprice were vested.
59
<PAGE>
(4) Mr. Hendrickson forfeited the right to purchase 14,000 shares of Common
Stock as a result of the repricing. At the time of repricing, 22,000 of the
56,000 options Mr. Hendrickson elected to reprice were vested.
(5) Mr. Hill forfeited the right to purchase 14,000 shares of Common Stock as a
result of the repricing. At the time of repricing, 22,000 of the 56,000
options Mr. Hill elected to reprice were vested.
(6) Mr. Saranga forfeited his right to purchase 46,000 shares of Common Stock as
a result of the repricing. At the time of the repricing, 72,000 of the
184,000 options Mr. Saranga elected to reprice were vested.
(7) Dr. Stonebraker forfeited his right to purchase 15,000 shares of Common
Stock as a result of the repricing. At the time of the repricing, 15,000 of
the 60,000 options Dr. Stonebraker elected to reprice were unvested.
(8) Mr. White resigned as the Company's Chairman, President and Chief Executive
Officer in July 1997; consequently he was not eligible to participate in the
November 1997 repricing.
In December 1997, the Company's Board of Directors authorized a second
option repricing to be effective January 9, 1998 (the "Second Repricing
Effective Date") based upon the closing sales price of the Company's Common
Stock as of the Second Repricing Effective Date ($5.094). Under the terms of the
second repricing, each employee, other than officers and directors of the
Company, could elect to exchange any option outstanding as of May 1, 1997 for a
new option with an exercise price equal to the closing sales price on the Second
Repricing Effective Date. Options exchanged in the second repricing may not be
exercised for a period of one year from the Second Repricing Effective Date.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
On July 18, 1997, the Company entered into an at-will employment
agreement with Mr. Finocchio, the Company's Chairman, President and Chief
Executive Officer. The agreement provides for an annual base salary of $460,000,
subject to annual review concerning increases. Pursuant to the agreement, the
Company granted Mr. Finocchio an option to purchase 1,000,000 shares of Common
Stock under the 1994 Plan at an exercise price per share of $10.8125, subject to
vesting in equal annual installments over four years and an option under the
Company's 1997 Non-Statutory Stock Option Plan to acquire an additional 500,000
shares of Common Stock, also at an exercise price of $10.8125 and subject to
vesting under the same terms as the grant under the 1994 Plan. In the event of a
merger or change in control of the Company, the exercisability of Mr.
Finocchio's options will accelerate so as to become fully vested. In January
1998, the Company granted Mr. Finocchio an additional option under the 1994 Plan
to acquire 500,000 shares of Common Stock, subject to vesting in equal annual
installments over four years.
On September 24, 1997, the Company entered into an at-will employment
letter agreement with Jean-Yves F. Dexmier, the Company's Executive Vice
President and Chief Financial Officer, which provides for an annual base salary
of $350,000 and an annual cash bonus based on the achievement of individual and
Company performance objectives. In the event Mr. Dexmier is terminated without
cause within the first twelve months of his employment with the Company, he will
be entitled to receive severance in an amount equal to one year of base salary
plus any bonus he would have been entitled to receive under the Company's
executive compensation plan. If such termination occurs after Mr. Dexmier's
first twelve months with the Company, he shall be entitled to receive as
severance an amount equal to six months base salary. If there is a change of
control of the Company within the first twelve months Mr. Dexmier is employed
with the Company, Mr. Dexmier will be entitled to receive $1,000,000 less any
stock option profit realized upon the change in ownership. In connection with
his employment, the Company granted Mr. Dexmier an option under the 1994 Plan to
acquire 500,000 shares of Common Stock at an exercise price of $6.8125, subject
to vesting in equal annual installments over four years. In January 1998, the
Company granted Mr. Dexmier an additional option under the 1994 Plan to acquire
100,000 shares of Common Stock, subject to equal annual installments over four
years.
On September 18, 1997, the Company entered into an at-will employment
letter agreement with Wesley Raffel, the Company's Vice President, North
American Field Operations, which provides for an annual base salary of $250,000
and an annual cash bonus based on the achievement of individual and Company
performance objectives. In the event of a change in the Chief Executive Officer
or a change in
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ownership of the Company, Mr. Raffel will be entitled to receive severance in an
amount equal to one year of base salary. In connection with his employment, the
Company granted Mr. Raffel an option under the 1994 Plan to acquire 325,000
shares of Common Stock at an exercise price of $7.3438, subject to vesting in
equal annual installments over four years.
In October 1997, the Company entered into Change of Control Agreements
(the "Change of Control Agreements") with Messrs. Dexmier and Raffel, Myron
(Mike) Saranga, the Company's Senior Vice President, Product Management and
Development, and Karen Blasing, the Company's Vice President and Corporate
Controller. The Change of Control Agreements, which are substantially similar
for each executive officer, provide that in the event a change in control of the
Company occurs, the exercisability of each executive officer's options will
accelerate so as to become fully vested.
In January 1998, the Company entered into an at-will employment letter
with Susan T. Daniel, the Company's Vice President, Human Resources, which
provides for an annual base salary of $230,000 and an annual cash bonus based on
the achievement of individual and Company performance objectives. Ms. Daniel
will also receive $7,500 annually her first two years of employment if she
remains employed with the Company on the anniversary date of her employment with
the Company. In connection with her employment, the Company granted Ms. Daniel
an option under the 1994 Plan to acquire 200,000 shares of Common Stock at a per
share exercise price of $7.4688, subject to vesting in equal annual installments
over four years. In the event of a change of ownership of the Company within Ms.
Daniel's first two years of employment with the Company where Ms. Daniel's
employment is terminated within 90 days of the change of control event other
than for cause, she will be entitled to receive severance in an amount equal to
one (1) year base salary. If a change of control in the ownership of the Company
occurs within Ms. Daniel's first six months with the Company, the exercisability
of her options will accelerate as to two years additional vesting. If such
change of control takes place after such six month period, the exercisability of
Ms. Daniel's options will accelerate so as to become fully vested.
In January 1998, the Company entered into an at-will employment letter
with Gary Lloyd, the Company's Vice President, Legal, General Counsel and
Secretary, which provides for an annual base salary of $200,000 and an annual
cash bonus based on the achievement of individual and Company performance
objectives. In connection with his employment, the Company granted Mr. Lloyd an
option under the 1994 Plan to acquire 150,000 shares of Common Stock at a per
share exercise price of $5.7500, subject to vesting in equal installments over
four years. If a change of control in the ownership of the Company occurs within
Mr. Lloyd's first six months with the Company, the exercisability of his options
will accelerate as to two years additional vesting. If such change of control
takes place after such six month period, the exercisability of Mr. Lloyd's
options will accelerate so as to become fully vested.
On March 18, 1998, the Company entered into an at-will employment letter
agreement with Diane L. Fraiman, the Company's Vice President, Corporate
Marketing, which provides for an annual base salary of $250,000 and an annual
cash bonus based on the achievement of individual and Company performance
objectives. Pursuant to her employment letter, Ms. Fraiman received a $135,000
signing bonus, which Ms. Fraiman will be required to repay in full if she
terminates her employment with the Company prior to the first anniversary of her
commencement date. Ms. Fraiman will be required to repay half that amount if she
terminates her employment after the first anniversary date but prior to the
second anniversary date. In connection with her employment with the Company, the
Company granted Ms. Fraiman option to acquire 200,000 shares of Common Stock at
an exercise price equal to the closing sales price of the Company's Common Stock
as reported by The Nasdaq Stock Market on Ms. Fraiman's employment commencement
date with the Company, subject to vesting in equal annual installments over four
years. If there is a change in control of the Company within the first six
months after the date of Ms. Fraiman's employment letter, the vesting of Ms.
Fraiman's options will accelerate as to two year's additional vesting. If such
change of control occurs after such six month anniversary, Ms. Fraiman's options
will accelerate so as to become fully vested.
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Other than the employment arrangements described above, the Company does
not have employment agreements with any other current executive officer or
director.
In connection with Philip E. White's resignation as Chairman, President
and Chief Executive Officer in July 1997, and pursuant to his employment
agreement with the Company, the Company was obligated to pay Mr. White six
months salary at a rate of $39,583.34 per month from the time of his
resignation.
The Company has entered into severance arrangements with additional
former executive officers of the Company. See "Certain Relationships and Related
Transactions."
The Company has also adopted a Rights Agreement, commonly referred to as
a poison pill. The Company's Board of Directors has declared a dividend of one
Purchase Right ("Right") under the Company's Rights Agreement for each share of
the Company's Common Stock outstanding on September 17, 1991 or thereafter
issued. When exercisable, each Right initially entitles the holder to purchase
one share of Common Stock at a specified price. The Rights become exercisable on
the earlier of: (i) the tenth day (or such later date as may be determined by a
majority of the Company's Directors not affiliated with the acquiring person or
group (the "Continuing Directors")) after a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 20% of more of the
Company's outstanding Common Stock or (ii) the tenth business day (or such later
date as may be determined by a majority of the Continuing Directors) following
the consummation of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in beneficial ownership by
a person or group of 20% or more of the Company's outstanding Common Stock. If
an acquiror obtains 20% or more of the Company's outstanding Common Stock (other
than in certain permitted transactions), and unless the Rights are earlier
redeemed, the holder of each unexercised Right will have the right to receive
shares of the Company's Common Stock having a value equal to two times the
purchase price. Similarly, unless the Rights are earlier redeemed, after the
tenth day following certain acquisition transactions, proper provision must be
made so that holders of Rights (other than those beneficially owned by an
acquiring person, which will thereafter be void) will thereafter have the right
to receive, upon exercise, shares of common stock of the acquiring company
having a value equal to two times the purchase price. The Rights Agreement has
been amended so as to prevent holders of the Series A-1 Preferred and the
holders of the Series B Preferred from being deemed acquiring persons under the
Rights Agreement by virtue of their beneficial ownership of securities issued or
issuable in connection with the sale and issuance of Preferred Stock. The Rights
expire on July 25, 2005 or on their earlier exchange, redemption or expiration
in connection with certain permitted transactions.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock and Series B Preferred as of
December 31, 1997 by (i) each person or entity who is known by the Company to
own beneficially 5% or more of the Company's outstanding Common Stock or Series
B Preferred; (ii) each director of the Company; (iii) the Named Executive
Officers; and (iv) all directors and current executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(2)
--------------------------
PERCENT OF
NAME AND ADDRESS OF STOCKHOLDER(1) NUMBER CLASS
- ------------------------------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
COMMON STOCK
5% STOCKHOLDERS
Fletcher International Limited(3) ...................................................... 13,674,500 8.2%
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies
DIRECTORS AND CURRENT EXECUTIVE OFFICERS
Leslie G. Denend(4)..................................................................... -- --
Robert J. Finocchio, Jr.(5)............................................................. 100 *
J.F. Hendrickson, Jr.(6)................................................................ 321,072 *
Stephen E. Hill(7)...................................................................... 64,373 *
Albert F. Knorp, Jr.(8)................................................................. 153,868 *
James L. Koch(9)........................................................................ 84,000 *
Thomas A. McDonnell(10)................................................................. 140,000 *
Myron (Mike) Saranga(11)................................................................ 136,760 *
Michael R. Stonebraker(12).............................................................. 638,655 *
Cyril J. Yansouni(13)................................................................... 40,000 *
All current directors and executive officers as a group (17 persons)(14)................ 1,587,679 1.0
FORMER EXECUTIVE OFFICERS
Phillip E. White(15).................................................................... 1,257,819 *
SERIES B PREFERRED
CC Investments, LDC (16)(17) ........................................................... 12,500 25.0
c/o Fund Services
Corporate Centre, West Bay Road
P.O. Box 31106, SMB
Grand Cayman, Cayman Islands BVI
Proprietary Convertible Investment Group Inc.(16)(18) .................................. 20,000 40.0
c/o Credit Suisse First Boston
11 Madison Avenue, 3rd Floor
New York, New York 10010
Capital Ventures International(16)(19) ................................................. 17,500 35.0%
1 Capital Place
P.O. Box 1787
Georgetown, Grand Cayman, Grand Cayman Islands BVI
</TABLE>
- ------------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address for each listed stockholder, other
than the Selling Stockholders, is c/o Informix Corporation, 4100 Bohannon
Drive, Menlo Park, California 94025. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock held by them.
(2) For figures related to holdings of Common Stock, applicable percentage
ownership is based on 165,356,959 shares of Common Stock outstanding as of
December 31, 1997 (including the February 1998 issuance of 12,769,908
shares of Common Stock issued to Fletcher upon conversion of 220,000 shares
of Series A-1 Preferred as described more fully in footnote 3), together
with applicable options or warrants for such stockholder. Beneficial
ownership is determined in accordance with the rules of the
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Commission and generally includes voting or investment power with respect
to securities, subject to community property laws, where applicable. Shares
of Common Stock subject to options or warrants that are presently
exercisable or exercisable within 60 days of December 31, 1997 or shares of
Common Stock issuable upon conversion of Preferred Stock which shares of
Preferred Stock are presently convertible or convertible within 60 days of
December 31, 1997 are deemed to be beneficially owned by the person holding
such options or warrants for the purpose of computing the percentage of
ownership of such person but are not treated as outstanding for the purpose
of computing the percentage of any other person.
(3) Includes 12,769,208 shares of Common Stock issued upon conversion of
220,000 shares of Series A-1 Preferred on February 13, 1998 and 904,592
shares of Common Stock currently issuable upon conversion of shares of
Series A-1 Preferred, which are currently issuable upon exercise of the
Series A-1 Warrant. As described below, the number of shares of Common
Stock issuable upon exercise and conversion of the Series A-1 Warrant will
increase effective April 1, 1998. Fletcher is the original purchaser of
160,000 shares of the Company's Series A Preferred and the Series A Warrant
to purchase an additional 140,000 shares of Series A Preferred. Fletcher
exchanged such Series A Preferred for a like number of shares of Series A-1
Preferred and exchanged the Series A Warrant for the Series A-1 Warrant to
purchase a like number of shares of Series A-1 Preferred. The Series A-1
Preferred is convertible into Common Stock of the Company based on a
conversion rate that is dependent upon the trading price of the Company's
Common Stock as reported on The Nasdaq Stock Market prior to the time of
such conversion. As indicated above, on February 13, 1998, Fletcher
exercised the Series A-1 Warrant with respect to 60,000 shares of Series
A-1 Preferred and simultaneously converted 220,000 shares of A-1 Preferred
into 12,769,908 shares of Common Stock. Pursuant to the terms of the
Subscription Agreement, the maximum number of shares of Common Stock
issuable upon conversion of the Series A-1 Preferred (including upon
exercise and conversion of the Series A-1 Warrant) was 13,674,500 as of
December 31, 1997; however, on January 26, 1998, pursuant to the terms of
the original financing agreements, Fletcher gave the Company a notice
designating 16,674,500 shares as the maximum number of shares of Common
Stock to be issuable upon conversion of the Series A-1 Preferred on or
after April 1, 1998. Fletcher must give the Company another notice to
increase the maximum number of conversion shares further. The Series A-1
Preferred shares are non-voting securities and holders of Series A-1
Preferred are not generally entitled to vote on corporate matters, prior to
the conversion of such shares into Common Stock.
(4) Mr. Denend is a member of the Company's Board of Directors.
(5) Includes 100 shares of Common Stock held by Mr. Finocchio's minor son. Mr.
Finocchio is the Company's Chairman, President and Chief Executive Officer.
See "Management--Employment Agreements and Change-in-Control Arrangements."
(6) Includes 320,000 shares of Common Stock held issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Hendrickson is the
Company's Vice President, Customer Services, and Lenexa (Kansas) Site
General Manager. Mr. Hendrickson forfeited options to acquire 14,000 shares
of Common Stock in connection with the Company's November 1997 option
repricing program. See "Executive Compensation--Stock Option Repricing."
(7) Includes 62,500 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Hill is the Company's
Vice President and General Manager, Tools Business Unit. Mr. Hill forfeited
options to acquire 14,000 shares of Common Stock in connection with the
Company's November 1997 option repricing program. See "Executive
Compensation--Stock Option Repricing."
(8) Includes 25,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Also includes 105,728
shares of Common Stock held by Seaport Ventures, L.P., of which Mr. Knorp
is a general partner. Mr. Knorp is a member of the Company's Board of
Directors.
(9) Includes 82,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Koch is a member of
the Company's Board of Directors.
(10) Includes 85,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. McDonnell is a member
of the Company's Board of Directors.
(11) Includes 135,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Saranga is the
Company's Senior Vice President, Product Management and Development. Mr.
Saranga forfeited options to acquire 46,000 shares of Common Stock in
connection with the Company's November 1997 option repricing program. See
"Executive Compensation--Stock Option Repricing."
(12) Includes 181,882 shares of Common Stock held by Dr. Stonebraker's minor
children and 533 shares of Common Stock held by Dr. Stonebraker as trustee
for the Michael Stonebraker Pension Plan. Dr. Stonebraker is the Company's
Vice President and Chief Technology Officer. Dr. Stonebraker forfeited
options to acquire 15,000 shares of Common Stock in connection with the
Company's November 1997 option repricing program. See "Executive
Compensation--Stock Option Repricing."
(13) Includes 40,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997. Mr. Yansouni is a member
of the Company's Board of Directors.
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(14) Includes 754,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of December 31, 1997.
(15) Includes 1,245,000 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will be exercisable
withing 60 days of December 31, 1997. Mr. White resigned as Chairman of
the Board of Directors, President and Chief Executive Officer in July
1997. Mr. White's options remained exercisable for 90 days after the
termination of his employment, and such 90 day period was extended for any
days when the Company was out of compliance with its reporting
requirements under the Exchange Act. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Mr. White's
options expired in February 1998. Prior to the termination of such
options, Mr. White exercised options to acquire an aggregate of 540,000
shares of Common Stock in January and February 1998.
(16) The Series B Preferred is convertible into Common Stock of the Company
based upon the trading price of the Company's Common Stock as reported on
The Nasdaq Stock Market. The Series B Preferred are non-voting securities
and only shares of Common Stock issuable upon conversion of the Series B
Preferred are entitled to vote on corporate matters. Generally, shares of
Series B Preferred are first convertible on May 19, 1998. Upon conversion
of the Series B Preferred, the holders of such Series B Preferred will be
issued the Series B Warrants which will be exercisable immediately
thereafter.
(17) Based on an assumed Series B Preferred conversion price of $4.00, upon
conversion of such holder's shares of Series B Preferred such holder would
hold 3,800,000 shares of Common Stock of the Company, including 675,000
shares of Common Stock purchasable upon exercise of the Series B Warrants.
Based upon the assumed issuance of all shares of Common Stock issuable
upon the conversion of the Series B Preferred and upon exercise of the
Series B Warrants, such holder would hold approximately 2.3% of the
Company's outstanding Common Stock as of December 31, 1997, after taking
into consideration the February 1998 issuance of 12,769,208 shares to
Fletcher upon conversion of certain shares of Series A-1 Preferred (see
footnote 3).
(18) Based on an assumed Series B Preferred conversion price of $4.00, upon
conversion of such holder's shares of Series B Preferred such holder would
hold 6,080,000 shares of Common Stock of the Company, including 1,080,000
shares of Common Stock purchasable upon exercise of the Series B Warrants.
Based upon the assumed issuance of all shares of Common Stock issuable
upon the conversion of the Series B Preferred and upon exercise of the
Series B Warrants, such holder would hold approximately 3.7% of the
Company's outstanding Common Stock as of December 31, 1997, after taking
into consideration the February 1998 issuance of 12,769,208 shares to
Fletcher upon conversion of certain shares of Series A-1 Preferred (see
footnote 3).
(19) Based on an assumed Series B Preferred conversion price of $4.00, upon
conversion of such holder's shares of Series B Preferred such holder would
hold 5,320,000 shares of Common Stock of the Company, including 945,000
shares of Common Stock purchasable upon exercise of the Series B Warrants.
Based upon the assumed issuance of all shares of Common Stock issuable
upon the conversion of the Series B Preferred and upon exercise of the
Series B Warrants, such holder would hold approximately 3.2% of the
Company's outstanding Common Stock as of December 31, 1997, after taking
into consideration the February 1998 issuance of 12,769,208 shares to
Fletcher upon conversion of certain shares of Series A-1 Preferred (see
footnote 3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1993, the Company made a loan in the principal amount of $150,000
to Myron (Mike) Saranga, the Company's Senior Vice President, Product Management
and Development, in connection with his accepting employment by the Company. The
loan is secured by a second deed of trust on residential real property acquired
by Mr. Saranga in California and was originally due and payable in full on the
earliest of June 2, 1995, the date Mr. Saranga sold certain residential real
property located in Connecticut, or the date Mr. Saranga's employment with the
Company was terminated. In June 1995, Mr. Saranga and the Company amended the
loan to increase the interest rate of 3.56% per annum to 6.55% per annum and to
provide that $30,000 of principal, and accrued interest, would be forgiven on
June 2, 1996 and each anniversary thereafter until the loan is no longer
outstanding, provided that Mr. Saranga remains an employee of the Company. The
loan continues to provide that the full amount of unpaid principal and accrued
interest will become immediately due and payable on the date Mr. Saranga's
employment with the Company is terminated for any reason. In June 1997 and June
1996, respectively, the Company forgave $35,568 and $39,825 of principal and
interest on the loan under the promissory note, respectively (such forgiveness
amounts were not grossed up to satisfy tax obligations). As of December 31,
1997, outstanding principal under the note totaled $90,000.
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In April 1997, the Company entered into Separation Agreements with Ronald
M. Alvarez, the Company's former Vice President, American Sales, and Edwin C.
Winder, the Company's former Vice President, Japan Operations, in connection
with their resignations as executive officers of the Company. Under the terms of
their respective Separation Agreements, Mr. Alvarez and Mr. Winder received
payments for six months additional salary from the time of their resignations at
the rate of $17,083.33 and $18,250.00 per month, respectively. In addition, Mr.
Alvarez received a bonus in the amount of $7,686.00 for his services during the
Company's first fiscal quarter of 1997. As part of his Separation Agreement,
options to purchase 11,250 shares of Common Stock of the Company held by Mr.
Alvarez continued to vest during the six months subsequent to his resignation
date. The Company also agreed to pay both Mr. Alvarez and Mr. Winder additional
fees for outplacement services and legal fees incurred in connection with the
negotiation of their respective Separation Agreements.
In connection with D. Kenneth Coulter's resignation as Executive Vice
President, Worldwide Field Operations in July 1997, and pursuant to an
Employment Agreement the Company previously entered with Mr. Coulter, the
Company paid Mr. Coulter an aggregate of $106,954 over the five month period
ending December 31, 1997.
In January 1997, the Company made a loan in the principal amount of
$150,000 to Alan Henricks, the Company's former Executive Vice President and
Chief Financial Officer, at an interest rate of seven percent (7.0%) per annum
in connection with his appointment as Chief Financial Officer. Under the terms
of the loan, $50,000 of principal would be forgiven on December 20 of each year
that Mr. Henricks remained an employee of the Company. In connection with Mr.
Henricks' resignation in April 1997, the Company entered into a Separation
Agreement with Mr. Henricks whereby the Company agreed to pay Mr. Henricks nine
months salary at a rate of $25,000.00 per month following his resignation. In
addition, Mr. Henricks agreed to repay the outstanding principal and interest
under the note in equal monthly installments of $17,156.00 through deductions
from Mr. Henricks' monthly severance payments described above.
In connection with David H. Stanley's resignation as Vice President,
Legal and Corporate Services, and General Counsel in October 1997, the Company
entered into a Separation Agreement with Mr. Stanley whereby the Company agreed
to pay Mr. Stanley six months salary at a rate of $16,666.67 per month following
his resignation. In addition, the Company agreed that unvested options to
purchase up to an aggregate of 150,000 shares of Common Stock of the Company
held by Mr. Stanley would continue to vest during a one month transition period.
Under the Separation Agreement the Company also agreed to pay Mr. Stanley up to
$5,000 for outplacement services.
The Company has made certain payments to Phillip E. White, the Company's
former Chairman, President and Chief Executive Officer in connection with his
resignation pursuant to the terms of an employment agreement between the Company
and Mr. White. See "Management--Employment Agreements and Change in Control
Arrangements."
On November 17, 1997, the Company issued 160,000 shares of Series A-1
Preferred in cancellation of and exchange for all of the outstanding Series A
Convertible Preferred Stock previously issued in connection with a Subscription
Agreement, dated August 12, 1997, between Fletcher International Limited and the
Company. The issuance of the Series A-1 Preferred in exchange for the Series A
Preferred was effected in reliance on the exemption under Section 3(a)(9) of the
Securities Act.
In connection with the issuance of the Series B Preferred in November
1997, the Company paid The Shemano a fee of $1,000,000 for financial advisory
services provided in connection with such financing. In addition, the Company
issued Shemano 100,000 shares of its Common Stock. The Company also agreed to
issue Shemano a warrant to purchase up to an additional 50,000 shares of Common
Stock in the event that, as of May 17, 1998, the trading price of the Company's
Common Stock is less than $12.50 (the "Shemano Warrant"). The Shemano Warrant is
exercisable according to the same terms as the Series B Warrants. In February
1998, the Company and Shemano entered a letter agreement pursuant to
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which the Company agreed to repurchase from Shemano the 100,000 shares of Common
Stock issued in connection with the issuance of the Series B Preferred. The
repurchase price would be determined based on the then-prevailing price on The
Nasdaq Stock Market and would be payable in cash. The Company's obligation to
repurchase such shares will terminate upon the effectiveness with the Commission
of a registration statement covering such shares.
Pursuant to both Article VI of the Company's Bylaws and Section 6 of the
Indemnification Agreement the Company enters into with its executive officers
and directors, the Company advances expenses incurred by indemnified parties in
connection with the investigation, defense, settlement or appeal of threatened,
pending or completed action or suits against such parties in their capacity as
an agent of the Company. Under both the Bylaws and the Indemnification
Agreement, the indemnified party will repay the Company for any advanced
expenses if it is ultimately determined that the indemnified party is not
entitled to be indemnified by the Company. See "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Litigation." As of March 15, 1998, the Company has received invoices
for legal fees of approximately $555,000 incurred by certain of its current and
former executive officers and/or directors in connection with certain actions
and suits discussed in this report. As of the date of this report, the Company
has advanced approximately $370,000 in expenses to its former executive officers
and/or directors incurred in connection with such proceedings. The Company
anticipates advancing the remaining balance of such expenses in the near future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1997 were James
L. Koch, Thomas A. McDonnell and Cyril J. Yansouni. Messrs. Koch, McDonnell and
Yansouni were not at any time during the Company's 1997 fiscal year or at any
other time an officer or employee of the Company. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity which has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following are filed as a part of this Annual Report and included in Item
8:
(a)1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Cash Flows...................................................................... F-5
Consolidated Statements of Stockholders' Equity............................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
(a)2. FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
(a)3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- -------------------------------------------------------------------------------------------------
<C> <S>
3.1 (3) Certificate of Incorporation of the Registrant, as amended
3.2 (3) Bylaws of the Registrant, as amended
3.3 (4) Certificate of Designation of Series A Convertible Preferred Stock
3.4 (5) Certificate of Designation of Series A-1 Convertible Preferred Stock
3.5 (5) Certificate of Designation of Series B Convertible Preferred Stock
4.1 (6) First Amended and Restated Rights Agreement, dated as of August 12, 1997, between the Registrant
and BankBoston N.A., including the form of Rights Certificate attached thereto as Exhibit A
4.2 (7) Amendment, dated as of November 17, 1997, to the First Amended and Restated Rights Agreement
between the Registrant and BankBoston, N.A.
10.1 (2) Form of Change of Control Agreement
10.2 (9) Form of Amended Indemnity Agreement
10.3 (10) 1989 Outside Directors Stock Option Plan
10.4 (1) Amendment to the 1989 Outside Directors Stock Option Plan
10.5 (2) Form of Nonqualified Stock Option Agreement under the Registrant's 1989 Outside Director's Stock
Option Plan
10.6 (12) 1986 Stock Option Plan, as amended
10.7 (13) 1994 Stock Option and Award Plan
10.8 (1) Form of Stock Option Agreement and Performance Award Agreement under the Registrant's 1994 Stock
Option and Award Plan
10.9 (13) Form of Nonqualified Stock Option Agreement under the Registrant's 1994 Stock Option Plan
10.10 (14) 1997 Employee Stock Purchase Plan
10.11 (2) Enrollment/Change Form under the Registrant's 1997 Employee Stock Purchase Plan
10.12 (15) Employment Agreement, dated July 18, 1997, between the Registrant and Robert J. Finocchio, Jr.
10.13 (15) Offer of Employment Letter, dated September 18, 1997, from the Registrant to Wes Raffel
10.14 (15) Offer of Employment Letter, dated September 24, 1997, from the Registrant to Jean-Yves Dexmier
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.15 (2) Separation Agreement, dated April 18, 1987, between the Registrant and Ronald M. Alvarez
10.16 (2) Separation Agreement, dated May 12, 1997, between the Registrant and Edwin C. Winder
10.17 (16) Employment Agreement, dated January 1, 1989, between the Registrant and Phillip E. White
10.18 (2) Contract of Employment, dated December 5, 1996, between the Registrant and Kenneth Coulter
10.19 (2) Employment Letter Agreement, dated November 25, 1996, between the Registrant and Kenneth Coulter
10.20 (4) Subscription Agreement, dated August 12, 1997, between the Company and Fletcher International
Limited
10.21 (17) Exchange Agreement, dated as of November 17, 1997, between the Company and Fletcher International
Limited
10.22 (17) Amendment No. 1 to Subscription Agreement, dated as of November 17, 1997, between the Company and
Fletcher International Limited
10.23 (5) Securities Purchase Agreement, dated as of November 17, 1997, between the Company and the
purchasers listed therein
10.24 (5) Registration Rights Agreement, dated as of November 17, 1997, between the Company and the
purchasers listed therein
10.25 (8) Menlo Oaks Corporate Center Standard Business Lease, dated May 16, 1985, between the Registrant
and Amarok Bredero Partners for office space at 4100 Bohannon Drive, Menlo Park, California
10.26 (8) Lease Amendment #1, dated July 2, 1986, between the Registrant and Amarok Bredero Partners for
office space at 4100 Bohannon Drive, Menlo Park, California
10.27 (18) Second Amendment to Lease, dated November 7, 1986 between the Registrant and Amarok Bredero
Partners for office space at 4100 Bohannon Drive, Menlo Park, California
10.28 (19) Third Amendment to Lease, dated June 18, 1991, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4100 Bohannon Drive, Menlo Park, California
10.29 (2) Fourth Amendment to Lease, dated June 30, 1997, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4100 Bohannon Drive, Menlo Park, California
10.30 (9) Menlo Oaks Corporate Center Standard Business Lease, dated September 4, 1987 between the
Registrant and Menlo Oaks Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo
Park, California
10.31 (2) Side Letter Agreement, dated August 31, 1987, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.32 (2) Side Letter Agreement, dated October 27, 1987, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.33 (19) First Amendment to Lease, dated June 18, 1991, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.34 (20) Second Amendment to Lease, dated July 17, 1992, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.35 (2) Third Amendment to Lease, dated June 8, 1993 between the Registrant and Menlo Oaks Partners, L.P.
for office space at 4300/4400 Bohannon Drive, Menlo Park, California
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.36 (21) Fourth Amendment to Lease, dated February 10, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.37 (2) Fifth Amendment to Lease, dated June 30, 1997 between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.38 (21) Menlo Oaks Corporate Center Standard Business Lease, dated February 10, 1994 between the
Registrant and Menlo Oaks Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo
Park, California
10.39 (21) First Amendment to Lease, dated March 17, 1994, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4600/4700 Bohannon Drive, Menlo Park, California
10.40 (2) Second Amendment to Lease, dated September 22, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo Park, California
10.41 (2) Third Amendment to Lease, dated December 28, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo Park, California
10.42 (9) Office Lease, dated August 15, 1987, between the Registrant and Southlake Partners #1 for office
space at 15961 College Blvd. and 11170 Lakeview Avenue, Lenexa, Kansas
10.43 (2) First Amendment to Office Lease, dated April 15, 1988, between the Registrant and Southlake
Partners #1 for office space at 15901 College Blvd., Lenexa, Kansas
10.44 (2) Amendment to Office Lease, dated October 20, 1997, between the Registrant and Southlake Partners
#1 for office space at 15901 College Blvd. (now 16011 College Blvd) Lenexa, Kansas
10.45 (2) Office Lease, dated October 20, 1997, between the Registrant and Southlake Partners #1 for office
space at 11170 Lakeview Avenue, Lenexa, Kansas
10.46 (2) Senior Secured Credit Agreement, dated December 31, 1997, among Informix Software, Inc., certain
banks and other financial institutions that either now or in the future are parties to the
agreement, BankBoston, N.A. and Canadian Imperial Bank of Commerce
10.47 (2) Pledge Agreement, dated December 31, 1997, by and between the Registrant and BankBoston, N.A.
10.48 (2) Pledge and Security Agreement, dated as of December 31, 1997, between Informix Software, Inc. and
BankBoston, N.A.
10.49 (2) Continuing Guaranty, dated as of December 31, 1997, by the Registrant
10.50 (1) 1997 Non-Statutory Stock Option Plan and form of Stock Option Agreement thereunder
10.51 (1) Offer of Employment Letter, dated January 23, 1998, from the Registrant to Susan T. Daniel
10.52 (1) Offer of Employment Letter, dated January 19, 1998, from the Registrant to Gary Lloyd
10.53 (1) Offer of Employment Letter, dated March 11, 1998, from the Registrant to Diane L. Fraiman
10.54 (1) Office Lease, dated November 10, 1994, between WVP Income Plus III and Siebel Systems, L.P.
(assigned to Informix Corporation) for office space at 4005 Bohannon Drive, including addenda and
amendments thereto.
10.55 (1) Office Lease, dated April 10, 1995, between the Registrant and 3905 Bohannon Partners for office
space at 3905 Bohannon Drive, including addenda thereto.
21.1 (23) Subsidiaries of the Registrant
23.1 (1) Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- -------------------------------------------------------------------------------------------------
<C> <S>
24.1 (2) Power of Attorney (set forth on signature page)
27.1 (1) Financial Data Schedule
27.2 (1) Financial Data Schedule for fiscal years end December 31, 1996, 1995 and 1994
27.3 (1) Financial Data Schedule for quarters in the fiscal year end December 31, 1997
27.4 (1) Financial Data Schedule for quarters in the fiscal year end December 31, 1996
</TABLE>
- ------------------------
(1) Filed herewith
(2) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (333-43991)
(3) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended July 2, 1995
(4) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on August 25, 1997
(5) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on December 4, 1997
(6) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on September 3, 1997
(7) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on December 3, 1997.
(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-8006)
(9) Incorporated by reference to exhibit filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1988
(10) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-31116)
(11) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-50608)
(12) Incorporated by reference to exhibits filed with Registrant's Registration
Statements on Form S-8 (File Nos: 33-22862, 33-31117 and 33-506-10)
(13) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31369) filed with the
Commission on July 16, 1997.
(14) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31371) filed with the
Commission on July 16, 1997
(15) Incorporated by reference to exhibits filed with the Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended September 28,
1997
(16) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1989
(17) Incorporated by reference to exhibits filed with Registrant's report on
Form 8-K filed with the Commission on December 2, 1997
(18) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1986
71
<PAGE>
(19) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1991
(20) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1992
(21) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1993
(22) Incorporated by reference to exhibits filed with the Registrant's
amendment to its annual report on Form 10-K/A for the fiscal year ended
December 31, 1996 filed with the Commission on November 18, 1997
(23) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1996
(b) Financial Statement Schedule
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable.
(b) Reports on Form 8-K
i. Report on Form 8-K filed December 2, 1997 in connection with the
issuance of 160,000 shares of Series A-1 Convertible Preferred Stock in
cancellation of and exchange for all of the outstanding Series A
Convertible Preferred Stock previously issued by the Registrant.
ii Report on Form 8-K filed December 4, 1997 in connection with the
issuance of 50,000 shares of the Registrant's Series B Convertible
Preferred Stock.
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Menlo Park, State of California, on the 31st day of
March, 1998.
<TABLE>
<S> <C> <C>
INFORMIX CORPORATION
By: /s/ ROBERT J. FINOCCHIO, JR.
------------------------------------------
Robert J. Finocchio, Jr.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS JEAN-YVES DEXMIER AND KAREN
BLASING AND EACH ONE OF THEM, ACTING INDIVIDUALLY AND WITHOUT THE OTHER, AS HIS
ATTORNEY-IN-FACT, EACH WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL 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 SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT ON FORM 10-K HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ (ROBERT J. FINOCCHIO, Chairman, President and
JR.) Chief Executive Officer
- ------------------------------ (Principal Executive March 31, 1998
(Robert J. Finocchio, Jr.) Officer) and Director
Executive Vice President
/s/ (JEAN-YVES DEXMIER) and Chief Financial
- ------------------------------ Officer (Principal March 31, 1998
(Jean-Yves Dexmier) Financial Officer)
/s/ (LESLIE G. DENEND)
- ------------------------------ Director March 31, 1998
(Leslie G. Denend)
/s/ (ALBERT F. KNORP, JR.)
- ------------------------------ Director March 31, 1998
(Albert F. Knorp, Jr.)
/s/ (JAMES L. KOCH)
- ------------------------------ Director March 31, 1998
(James L. Koch)
/s/ (THOMAS A. MCDONNELL)
- ------------------------------ Director March 31, 1998
(Thomas A. McDonnell)
/s/ (CYRIL J. YANSOUNI)
- ------------------------------ Director March 31, 1998
(Cyril J. Yansouni)
Vice President and
/s/ (KAREN BLASING) Corporate Controller
- ------------------------------ (Principal Accounting March 31, 1998
(Karen Blasing) Officer)
</TABLE>
73
<PAGE>
INFORMIX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Cash Flows...................................................................... F-5
Consolidated Statements of Stockholders' Equity............................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders--
Informix Corporation
We have audited the accompanying consolidated balance sheets of Informix
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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
Informix Corporation at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
March 2, 1998
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER-SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................................... $ 139,396 $ 226,508
Short-term investments....................................................................... 16,069 34,512
Accounts receivable, less allowance for doubtful accounts of $33,807 in 1997 and $21,429 in
1996....................................................................................... 142,048 194,499
Deferred taxes............................................................................... 12,249 42,133
Other current assets......................................................................... 26,243 35,662
----------- -----------
Total current assets........................................................................... 336,005 533,314
----------- -----------
Property and equipment, at cost
Computer equipment........................................................................... 189,985 225,336
Office equipment and leasehold improvements.................................................. 73,084 67,982
Less accumulated depreciation and amortization............................................. (167,057) (106,591)
----------- -----------
96,012 186,727
Software costs, less accumulated amortization of $22,786 in 1997 and $41,559 in 1996........... 40,854 54,486
Deferred taxes................................................................................. 56,345 10,542
Long-term investments.......................................................................... -- 6,639
Intangible assets, net......................................................................... 8,277 34,693
Other assets................................................................................... 25,751 55,597
----------- -----------
Total Assets................................................................................... $ 563,244 $ 881,998
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................................. $ 36,155 $ 65,446
Accrued expenses............................................................................. 64,538 59,723
Accrued employee compensation................................................................ 49,154 57,626
Income taxes payable......................................................................... 3,031 5,757
Deferred maintenance revenue................................................................. 100,828 94,981
Advances on unearned license revenue......................................................... 180,048 239,506
Accrued restructuring costs.................................................................. 26,597 --
Other current liabilities.................................................................... 15,802 7,138
----------- -----------
Total current liabilities...................................................................... 476,153 530,177
----------- -----------
Other non-current liabilities.................................................................. 6,311 2,359
Deferred taxes................................................................................. 21,716 24,158
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01 per share--5,000,000 shares authorized
Series A-1 convertible preferred stock, 160,000 shares issued and outstanding, aggregate
liquidation preference of $40,000........................................................ 2 --
Series B convertible preferred stock, 50,000 shares issued and outstanding, aggregate
liquidation preference of $50,301........................................................ 1 --
Common stock, par value $.01 per share--500,000,000 shares authorized, 152,587,000 and
150,782,000 shares issued and outstanding in 1997 and 1996, respectively................... 1,526 1,508
Additional paid-in capital................................................................... 349,484 243,564
Retained earnings (accumulated deficit)...................................................... (280,046) 78,723
Unrealized gain (loss) on available-for-sale securities, net of tax.......................... (767) 11,690
Foreign currency translation adjustment...................................................... (11,136) (10,181)
----------- -----------
Total stockholders' equity..................................................................... 59,064 325,304
----------- -----------
Total Liabilities and Stockholders' Equity..................................................... $ 563,244 $ 881,998
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net Revenues
Licenses................................................................. $ 376,570 $ 496,039 $ 458,284
Services................................................................. 285,728 231,810 174,486
------------ ---------- ----------
662,298 727,849 632,770
Costs and Expenses
Cost of software distribution............................................ 63,027 46,786 37,593
Cost of services......................................................... 166,916 144,850 91,540
Sales and marketing...................................................... 417,162 413,689 301,932
Research and development................................................. 139,310 120,211 85,643
General and administrative............................................... 87,498 64,416 51,114
Write-off of goodwill and other long-term assets......................... 30,473 -- --
Write-off of acquired research and development........................... 7,000 -- --
Restructuring charges.................................................... 108,248 -- --
Expenses related to Illustra merger...................................... -- 5,914 --
------------ ---------- ----------
1,019,634 795,866 567,822
------------ ---------- ----------
Operating income (loss).................................................... (357,336) (68,017) 64,948
Interest income.......................................................... 5,623 9,868 8,148
Interest expense......................................................... (7,811) (5,784) (2,522)
Other income, net........................................................ 10,474 2,899 120
------------ ---------- ----------
Income (loss) before income taxes.......................................... (349,050) (61,034) 70,694
Income taxes............................................................. 7,817 12,531 32,094
------------ ---------- ----------
Net income (loss).......................................................... (356,867) (73,565) 38,600
Preferred stock dividend................................................... (301) -- --
Value assigned to warrants................................................. (1,601) -- --
------------ ---------- ----------
Net income (loss) applicable to common stockholders........................ $ (358,769) $ (73,565) $ 38,600
------------ ---------- ----------
------------ ---------- ----------
Net income (loss) per common share:
Basic.................................................................... $ (2.36) $ (0.49) $ 0.27
------------ ---------- ----------
------------ ---------- ----------
Diluted.................................................................. $ (2.36) $ (0.49) $ 0.26
------------ ---------- ----------
------------ ---------- ----------
Shares used in per share calculations:
Basic.................................................................... 151,907 149,310 145,062
------------ ---------- ----------
------------ ---------- ----------
Diluted.................................................................. 151,907 149,310 150,627
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income (loss)............................................................. $ (356,867) $ (73,565) $ 38,600
Adjustments to reconcile net income (loss) to cash and cash equivalents
provided by (used in) operating activities:
License revenue paid in advance............................................. (64,797) (58,206) (34,237)
Depreciation and amortization............................................... 65,639 47,207 28,949
Amortization of capitalized software........................................ 21,437 14,626 12,041
Write-off of capitalized software........................................... 14,749 -- --
Write-off of long term assets............................................... 6,799 -- --
Write-off of intangibles.................................................... 20,033 -- --
Write-off of acquired research and development.............................. 7,000 -- --
Foreign currency transaction gains.......................................... 3,243 (5,349) (4,609)
Gain on sales of strategic investments...................................... (5,007) (3,856) --
Loss on disposal of property and equipment.................................. 10,815 2,393 605
Deferred tax expense........................................................ (328) (3,965) (16,577)
Provisions for losses on accounts receivable................................ 19,929 14,983 8,508
Restructuring charges....................................................... 77,196 -- --
Stock-based employee compensation........................................... 7,501 -- --
Changes in operating assets and liabilities:
Accounts receivable....................................................... 42,596 (45,426) (47,045)
Other current assets...................................................... 40,530 89 (8,441)
Accounts payable and accrued expenses..................................... (58,867) 52,077 64,294
Deferred maintenance revenue.............................................. 3,618 29,590 17,197
---------- ---------- ----------
Net cash and cash equivalents provided by (used in) operating activities...... (144,781) (29,402) 59,285
---------- ---------- ----------
Investing Activities
Investments of excess cash:
Purchases of held-to-maturity securities.................................... -- -- (144,517)
Purchases of available-for-sale securities.................................. (35,255) (152,179) (4,303)
Maturities of held-to-maturity securities................................... -- -- 83,159
Maturities of available-for-sale securities................................. 14,468 126,137 6,104
Sales of available-for-sale securities...................................... 45,957 83,696 27,261
Purchases of strategic investments............................................ (3,250) (12,737) (1,000)
Proceeds from sales of strategic investments.................................. 10,454 7,299 --
Purchases of land, and property and equipment................................. (93,786) (148,270) (56,500)
Proceeds from disposal of land, and property and equipment.................... 62,371 1,929 288
Additions to software costs................................................... (20,776) (32,381) (23,977)
Business combinations, net of cash acquired................................... (9,749) (4,340) (38,413)
Other......................................................................... (33,500) (14,434) (5,757)
---------- ---------- ----------
Net cash and cash equivalents used in investing activities.................... (63,066) (145,280) (157,655)
---------- ---------- ----------
Financing Activities
Advances on unearned license revenue.......................................... 21,787 207,218 109,338
Proceeds from issuance of common stock, net................................... 9,239 24,357 27,898
Proceeds from issuance of preferred stock, net................................ 87,600 -- --
Principal payments on capital leases.......................................... (3,388) (1,025) (442)
Acquisition of common stock................................................... -- (2,388) --
Reissuance of treasury stock.................................................. -- 578 --
---------- ---------- ----------
Net cash and cash equivalents provided by financing activities................ 115,238 228,740 136,794
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents.................. 5,497 8,145 (6,402)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.............................. (87,112) 62,203 32,022
Cash and cash equivalents at beginning of year................................ 226,508 164,305 132,283
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 139,396 $ 226,508 $ 164,305
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------------------------
COMMON
SERIES A-1 SERIES B STOCK
------------------------ ------------------------ ---------
SHARES AMOUNT SHARES AMOUNT SHARES
----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994............................. $ $ 140,154
Exercise of stock options................................. 4,377
Sale of stock to employees under employee stock purchase
plan.................................................... 349
Issuance of stock, net of costs........................... 2,571
Tax benefits related to stock options.....................
Acquisition of STG........................................ 533
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net income................................................
--- --- --- --- ---------
Balances at December 31, 1995............................. 147,984
Exercise of stock options................................. 2,182
Sale of stock to employees under employee stock purchase
plan.................................................... 616
Acquisition of treasury stock.............................
Reissuance of treasury stock..............................
Tax benefits related to stock options.....................
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net loss..................................................
--- --- --- --- ---------
Balances at December 31, 1996............................. 150,782
Exercise of stock options................................. 1,132
Sale of stock to employees under employee stock purchase
plan.................................................... 573
Stock-based compensation expense resulting from stock
options.................................................
Issuance of Series A-1 convertible preferred stock and
warrants, net........................................... 160 2
Issuance of Series B convertible preferred stock and
warrants, net........................................... 50 1
Common stock issued for services rendered in connection
with the Series B convertible preferred stock offering.. 100
Accretion of discount on preferred stock issuances........
Accrual of 5% cumulative preferred dividends on Series B
convertible preferred stock.............................
Change in unrealized gain (loss) on available-for-sale
securities..............................................
Foreign currency translation adjustment...................
Net loss..................................................
--- --- --- --- ---------
Balance at December 31, 1997.............................. 160 $ 2 50 $ 1 152,587
--- --- --- --- ---------
--- --- --- --- ---------
<CAPTION>
RETAINED
ADDITIONAL TREASURY STOCK EARNINGS
PAID-IN ---------------------- (ACCUMULATED
AMOUNT CAPITAL SHARES AMOUNT DEFICIT)
----------- ----------- ----------- --------- ------------
<S> <C> <C> <C>
Balances at December 31, 1994............................. $ 1,400 $ 153,343 $ -- $ -- $ 115,668
Exercise of stock options................................. 44 13,712
Sale of stock to employees under employee stock purchase
plan.................................................... 3 6,603
Issuance of stock, net of costs........................... 28 7,508
Tax benefits related to stock options..................... 21,291
Acquisition of STG........................................ 5 1,991 (170)
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net income................................................ 38,600
----------- ----------- --- --------- ------------
Balances at December 31, 1995............................. 1,480 204,448 -- -- 154,098
Exercise of stock options................................. 22 13,343
Sale of stock to employees under employee stock purchase
plan.................................................... 6 10,986
Acquisition of treasury stock............................. (100) (2,388)
Reissuance of treasury stock.............................. 100 2,388 (1,810)
Tax benefits related to stock options..................... 14,787
Change in unrealized gain (loss) on available-for-sale
securities, net of tax..................................
Foreign currency translation adjustment...................
Net loss.................................................. (73,565)
----------- ----------- --- --------- ------------
Balances at December 31, 1996............................. 1,508 243,564 -- -- 78,723
Exercise of stock options................................. 11 3,563
Sale of stock to employees under employee stock purchase
plan.................................................... 6 5,659
Stock-based compensation expense resulting from stock
options................................................. 7,501
Issuance of Series A-1 convertible preferred stock and
warrants, net........................................... 37,598
Issuance of Series B convertible preferred stock and
warrants, net........................................... 49,196
Common stock issued for services rendered in connection
with the Series B convertible preferred stock offering.. 1 802
Accretion of discount on preferred stock issuances........ 1,601 (1,601)
Accrual of 5% cumulative preferred dividends on Series B
convertible preferred stock............................. (301)
Change in unrealized gain (loss) on available-for-sale
securities..............................................
Foreign currency translation adjustment...................
Net loss.................................................. (356,867)
----------- ----------- --- --------- ------------
Balance at December 31, 1997.............................. $ 1,526 $ 349,484 -- $ -- $ (280,046)
----------- ----------- --- --------- ------------
----------- ----------- --- --------- ------------
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON FOREIGN
AVAILABLE CURRENCY
FOR-SALE TRANSLATION
SECURITIES ADJUSTMENT TOTALS
----------- ----------- ----------
Balances at December 31, 1994............................. $ 665 $ (1,676) $ 269,400
Exercise of stock options................................. 13,756
Sale of stock to employees under employee stock purchase
plan.................................................... 6,606
Issuance of stock, net of costs........................... 7,536
Tax benefits related to stock options..................... 21,291
Acquisition of STG........................................ 1,826
Change in unrealized gain (loss) on available-for-sale
securities, net of tax.................................. 3,399 3,399
Foreign currency translation adjustment................... (4,667) (4,667)
Net income................................................ 38,600
----------- ----------- ----------
Balances at December 31, 1995............................. 4,064 (6,343) 357,747
Exercise of stock options................................. 13,365
Sale of stock to employees under employee stock purchase
plan.................................................... 10,992
Acquisition of treasury stock............................. (2,388)
Reissuance of treasury stock.............................. 578
Tax benefits related to stock options..................... 14,787
Change in unrealized gain (loss) on available-for-sale
securities, net of tax.................................. 7,626 7,626
Foreign currency translation adjustment................... (3,838) (3,838)
Net loss.................................................. (73,565)
----------- ----------- ----------
Balances at December 31, 1996............................. 11,690 (10,181) 325,304
Exercise of stock options................................. 3,574
Sale of stock to employees under employee stock purchase
plan.................................................... 5,665
Stock-based compensation expense resulting from stock
options................................................. 7,501
Issuance of Series A-1 convertible preferred stock and
warrants, net........................................... 37,600
Issuance of Series B convertible preferred stock and
warrants, net........................................... 49,197
Common stock issued for services rendered in connection
with the Series B convertible preferred stock offering.. 803
Accretion of discount on preferred stock issuances........ --
Accrual of 5% cumulative preferred dividends on Series B
convertible preferred stock............................. (301)
Change in unrealized gain (loss) on available-for-sale
securities.............................................. (12,457) (12,457)
Foreign currency translation adjustment................... (955) (955)
Net loss.................................................. (356,867)
----------- ----------- ----------
Balance at December 31, 1997.............................. $ (767) $ (11,136) $ 59,064
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the filing of its Annual Report on Form 10-K for the year
ended December 31, 1996 with the Securities and Exchange Commission, the Company
became aware of errors and irregularities that ultimately affected the timing
and dollar amount of reported earned revenues from license transactions in 1996,
1995 and 1994. The irregularities took numerous forms and were primarily the
result of lack of compliance with or circumvention of the Company's procedures
and controls.
These errors and irregularities included unauthorized and undisclosed
arrangements or agreements between Company personnel and resellers, recognition
of revenue on certain transactions in reporting periods prior to contract
acceptance, the recording of certain transactions that lacked economic substance
and the recording of maintenance revenue as license revenue. The unauthorized
and undisclosed agreements with resellers introduced acceptance contingencies,
permitted resellers to return unsold licenses for refunds, extended payment
terms or committed the Company to assist resellers in selling the licenses to
end-users. Accordingly, license revenue from these transactions that was
recorded at the time product was delivered to resellers should have instead been
recorded at the time all conditions on the sale lapsed. Because of the
pervasiveness of the unauthorized arrangements with resellers in the 1994, 1995
and 1996 accounting periods, the Company concluded that all revenue from license
agreements with resellers in these accounting periods, except for thoses
licenses sold and billed on a per copy basis, should be recognized only when the
licenses were resold or utilized by resellers and all related obligations had
been satisfied. Amounts received from resellers as prepayments of software
license fees in advance of revenue recognition have been recorded as advances on
unearned license revenue. This revised application of accounting policy has been
followed for all transactions with resellers, other than those licenses sold and
billed on a per-copy basis, for 1996, 1995 and 1994.
Accordingly, such financial statements have been restated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues
Licenses.......................... $ 708,035 $ 496,039 $ 539,733 $ 458,284 $ 364,661 $ 346,518
Services.......................... 231,276 231,810 174,486 174,486 105,451 105,451
----------- ---------- ----------- ---------- ----------- ----------
939,311 727,849 714,219 632,770 470,112 451,969
Operating income (loss)............. 137,344 (68,017) 145,826 64,948 95,091 77,229
Income taxes........................ 50,391 12,531 55,164 32,094 34,074 29,250
Net income (loss)................... 97,818 (73,565) 97,644 38,600 61,948 48,293
Net income (loss) per share:
Basic............................. $ 0.66 $ (0.49) $ 0.67 $ 0.27 $ 0.45 $ 0.35
Diluted........................... $ 0.63 $ (0.49) $ 0.65 $ 0.26 $ 0.43 $ 0.34
Retained earnings................... $ 322,805 $ 78,723 $ 226,797 $ 154,098 $ 129,323 $ 115,668
Advances on unearned license
revenue........................... $ -- $ 239,506 $ -- $ 83,553 $ -- $ 18,556
</TABLE>
In response to the errors and irregularities discussed above, a number of
conditions which collectively represented a material weakness in the Company's
internal accounting controls were identified. These conditions included a
deterioration in the Company's accounting controls at corporate and regional
management levels, and a related failure to stress the importance of these
controls, an inappropriate level of influence, principally by the Company's
sales organization, over the revenue recognition
F-7
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
process and an apparent lack of clarity and consistent understanding within the
Company concerning the application of the Company's revenue recognition policies
to large, complex reseller license transactions. The Company is implementing a
plan to strengthen the Company's internal accounting controls. This plan
includes updating the Company's policies regarding accounting and reporting for
large, complex reseller license transactions, developing and conducting
educational programs to help implement such policies, changing the Company's
corporate and regional accounting and reporting structure, and re-establishing
an internal audit function reporting to the Company's Board of Directors.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS. The Company is a multinational supplier of
high-performance, parallel processing database technology for open systems. The
Company's products also include application development tools for creating
client/server production applications, decision-support systems, ad-hoc query
interfaces, and software that allows information to be shared transparently from
personal computers to mainframes within the corporate computing environment. In
addition to software products, the Company offers training, consulting, and
post-contract support to its customers.
The principal geographic markets for the Company's products are North
America, Europe, Asia/ Pacific, and Latin America. Customers include large-,
medium- and small-sized corporations in the manufacturing, financial services,
telecommunications, retail/wholesale, hospitality, and government services
sectors.
USE OF ESTIMATES. The preparation of financial statements in conformity
with general accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Informix Corporation and its wholly owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of operations are translated at the
average exchange rates during the year. Exchange gains or losses arising from
translation of foreign entity financial statements are included as a component
of stockholders' equity.
For foreign operations with the U.S. dollar as the functional currency,
certain assets and liabilities are remeasured at the year-end or historical
exchange rates as appropriate. Statements of operations are remeasured at the
average exchange rates during the year. Gains and losses resulting from the
remeasurement of these foreign entity's financial statements and other foreign
currency transaction gains and losses are included in other income, net. Foreign
currency transaction gains, net of losses, were $8.0 million, $.3 million and
$.2 million for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company enters into forward foreign exchange contracts primarily to
hedge the value of accounts receivable or accounts payable denominated in
foreign currencies (mainly European and Asian foreign currencies) against
fluctuations in exchange rates until such receivables are collected or such
payables are disbursed. The Company does not enter into forward foreign exchange
contracts for speculative or trading purposes. The Company's accounting policies
for these contracts are based on the
F-8
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's designation of the contracts as hedges of firm foreign currency
commitments. Gains and losses on forward foreign exchange contracts are deferred
and recognized in income in the same period as losses and gains on the
underlying transactions are recognized and generally offset. If an underlying
hedged transaction is terminated earlier than initially anticipated, the
offsetting gain or loss on the related forward foreign exchange contract would
be recognized in income in the same period. Subsequent gains or losses on the
related contract would be recognized in income in each period until the contract
matures, is terminated or sold. The Company operates in certain countries in
Latin America, Eastern Europe, and Asia Pacific where there are limited forward
currency exchange markets and thus the Company has unhedged transaction
exposures in these currencies. However, such exposures are not material to the
Company's financial statements for any period presented.
REVENUE RECOGNITION
LICENSE REVENUE. The Company recognizes revenue from sales of software
licenses to end-users upon delivery of the software product to the customer when
there are no significant post-delivery obligations and collection of the license
fee is considered probable. However, as previously discussed in Note 1, because
the Company is unable to estimate the amount of allowances for transactions
entered into with resellers, revenue from license agreements with resellers,
except for those licenses sold and billed on a per-copy basis, is recognized as
earned when the licenses are resold or utilized by the reseller and all related
obligations have been satisfied. The Company provides for all other sales
allowances on an estimated basis.
SERVICE REVENUE. Maintenance contracts generally call for the Company to
provide technical product support and software updates to customers. Maintenance
contract revenue is recognized ratably over the term of the maintenance
contract, generally on a straight-line basis. Where maintenance revenue is not
separately invoiced, it is unbundled from license fees and deferred for revenue
recognition purposes. Other service revenue, primarily training and consulting,
is generally recognized at the time the service is performed.
ADVANCES ON UNEARNED LICENSE REVENUE. At December 31, 1997 and 1996,
"advances on unearned license revenue" reflect amounts received from customers
and third-party financial institutions in advance of revenue being recognized.
The Company may receive cash, either from the customer, or from a financing
entity to whom the customer payment streams are sold, prior to the time the
license fee is recognized as earned revenue.
The Company's license agreements with customers provide contractually for
a non-refundable fee payable by the customer in single or multiple
installment(s) at the initiation or over the term of the license arrangement. If
the Company fails to comply with the contractual terms of a specific license
agreement, the Company could be required to refund to the customer or the
financial institution the amount(s) received. The refund of amounts received
would not, however, have a material effect on the Company's results of operation
as revenue has not been recognized for amounts recorded as "Advances on Unearned
License Revenue."
The Company's arrangements for financing of license contracts with
customers frequently take the form of a non-recourse sale of the future payment
streams. When such customer contracts are sold to a third-party financing
entity, they are typically sold at a discount which represents the financing
cost. Such discounts are charged to expense immediately in cases where the
license has been recorded as a sale. For
F-9
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
transactions where the financing is received prior to the recognition of
revenue, the financing discount has been charged to interest expense over the
financing period based on the contractual terms on a straight-line basis, which
approximates the "interest method."
CONCURRENT TRANSACTIONS. Principally during 1996, the Company entered into
software license agreements with certain computer and service vendors where the
Company concurrently committed to acquire goods and services in the aggregate of
approximately $130 million. If the agreement is with a reseller, revenue is
recognized as earned on these transactions as the licenses are resold by the
customer. If the agreement is with an end user, revenue is generally recognized
as earned upon delivery of software. The computer equipment and services are
recorded at their fair value. These concurrent transactions for 1996 included
license agreements of approximately $170 million. Concurrent transactions in
1997 included software license agreements of approximately $21 million and
commitments by the Company to acquire goods and services in the aggregate of
approximately $50 million.
INVENTORIES. Inventories, which consist primarily of software product
components, finished software products, and marketing and promotional materials,
are carried at the lower of cost (first in, first out) or market value, and are
included in other current assets.
SOFTWARE COSTS. The Company capitalizes software development costs incurred
in developing a product once technological feasibility of the product has been
determined. Software costs also include amounts paid for purchased software and
outside development on products which have reached technological feasibility.
All software costs are amortized as a cost of software distribution either on a
straight-line basis over the remaining estimated economic life of the product or
on the basis of each product's projected revenues, whichever results in greater
amortization. Capitalized software costs are generally amortized over three
years. The Company recorded amortization of $21.4 million, $14.6 million, and
$12.0 million of software costs in 1997, 1996 and 1995, respectively, in cost of
software distribution.
PROPERTY AND EQUIPMENT. Depreciation of property and equipment is
calculated using the straight-line method over its estimated useful life,
generally the shorter of the applicable lease term or three-to-seven years for
financial reporting purposes.
BUSINESSES ACQUIRED. The purchase price of businesses acquired, accounted
for as purchase business combinations, is allocated to the tangible and
specifically identifiable intangible assets acquired based on their estimated
fair values with any amount in excess of such allocations being designated as
goodwill. Intangible assets are amortized over their estimated useful lives,
which to date have been five to seven years. The carrying values of goodwill and
specified intangible assets are reviewed if the facts and circumstances suggest
that they may be impaired. If this review indicates that the asset will not be
recoverable, as determined based on the undiscounted cash flows of the acquired
business over the remaining amortization period, the Company's carrying value is
reduced to net realizable value. During 1997, the Company wrote down $30.5
million of impaired long-term assets related to the shortfall in business
activity of its Japanese subsidiary (see Note 13). There were no writedowns of
intangible assets in 1996 or 1995. As of December 31, 1997 and 1996, the Company
had $19.2 million and $50.6 million of intangible assets, with accumulated
amortization of $10.9 million and $15.9 million, respectively, as a result of
these acquisitions.
CONCENTRATION OF CREDIT RISK. The Company designs, develops, manufactures,
markets, and supports computer software systems to customers in diversified
industries and in diversified geographic locations.
F-10
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral.
No single customer accounted for 10% or more of the consolidated revenues
of the Company in 1997, 1996 or 1995.
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, AND LONG-TERM
INVESTMENTS. The Company considers liquid investments purchased with a maturity
of three months or less to be cash equivalents. The Company considers
investments with a maturity of more than three months but less than one year to
be short-term investments. Investments with an original maturity of more than
one year are considered long-term investments. Short-term and long-term
investments are classified as available-for-sale and are carried at fair value.
Cash equivalents are carried at amortized cost.
The Company invests its excess cash in accordance with its short-term and
long-term investments policy, which is approved by the Board of Directors. The
policy authorizes the investment of excess cash in government securities,
municipal bonds, time deposits, certificates of deposit with approved financial
institutions, commercial paper rated A-1/P-1 (a small portion of the portfolio
may consist of commercial paper rated A-2/P-2), and other specific money market
instruments of similar liquidity and credit quality. The Company has not
experienced any significant losses related to these investments.
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE. Management determines
the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive intent and the
ability to hold the securities until maturity. Held-to-maturity securities are
stated at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, as well as any interest on the
securities, is included in interest income.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
expense, net. The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
are included in interest income. The Company realized gross gains of
approximately $8.5 million and $5.2 million and gross losses of approximately
$1.2 million and $1.3 million on the sale of available-for-sale equity
securities during 1997 and 1996, respectively. Realized gains and losses were
not material in 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair values of cash, cash equivalents,
short and long term investments, other assets, and currency forward contracts
are based on quoted market prices.
RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform to the current period presentation.
F-11
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--FINANCIAL INSTRUMENTS
The following is a summary of available-for-sale debt and equity securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. treasury securities......................................... $ 3,701 $ 1 $ -- $ 3,702
Commercial paper, corporate bonds and medium-term notes.......... 49,664 18 -- 49,682
Municipal bonds.................................................. 11,903 -- (3) 11,900
Repurchase agreements............................................ 23,262 -- -- 23,262
---------- ----------- ----------- ----------
Total debt securities.......................................... $ 88,530 $ 19 $ (3) $ 88,546
U.S. equity securities........................................... 13,309 -- (851) 12,458
---------- ----------- ----------- ----------
$ 101,839 $ 19 $ (854) $ 101,004
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Amounts included in cash and cash equivalents.................... $ 72,460 $ 18 $ (1) $ 72,477
Amounts included in short-term investments....................... 16,070 1 (2) 16,069
Amounts included in other assets................................. 13,309 -- (851) 12,458
---------- ----------- ----------- ----------
$ 101,839 $ 19 $ (854) $ 101,004
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
<CAPTION>
DECEMBER 31, 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities......................................... $ 61,308 $ -- $ (20) $ 61,288
Commercial paper................................................. 15,872 14 (2) 15,884
Municipal bonds.................................................. 27,317 10 (48) 27,279
Auctioned preferred stock........................................ 4,504 -- (4) 4,500
---------- ----------- ----------- ----------
Total debt securities.......................................... 109,001 24 (74) 108,951
U.S. equity securities........................................... 15,404 18,490 -- 33,894
---------- ----------- ----------- ----------
$ 124,405 $ 18,514 $ (74) $ 142,845
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Amounts included in cash and cash equivalents.................... $ 67,806 $ -- $ (6) $ 67,800
Amounts included in short-term investments....................... 34,548 19 (55) 34,512
Amounts included in long-term investments........................ 6,647 5 (13) 6,639
Amounts included in other assets................................. 15,404 18,490 -- 33,894
---------- ----------- ----------- ----------
$ 124,405 $ 18,514 $ (74) $ 142,845
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
F-12
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts primarily to
hedge the value of accounts receivable or accounts payable denominated in
foreign currencies against fluctuations in exchange rates until such receivables
are collected or payables are disbursed. The purpose of the Company's foreign
exchange exposure management policy and practices is to attempt to minimize the
impact of exchange rate fluctuations on the value of the foreign currency
denominated assets and liabilities being hedged. Substantially all forward
foreign exchange contracts entered into by the Company have maturities of 360
days or less. The Company's practice is to settle all foreign exchange contracts
within ten calendar days of year end and thus there is no material difference
between the contract value and the fair value of the contracts at December 31,
1997 and 1996. At December 31, 1997 and 1996, the Company had approximately
$102.7 million and $168.6 million of forward foreign currency exchange contracts
outstanding, respectively. The table below summarizes by currency the
contractual amounts of the Company's forward foreign exchange contracts at
December 31, 1997 and December 31, 1996.
The restatement of the 1996, 1995 and 1994 financial statements resulted
in a change in the Company's foreign currency denominated intercompany accounts
payable and accounts receivable balances. As a result, certain foreign currency
transaction gains and losses realized due to fluctuation in the related asset
and liability currency exchange rates were not offset by underlying gains and
losses on forward foreign currency exchange contracts used to hedge those
foreign currency exposures. The Company recorded net foreign currency
transaction gains and (losses) of approximately $7.5 million, $(0.7) million,
$0.1 million, and $(0.5) million in 1997, 1996, 1995, and 1994, respectively,
due to the restatement.
FORWARD CONTRACTS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
- ------------------------------------------------------------------------------- CONTRACT
VALUE
-------------
(IN
THOUSANDS)
<S> <C>
Forward currency contracts sold:
British Pound................................................................ $ 55,740
Deutsche Mark................................................................ 17,050
French Franc................................................................. 14,139
Italian Lira................................................................. 3,901
Spanish Peseta............................................................... 3,166
Swedish Krona................................................................ 1,682
Other (individually less than $1 million).................................... 2,090
-------------
Total.......................................................................... $ 97,768
-------------
-------------
Forward currency contracts purchased:
Swiss Franc.................................................................. $ 1,636
Dutch Guilder................................................................ 1,096
Other (individually less than $1 million).................................... 2,208
-------------
Total.......................................................................... $ 4,940
-------------
-------------
Grand Total.................................................................... $ 102,708
-------------
-------------
</TABLE>
F-13
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
- -------------------------------------------------------------------------------
CONTRACT
VALUE
-------------
(IN
THOUSANDS)
Forward currency contracts sold:
<S> <C>
Deutsche Mark................................................................ $ 55,815
Japanese Yen................................................................. 41,384
British Pound................................................................ 16,051
French Franc................................................................. 8,252
Malaysian Ringgit............................................................ 5,914
Taiwanese NT................................................................. 5,609
Italian Lira................................................................. 4,555
Singapore Dollar............................................................. 3,600
Dutch Guilder................................................................ 3,558
Sweden Krona................................................................. 2,246
Swiss Franc.................................................................. 1,622
Portuguese Escudo............................................................ 1,574
Other (individually less than $1 million).................................... 2,240
-------------
Total.......................................................................... $ 152,420
-------------
-------------
Forward currency contracts purchased:
British Pound................................................................ $ 10,501
Deutsche Mark................................................................ 4,198
Other (individually less than $1 million).................................... 1,472
-------------
Total.......................................................................... $ 16,171
-------------
-------------
Grand Total.................................................................... $ 168,591
-------------
-------------
</TABLE>
While the contract amounts provide one measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The amounts (arising from the possible inabilities of
counterparties to meet the terms of their contracts) are generally limited to
the amounts, if any, by which the counterparties' obligations exceed the
obligations of the Company. The Company controls credit risk through credit
approvals, limits and monitoring procedures.
As of December 31, 1997, other than foreign forward exchange contracts
discussed immediately above, the Company does not currently invest in or hold
any other derivative financial instruments.
NOTE 5--NET INCOME (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (FAS 128), "Earnings per Share." FAS
128 supersedes Accounting Principles Board Opinion No. 15 (APB 15), "Earnings
per Share," and other related Interpretations and is effective for the periods
ending after December 15, 1997. Under FAS 128, basic earnings per share are
computed using the weighted average number of common shares outstanding during
the period. Diluted earnings per common share includes the incremental shares
issuable upon the assumed exercise of stock options, warrants, and convertible
preferred stock, when the effect is dilutive. As required by FAS 128, all prior
year net income (loss) per share amounts have been restated.
F-14
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
The following table sets forth computation of basic and diluted net
income (loss) per common share:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)................................... $ (356,867) $ (73,565) $ 38,600
Preferred stock dividends........................... (301) -- --
Value assigned to warrants.......................... (1,601) -- --
-------------- -------------- --------------
Numerator for basic and diluted net income (loss)
per common share.................................. $ (358,769) $ (73,565) $ 38,600
-------------- -------------- --------------
Denominator:
Denominator for basic net income (loss) per common
share--weighted-average shares.................... 151,907,041 149,310,000 145,062,000
Effect of dilutive securities:
Employee stock options............................ -- -- 5,565,000
-------------- -------------- --------------
Denominator for diluted net income (loss) per common
share--adjusted weighted-average shares and
assumed conversions............................... 151,907,041 149,310,000 150,627,000
-------------- -------------- --------------
-------------- -------------- --------------
Basic net income (loss) per common share.............. $ (2.36) $ (0.49) $ 0.27
Diluted net income (loss) per common share............ $ (2.36) $ (0.49) $ 0.26
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Weighted average employee stock options to acquire 4,776,124 and
6,263,000 were outstanding in fiscal 1997 and 1996, respectively, but were not
included in the computation of diluted earnings per share because the effect was
antidilutive. In addition, at December 31, 1997, 8,341,238 shares of convertible
preferred stock were also excluded from the computation of diluted earnings per
share because the effect was antidilutive. See Notes 6 and 7.
NOTE 6--PREFERRED STOCK
In August 1997, the Company sold 160,000 shares of newly authorized Series A
Convertible Preferred Stock, face value $250 per share, which shares are
generally not entitled to vote on corporate matters, to a private investor for
aggregate net proceeds of $37.6 million and issued a warrant to the same
investor to purchase up to an additional 140,000 shares of Series A Convertible
Preferred Stock at an aggregate purchase price of up to $35 million. In November
1997, the Company canceled the Series A Convertible Preferred Stock in exchange
for the same number of shares of a substantially identical Series A-1
Convertible Stock (the "A-1 Preferred") issued to the same investor, with a
corresponding change to the warrant shares. The warrant may be exercised from
August 13, 1997 through April 15, 1999.
The A-1 Preferred shares are convertible into common shares at any time,
at the holder's option, at a per share price equal to 101% of the average price
of the Company's common stock for the thirty days ending five trading days prior
to conversion, but not greater than the lesser of (i) 105% of the common stock's
average price of the first five trading days of such thirty day period, or (ii)
$12 per share. If not converted prior, the A-1 Preferred will automatically
convert into common shares eighteen months after their issuance, subject to
extension of the automatic conversion date in certain defined circumstances of
F-15
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PREFERRED STOCK (CONTINUED)
default. However, if at the time of conversion, the aggregate number of shares
of common stock already issued and to be issued as a result of the conversion of
the shares of the A-1 Preferred were to exceed 19.9% of the total number of
shares of then outstanding common stock, then such excess does not convert
unless or until stockholder approval is obtained.
The mandatory redemption provisions of the new A-1 Preferred differ from
the Series A Convertible Preferred Stock. The redemption provisions in the A-1
Preferred effectively preclude the Company from having to redeem the preferred
stock except by actions solely within its control. Accordingly, the Consolidated
Balance Sheet reflects the A-1 Preferred under stockholder's equity. On February
13, 1998, the Series A-1 convertible preferred stockholders exercised their
conversion privileges. See Note 17--Subsequent Events.
In November 1997, the Company sold 50,000 shares of newly authorized
Series B Convertible Preferred Stock ("Series B Preferred"), face value $1,000
per share, which shares are generally not entitled to vote on corporate matters,
to private investors for aggregate proceeds of $50.0 million (excluding a $1.0
million fee paid to a financial advisor of the Company). In connection with the
sale, the Company also agreed to issue a warrant to such investors upon
conversion of such Series B Preferred to purchase 20% of the shares of Common
Stock into which the Series B Preferred is convertible, but no less than
1,500,000 shares at a per share exercise price which is presently indeterminable
and will depend on the trading price of the Common Stock of the Company in the
period prior to the conversion of the Series B Preferred. The Company also
agreed to issue additional warrants to purchase up to an aggregate of 200,000
shares at a per share exercise price which is presently indeterminable and will
depend on the trading price of the Common Stock of the Company in the period
prior to the conversion of the Series B Preferred. The Series B Preferred is
convertible at the election of the holder into shares of Common Stock beginning
six months after issuance, and upon the occurrence of certain events, including
a merger. The Series B Preferred will automatically convert into Common Stock
three years following the date of its issuance. Each Series B Preferred share is
convertible into the number of shares of Common Stock at a per share price equal
to the lowest of (i) the average of the closing prices for the Common Stock for
the 22 days immediately prior to the 180th day following the initial issuance
date, (ii) 101% of the average closing price for the 22 trading days prior to
the date of actual conversions, or (iii) 101% of the lowest closing price for
the Common Stock during the five trading days immediately prior to the date of
actual conversion. The conversion price of the Series B Preferred is subject to
modification and adjustment upon the occurrence of certain events. The Series B
Preferred accrues cumulative dividends at an annual rate of 5% of per share face
value. The dividend is generally payable upon the conversion or redemption of
the Series B Preferred, and may be paid in cash or, at the holder's election, in
shares of Common Stock. The Series B is junior to the Company's outstanding A-1
Preferred in respect to the right to receive dividend payments and liquidation
preferences.
The Company reserved 26.0 million shares of Common Stock for issuance
upon conversion of the A-1 Preferred (including shares of A-1 Preferred issuable
upon exercise of the Series A-1 Warrant). Of those 26.0 million shares, the
Company issued 12.8 million shares in February 1998 in connection with the
conversion of 220,000 shares of A-1 Preferred (see Note 17). The Company has
reserved 22.8 million shares of Common Stock for issuance upon conversion of the
Series B Preferred and upon exercise of the Series B Warrants.
The fair value of the warrants issued in connection with the A-1
Preferred and Series B Preferred are deemed to be a discount to the conversion
price of the respective equity instruments available to the
F-16
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PREFERRED STOCK (CONTINUED)
preferred stockholders. The discounts are being recognized as a return to the
preferred stockholders (similar to a dividend) over the minimum period during
which the preferred stockholders can realize this return, immediate for the A-1
Preferred and six months for the Series B Preferred. The portion of the discount
applicable to fiscal 1997 has been accreted to retained earnings (accumulated
deficit) in the Company's December 31, 1997 financial statements and has been
disclosed as a decrease in the amount available to common stockholders on the
face of the statement of operations and for purposes of computing net income
(loss) per share. The fair value assigned to the warrants is based on an
independent appraisal performed by a nationally recognized investment banking
firm.
In connection with the issuance of the Series B Convertible Preferred
Stock in November 1997, the Company paid a fee of $1,000,000 for financial
advisory services provided in connection with such financing. In addition, the
Company issued 100,000 shares of its Common Stock, and also agreed to issue a
warrant to purchase an additional 50,000 shares of the Company's Common Stock to
the service provider in the event that, as of May 17, 1998, the trading price of
the Company's Common Stock is less than $12.50 per share. Such warrant will be
exercisable according to the same terms as the warrants issued in connection
with the issuance of the Series B Convertible Preferred Stock.
NOTE 7--EMPLOYEE BENEFIT PLANS
OPTION PLANS
Under the Company's 1986 Employee Stock Option Plan, options are granted
at fair market value on the date of the grant. Options are generally exercisable
in cumulative annual installments over three to five years. Payment for shares
purchased upon exercise of options may be by cash or, with Board approval, by
full recourse promissory note or by exchange of shares of the Company's common
stock at fair market value on the exercise date. Unissued options under the 1986
Plan expired on July 29, 1996, which was 10 years after adoption of the plan.
Additionally, 1,600,000 shares were authorized for issuance under the
1989 Outside Directors Stock Option Plan, whereby non-employee directors are
automatically granted non-qualified stock options upon election or re-election
to the Board of Directors. At December 31, 1997, 645,000 shares were available
for grant under this Plan.
In April 1994, the Company adopted the 1994 Stock Option and Award Plan;
8,000,000 shares were authorized for grant under this Plan. Options can be
granted to employees on terms substantially equivalent to those described above.
The 1994 Stock Option and Award Plan also allows the Company to award
performance shares of the Company's common stock to be paid to recipients on the
achievement of certain performance goals set with respect to each recipient. In
May 1997, the Company's stockholders approved an additional 8,000,000 shares to
be reserved for issuance under the Company's 1994 Stock Option and Award Plan.
At December 31, 1997, 4,009,476 shares were available for grant under this Plan.
In July 1997, the Company's Board of Directors approved a resolution
authorizing the grant of a maximum of 500,000 non-statutory stock options to
executives and other employees, as determined by the Board, under the newly
created 1997 Non-Statutory Stock Option Plan ("the 1997 Stock Plan"). The
authorization of such shares for grant under the 1997 Stock Plan is not subject
to stockholder approval. Terms of each option are determined by the Board or
committee delegated such duties by the Board. Concurrent with the authorization
of the 1997 Stock Plan, the Board granted the Company's current chief
F-17
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
executive officer 500,000 options to purchase the Company's common stock
thereunder. Such options vest ratably over five years beginning with the first
anniversary of the date of grant.
In September 1997, the Company's Board of Directors authorized the
repricing of outstanding options to purchase Common Stock under the Company's
stock option plans. Employees were eligible to participate only if they remained
actively employed at the effective date of the repricing and were only permitted
to exchange options granted and outstanding prior to May 1, 1997. The
repricing/option exchange was effective November 21, 1997 (the "Repricing
Effective Date"). The repricing program offered eligible employees the
opportunity to exchange eligible outstanding options with exercise prices in
excess of the closing sales price of the Company's Common Stock on the Repricing
Effective Date for a new option with an exercise price equal to such price.
Other than the exercise price, each new option issued upon exchange has terms
substantially equivalent to the surrendered option, including the number of
shares, vesting terms and expiration except that options issued in connection
with the exchange may not be exercised for a period of one year from the
Repricing Effective Date. In addition, officers of the Company participating in
the option exchange were required to forfeit 20% of the shares subject to each
option being surrendered. The exercise price for repriced options was $7.1563,
the closing sales price of the Company's Common Stock on the Repricing Effective
Date.
Following is a summary of activity for all stock option plans for the
three years ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
SHARES PRICE PER SHARE
------------ -----------------
<S> <C> <C>
Outstanding at December 31, 1994....................................... 15,013,772 $ 0.06 to $14.44
Options granted and assumed............................................ 5,456,927 0.19 to 34.00
Options exercised...................................................... (3,852,697) 0.19 to 13.88
Options canceled....................................................... (864,920) 0.06 to 32.75
------------ -----------------
Outstanding at December 31, 1995....................................... 15,753,082 $ 0.06 to $34.00
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
PRICE
-----------------
<S> <C> <C>
Options granted and assumed........................................... 5,850,225 $ 24.3456
Options exercised..................................................... (2,927,260) 4.6069
Options canceled...................................................... (1,561,800) 17.1483
------------- --------
Outstanding at December 31, 1996...................................... 17,114,247 13.4495
Options granted and assumed........................................... 13,137,338 8.5926
Options exercised..................................................... (1,132,484) 2.9266
Options canceled...................................................... (10,008,150) 18.8573
------------- --------
Outstanding at December 31, 1997...................................... 19,110,951 $ 7.9906
------------- --------
------------- --------
</TABLE>
F-18
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED NUMBER
OUTSTANDING AT WEIGHTED AVERAGE AVERAGE EXERCISABLE WEIGHTED
DECEMBER 31, REMAINING CONTRACTUAL EXERCISE AT DECEMBER AVERAGE
RANGE OF EXERCISE PRICES 1997 LIFE PRICE 31, 1997 EXERCISE PRICE
- ------------------------------ -------------- --------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.2000 - $0.3900............. 843,276 7.19 $ 0.2927 843,276 $ 0.2927
$0.4844 - $1.7800............. 942,176 2.40 $ 0.7486 942,176 $ 0.7486
$1.8906 - $4.2188............. 1,711,539 4.35 $ 3.6708 1,707,139 $ 3.6696
$4.2500 - $7.1563............. 5,531,029 8.43 $ 7.0768 58,728 $ 5.6288
$7.2500 - $7.5000............. 1,350,140 7.19 $ 7.4560 845,890 $ 7.4929
$7.5625 - $8.6250............. 1,577,025 5.34 $ 8.6010 1,541,875 $ 8.6050
$8.6875 - $9.7813............. 4,148,565 9.33 $ 9.0885 158,500 $ 9.7069
$9.9063 - $18.2500............ 2,438,057 8.61 $ 12.7550 779,961 $ 16.1924
$18.5625 - $24.5000........... 489,921 8.24 $ 23.4102 342,310 $ 23,4008
$24.6250 - $34.2500........... 79,223 7.97 $ 30.4673 67,723 $ 30.6235
-------------- --- ------------- ------------- ---------------
$0.2000 - $34.2500............ 19,110,951 7.58 $ 7.9906 7,287,577 $ 7.0538
-------------- --- ------------- ------------- ---------------
-------------- --- ------------- ------------- ---------------
</TABLE>
In connection with all stock option plans, 23,765,427 shares of Common
Stock were reserved for issuance as of December 31, 1997, and 7,287,577 options
were exercisable. At December 31, 1996, 18,750,708 shares of Common Stock were
reserved for issuance, and 7,988,176 options were exercisable.
EMPLOYEE STOCK PURCHASE PLAN
The Company also has a qualified Employee Stock Purchase Plan (ESPP)
under which 7,600,000 shares of common stock, in the aggregate, have been
authorized for issuance. Under the terms of the Plan, employees may contribute,
through payroll deductions, up to 10 percent of their base pay and purchase up
to 500 shares per quarter (with the limitation of purchases of $25,000 annually
in fair market value of the shares). Employees may elect to withdraw from the
Plan during any quarter and have their contributions for the period returned to
them. Also, employees may elect to reduce the rate of contribution one time in
each quarter. The price at which employees may purchase shares is 85 percent of
the lower of the fair market value of the stock at the beginning or end of the
quarter. The Plan is qualified under Section 423 of the Internal Revenue Code of
1986, as amended. During 1997, 1996, and 1995, the Company issued 573,343
shares, 616,128 shares, and 347,743 shares, respectively, under this Plan. The
Plan was terminated on July 1, 1997, which was 10 years after the offering date
for the Plan's first offering period.
In May 1997, the Company's stockholders approved the 1997 Employee Stock
Purchase Plan (the "1997 ESPP"). The Company has reserved 4,000,000 shares of
Common Stock for issuance under the 1997 ESPP. The 1997 ESPP permits
participants to purchase Common Stock through payroll deductions of up to 15
percent of an employee's compensation, including commissions, overtime, bonuses
and other incentive compensation. The price of Common Stock purchased under the
1997 ESPP is equal to 85 percent of the lower of the fair market value of the
Common Stock at the beginning or at the end of each calendar quarter in which an
eligible employee participates. The Plan qualifies as an employee stock purchase
plan under Section 423 of the Internal Revenue Code of 1986, as amended. As of
December 31, 1997, the Company has not issued any shares of Common Stock under
the 1997 ESPP.
F-19
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
STOCK-BASED COMPENSATION
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) in accounting for stock-based awards to employees. Under APB
25, the Company generally recognizes no compensation expense with respect to
such awards.
Pro forma information regarding the net income (loss) and net income
(loss) per share is required by FAS 123 for awards granted or modified after
December 31, 1994 as if the Company had accounted for its stock based awards to
employees under the fair value method of FAS 123. The fair value of the
Company's stock-based awards to employees was estimated using a Black-Scholes
option pricing model.
The fair value of the Company's stock-based awards was estimated assuming
no expected dividends and the following weighted-average assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
------------------------------------------ ----------------------------------------------
1997 1996 1995 1997 1996 1995
---------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Expected life
(years)............. 4.5 years 4.5 years 4.5 years .25 years .25 years .25 years
Expected volatility
(percent)........... .7900 .5822 - .6327 .5642 - .6239 .5066 - .8954 .5765 - .9662 .4170 - .7295
Risk-free interest
rate (percent)...... 5.71 5.20 - 6.09 5.82 - 7.72 5.23 - 5.40 5.01 - 5.85 5.49 - 6.07
</TABLE>
For pro forma purposes, the estimated fair value of the Company's stock
based awards is amortized over the award's vesting period (for options) and the
three month purchase period (for stock purchases under the ESPP). The Company's
pro forma information follows, (in thousands except for per share information):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common stockholders.... As reported $ (358,769) $ (73,565) $ 38,600
Pro forma (387,594) (94,196) 28,652
Net income (loss) per common share:
Basic................................................ As reported $ (2.36) $ (0.49) $ 0.27
Pro forma (2.55) (0.63) 0.20
Diluted.............................................. As reported $ (2.36) $ (0.49) $ 0.26
Pro forma (2.55) (0.63) 0.19
</TABLE>
Calculated under FAS 123, the weighted-average fair value of the options
granted during fiscal 1997, 1996 and 1995 was $5.26, $13.04 and $10.39 per
share, respectively. The weighted average fair value of employee stock purchase
rights granted under the ESPP during fiscal 1997, 1996 and 1995 were $3.83,
$7.47 and $5.27, respectively.
F-20
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
401(K) PLAN
The Company has a 401(k) plan covering substantially all of its U.S.
employees. Under this plan, participating employees may defer up to 15 percent
of their pre-tax earnings, subject to the Internal Revenue Service annual
contribution limits. In fiscal 1997, the Company matched 50 percent of each
employee's contribution up to a maximum of $2,000. The Company's matching
contributions to this 401(k) plan for 1997, 1996 and 1995 were $4.2 million,
$3.8 million and $2.5 million, respectively.
NOTE 8--COMMITMENTS
The Company leases certain computer and office equipment under capital
leases having terms of three-to-five years. Amounts capitalized for such leases
are included on the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment..................................... $ 6,939 $ 8,825
Office equipment....................................... 349 2,474
------ -------
7,288 11,299
Less: accumulated amortization......................... 1,489 8,985
------ -------
$ 5,799 $ 2,314
------ -------
------ -------
</TABLE>
During fiscal 1997, 1996 and 1995, the Company financed approximately
$10.5 million, $1.8 million and $1.7 million, respectively, of equipment
purchases under capital lease arrangements. Amortization of the cost of leased
equipment is included in depreciation expense.
The Company leases certain of its office facilities and equipment under
non-cancelable operating leases and total rent expense was $34.7 million, $42.4
million and $19.7 million in 1997, 1996 and 1995, respectively.
In November 1996, the Company leased approximately 200,000 square feet of
office space in Santa Clara, California. The lease term is for fifteen years and
minimum lease payments amount to $96.0 million over the term. The minimum lease
payments increase within a contractual range based on changes in the Consumer
Price Index. In the fourth quarter of 1997, the Company assigned the lease to an
unrelated third party. The Company remains contingently liable for minimum lease
payments under this assignment.
F-21
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS (CONTINUED)
Future minimum payments, by year and in the aggregate, under the capital
and non-cancelable operating leases as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL NON-CANCELABLE
YEAR ENDING DECEMBER 31 LEASES OPERATING LEASES
- ------------------------------------------------------------ ------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 4,838 $ 34,329
1999........................................................ 3,904 26,944
2000........................................................ 1,887 21,430
2001........................................................ -- 17,427
2002........................................................ -- 12,875
Thereafter.................................................. -- 4,364
------------- --------
Total payments.............................................. 10,629 $ 117,369
--------
--------
Less: amount representing interest.......................... 1,185
-------------
Present value of minimum lease payments..................... 9,444
Less current portion........................................ 3,627
-------------
$ 5,817
-------------
-------------
</TABLE>
F-22
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS (CONTINUED)
As of December 31, 1997, the Company was contractually obligated to
purchase approximately $4.4 million of various computer equipment.
The Company has several active software development and service provider
contracts with third-party technology providers. These agreements contain
financial commitments by the Company of $15.1 million, $11.4 million, $10.4
million, $7.3 million and $3.5 million in fiscal 1998, 1999, 2000, 2001 and
2002, respectively.
NOTE 9--GEOGRAPHIC INFORMATION
Net revenues, operating income (loss), and identifiable assets for the
Company's North America, European, Asia/Pacific and Latin American operations
are summarized below by year:
<TABLE>
<CAPTION>
NORTH LATIN
AMERICA EUROPE ASIA/PACIFIC AMERICA ELIMINATIONS TOTAL
----------- ---------- ----------- --------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1997:
Net revenues......................... $ 357,568 $ 220,024 $ 81,129 $ 50,064 $ (46,487) $ 662,298
Operating income (loss).............. (228,747) (78,635) (49,067) 3,541 (4,428) (357,336)
Identifiable assets.................. 555,476 130,174 61,875 38,948 (223,229) 563,244
1996:
Net revenues......................... $ 410,549 $ 229,588 $ 93,622 $ 50,829 $ (56,741) $ 727,847
Operating income (loss).............. (38,331) (24,156) (11,576) 4,693 1,353 (68,017)
Identifiable assets.................. 734,852 218,196 101,203 44,803 (217,058) 881,996
1995:
Net revenues......................... $ 365,647 $ 199,711 $ 80,667 39,549 $ (52,804) $ 632,770
Operating income (loss).............. 69,245 (2,588) (3,005) 2,045 (749) 64,948
Identifiable assets.................. 579,306 216,530 85,158 25,618 (224,699) 681,913
</TABLE>
Sales and transfers between geographic areas are accounted for at prices
which the Company believes are arm's length prices, and which in general are in
accordance with the rules and regulations of the respective governing tax
authorities.
Export revenues consisting of sales from the Company's U.S. operating
subsidiary to non-affiliated customers were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Canada........................................................ $ 2,033 $ 7,521 $ 6,299
Latin America................................................. 4,494 6,556 6,817
Asia/Pacific.................................................. 11 3,391 5,887
Other......................................................... 364 3,437 1,301
--------- --------- ---------
Total..................................................... $ 6,902 $ 20,905 $ 20,304
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-23
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES
The provision for income taxes applicable to income (loss) before income
taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal.................................................. $ (2,264) $ 1,540 $ 40,582
State.................................................... -- 565 6,463
Foreign.................................................. 10,415 6,216 9,325
--------- ---------- ----------
8,151 8,321 56,370
Deferred:
Federal.................................................. (3,857) (1,748) (13,747)
State.................................................... (189) (2,983) (1,204)
Foreign.................................................. 3,712 8,941 (9,325)
--------- ---------- ----------
(334) 4,210 (24,276)
--------- ---------- ----------
$ 7,817 $ 12,531 $ 32,094
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
In 1996 and 1995, the Company recognized tax benefits related to stock
option plans of $14.8 million and $21.3 million, respectively. Such benefits
were recorded as an increase to additional paid-in capital.
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................. $ (227,266) $ (26,510) $ 83,937
Foreign.................................................. (121,784) (34,524) (13,243)
----------- ---------- ----------
$ (349,050) $ (61,034) $ 70,694
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
F-24
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed by
applying the federal statutory income tax rate to income (loss) before income
taxes. The sources and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate........... $ (122,167) (35.0)% $ (21,362) (35.0)% $ 24,743 35.0%
Valuation allowance.............................. 116,978 33.5% 41,192 67.5% 4,239 6.0%
Research and development credits................. -- -- (1,457) (2.4)% (935) (1.3)%
State income taxes, net of federal tax benefit... -- -- (1,572) (2.6)% 3,418 4.8%
Foreign taxes.................................... 10,415 3.0% -- -- -- --
Other, net....................................... 2,591 0.7% (4,270) (7.0)% 629 0.9%
----------- ----- ---------- ----- ---------- ---
$ 7,817 2.2% $ 12,531 20.5% $ 32,094 45.4%
----------- ----- ---------- ----- ---------- ---
----------- ----- ---------- ----- ---------- ---
</TABLE>
Deferred taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Reserves and accrued expenses........................................ $ 13,457 $ 7,703
Deferred revenue..................................................... 34,786 33,875
Foreign net operating loss carryforwards............................. 77,149 38,067
Domestic net operating loss carryforwards............................ 93,003 9,800
Foreign taxes in excess of taxes at U.S. rate........................ 7,682 9,014
Valuation of investment portfolio under FAS 115...................... 307 --
Other................................................................ 1,632 555
----------- ----------
Total deferred tax assets............................................ 228,016 99,014
Valuation allowance for deferred tax assets.......................... (178,353) (46,339)
----------- ----------
Deferred tax assets, net of valuation allowance...................... 49,663 52,675
Deferred Tax Liabilities:
Capitalized software................................................. 14,051 17,704
Revenue recognition.................................................. 1,612 1,612
Valuation of investment portfolio under FAS 115...................... -- 6,454
----------- ----------
Total deferred tax liabilities....................................... 15,663 25,770
----------- ----------
Net deferred tax assets.............................................. $ 34,000 $ 26,905
----------- ----------
----------- ----------
</TABLE>
F-25
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
At December 31, 1997, the Company had approximately $220.4 million, $237.2
million and $159.3 million of foreign, federal and state net operating loss
carryforwards, respectively. The foreign and state net operating loss
carryforwards expire at various dates beginning in 1999. The federal net
operating loss carryforwards expire at various dates beginning in 2007. Income
taxes paid amounted to $11.3 million, $22.7 million and $18.6 million in 1997,
1996 and 1995, respectively. The valuation allowance for deferred tax assets
increased by $132.0 million, $41.2 million and $4.2 million in 1997, 1996 and
1995, respectively.
NOTE 11--BUSINESS COMBINATIONS
In February 1996, the Company acquired Illustra Information Technologies,
Inc. (Illustra), a company that provides dynamic content management database
software and tools for managing complex data in the Internet,
multimedia/entertainment, financial services, earth sciences and other markets.
Approximately 12.7 million shares of Informix common stock were issued to
acquire all outstanding shares of Illustra common stock. An additional 2.3
million shares of Informix common stock were reserved for issuance in connection
the assumption of Illustra's outstanding stock options and warrants. The
transaction has been accounted for as a pooling of interests, and accordingly,
the consolidated financial statements for all prior periods presented have been
restated to include the accounts and operations of Illustra as if the merger was
consummated at the beginning of the earliest period presented. Merger fees of
approximately $5.9 million were recorded in the first quarter of 1996. The
following table presents the separate operating results for Informix Corporation
and Illustra for the periods prior to the acquisition date (because the
operating results of Illustra for the period January 1, 1996 to the effective
date of the merger were immaterial to the combined Company, for the purposes of
this table an acquisition date of January 1, 1996 is assumed).
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Net revenues
Informix.................................................................... $ 627,536
Illustra.................................................................... 5,234
--------------
Combined.................................................................... $ 632,770
--------------
--------------
Net income (loss)
Informix.................................................................... $ 46,289
Illustra.................................................................... (7,689)
--------------
Combined.................................................................... $ 38,600
--------------
--------------
</TABLE>
In January 1995, the Company acquired a 90 percent interest in the
database division of ASCII Corporation ("ASCII"), a distributor of its products
in Japan. The Company acquired the remaining 10 percent interest in January
1996. The total purchase price, which consisted of cash and direct acquisition
costs, was approximately $46.0 million, of which approximately $35.4 million
exceeded the net tangible assets acquired. Intangible assets acquired included
customer lists, sales and marketing workforce, business tradenames, and
goodwill. These intangible assets are being amortized over seven years.
In April 1995, the Company acquired an 80 percent interest in the
database division of Daou Corporation ("Daou"), a distributor of its products in
Korea. The Company acquired the remaining
F-26
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--BUSINESS COMBINATIONS (CONTINUED)
20 percent interest in January 1997. The total purchase price, which consisted
of cash and direct acquisition costs, was approximately $7.6 million, of which
approximately $7.0 million exceeded the net tangible assets acquired. Intangible
assets acquired included customer lists, sales and marketing workforce, business
tradenames, and goodwill. These intangible assets are being amortized over seven
years.
In February 1997, the Company acquired all of the outstanding capital
stock of CenterView Software, Inc. ("CenterView"), a privately-owned company
which develops and sells software application development tools. The aggregate
purchase price paid was approximately $8.7 million, which included cash and
direct acquisition costs. The transaction has been accounted for as a purchase
and, based on an independent appraisal of the assets acquired and liabilities
assumed, the purchase price has been allocated to the net tangible and
intangible assets acquired including developed software technology, acquired
workforce, in-process technology, and goodwill. The in-process technology, which
based on the independent appraisal has been valued at $7 million, had not, at
the date of acquisition, reached technological feasibility and had no
alternative future uses in other research and development projects.
Consequently, its value was charged to operations in the period the acquisition
was consummated (the first quarter of 1997). The remaining identifiable
intangible assets are being amortized over five years.
The operating results of these businesses have not been material in
relation to those of the Company and are included in the Company's consolidated
results of operations from the date of acquisition.
NOTE 12--LITIGATION
Commencing in April 1997, a series of class action lawsuits purportedly by
or on behalf of stockholders and a separate but related stockholder action were
filed in the United States District Court for the Northern District of
California. These actions name as defendants the Company, certain of its present
and former officers and directors and, in some cases, its independent auditors.
The complaints allege various violations of the federal securities laws and seek
unspecified but potentially significant damages. Similar actions were also filed
in California state court and in Newfoundland, Canada.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants and the Company's independent
auditors, were also filed, commencing in August 1997, in California state court.
While these actions allege various violations of state law, any monetary
judgments in these derivative actions would accrue to the benefit of the
Company.
Pursuant to Delaware law and certain indemnification agreements between
the Company and each of its current and former officers and directors, the
Company is obligated to indemnify its current and former officers and directors
for certain liabilities arising from their employment with or service to the
Company. This includes the costs of defending against the claims asserted in the
above-referenced actions and any amounts paid in settlement or other disposition
of such actions on behalf of these individuals. The Company's obligations do not
permit or require it to provide such indemnification to any such individual who
is adjudicated to be liable for fraudulent or criminal conduct. Although the
Company has purchased directors' and officers' liability insurance to reimburse
it for the costs of indemnification for its directors and officers, the coverage
under its policies is limited. Moreover, although the directors' and officers'
insurance coverage presumes that 100 percent of the costs incurred in defending
claims asserted jointly against the Company and its current and former directors
and officers are allocable to the individuals' defense, the Company does not
have insurance to cover the costs of its own defense or to cover any liability
F-27
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--LITIGATION (CONTINUED)
for any claims asserted against it. The Company has not set aside any financial
reserves relating to any of the above-referenced actions.
The pending federal and state securities actions are in the early stages
of discovery. Consequently, at this time it is not reasonably possible to
estimate the damages, or the range of damages, that the Company might incur in
connection with such actions.
In addition, in July 1997, the Securities and Exchange Commission issued
a formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
NOTE 13--NONRECURRING CHARGES
In accordance with Financial Accounting Standards Board Statement No. 121
(FAS 121), "Accounting for the Impairment of Long Lived Assets and for
Long-Lived Assets to be Disposed of," the Company records impairment losses on
long-lived assets used in its operations when events and circumstances indicate
that the assets might be impaired and the estimated future undiscounted cash
flows to be generated by those assets are less than the assets' carrying
amounts. During the first quarter of 1997, the Company's Japanese subsidiary
experienced a significant shortfall in business activity compared to historical
levels. Accordingly, the Company evaluated the ongoing value of the subsidiary's
long-lived assets (primarily computer and other equipment) and related goodwill.
Based on this evaluation, the Company determined that the subsidiary's assets
had been impaired and wrote them down by $30.5 million to their estimated fair
values. Fair value was determined using estimated future discounted cash flows
and/or estimated resale values as appropriate.
In February 1997 the Company acquired CenterView Software (see Note 11)
and, as a direct result, revised its database application tool business strategy
to incorporate CenterView's developed technology and "Data Director" product.
This revision to the tools business strategy significantly altered the Company's
current and future marketing plans for its own NewEra family of application
tools including projected future NewEra product revenues. As a result, the
Company reevaluated the net realizable value of its NewEra products and found it
to be significantly below the net balance of related capitalized software
development costs. Accordingly, the Company recorded a charge during the first
quarter 1997 of $14.7 million to reduce the carrying value of these capitalized
product development costs to the revised estimated net realizable value of the
NewEra products.
In June and again in September 1997, the Company approved plans to
restructure its operations in order to bring expenses in line with forecasted
revenues. In connection with these restructurings, the Company substantially
reduced its worldwide headcount and consolidated facilities and operations to
F-28
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--NONRECURRING CHARGES (CONTINUED)
improve efficiency. The following analysis sets forth the significant components
of the restructuring reserve at December 31, 1997:
<TABLE>
<CAPTION>
RESTRUCTURING NON-CASH CASH ACCRUAL BALANCE AT
EXPENSE COSTS PAYMENTS DECEMBER 31, 1997
------------- ----------- ----------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and benefits......................... $ 21.9 $ -- $ 19.5 $ 2.4
Write-off of assets............................ 48.2 48.2 -- --
Facility charges............................... 34.7 7.7 3.8 23.2
Other.......................................... 3.4 2.2 .2 1.0
------ ----- ----- -----
$ 108.2 $ 58.1 $ 23.5 $ 26.6
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
Severance and benefits represent the reduction of approximately 670
employees, primarily sales and marketing personnel, on a worldwide basis.
Temporary employees and contractors were also reduced. Write-off of assets
include the write-off or write-down in carrying value of equipment as a result
of the Company's decision to reduce the number of Information Superstores
throughout the world, as well as the write-off of equipment associated with
headcount reductions. The equipment subject to the write-offs and write-downs
consists primarily of computer servers, workstations, and personal computers
that will no longer be utilized in the Company's operations. These assets were
written down to their fair value less cost to sell. Facility charges include
early termination costs associated with the closing of certain domestic and
international sales offices.
The total Restructuring Expense decreased by $1.2 million during the
fourth quarter of 1997 primarily due to adjusting the original estimate of the
loss to be incurred on the sale of land to the actual loss.
The Company expects to complete most of the actions associated with its
restructuring by the end of the second quarter of fiscal 1998.
NOTE 14--SENIOR SECURED CREDIT AGREEMENT
In December 1997, the Company entered into a Senior Secured Credit Agreement
with a syndicate of commercial banks, providing for a revolving credit facility
of up to $75 million (the "Credit Facility"). The actual amount available under
the Credit Facility, for either direct borrowings or issuances of letters of
credit, is based on certain eligibility criteria. As a result, the aggregate
amount available under the Credit Facility will vary from time to time based on
the amount and eligibility of the Company's receivables. As of December 31,
1997, no borrowings were outstanding under the Credit Facility, the Company's
net accounts receivable totaled $142 million and its borrowing base under the
Credit Facility was $47 million. The term of the Credit Facility is two years
and is secured by all of the assets of Informix Software and the capital stock
of the Company's domestic subsidiaries. The availability of the Credit Facility
is subject to the Company's compliance with certain covenants, including the
following financial covenants requiring the Company to: (a) maintain a ratio of
1.25 to 1.00 in respect of the sum of cash and acounts receivable to the
difference of current liabilities less deferred and unearned revenues, (b)
maintain quarterly revenues of $150 million through June 1998 and $160 million
thereafter, (c) maintain quarterly operating loss of no more than $10 million
through the quarter ending March 31, 1998 and a quarterly operating profit of at
F-29
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--SENIOR SECURED CREDIT AGREEMENT (CONTINUED)
least $10 million for the quarter ending June 30, 1998 and a quarterly operating
profit of at least $15 million thereafter. (d) maintain, for the quarter ending
June 30, 1998 and each quarter thereafter, a positive quarterly cash flow
consisting of operating income greater than the sum of restated revenue,
capitalized software costs, capital expenditures, cash outlays in respect of
accrued expenses arising from restructuring charges, and the sum of depreciation
and amortization, (e) an interest coverage ratio of 1.25 to 1.00 in respect of
quarterly operating cash flow to interest expense plus scheduled amortization of
debt, (f) refrain from making additional investments in fixed or capital assets,
in any fiscal year, in excess of $15 million, less any carry forward amount, and
(g) refrain from entering into any merger, consolidation, reorganization or
other transaction resulting in a fundamental change. At December 31, 1997, the
Company was in compliance with all financial covenants under the Credit
Facility.
NOTE 15--SUMMARY QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER
------------------------ ----------------------- -----------------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED
------------ ---------- ------------ --------- ------------ ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Net revenues............................... $ 133,664 $ 149,223 $ 182,012 -- $ 149,911 --
Gross profit (1)(2)........................ 63,185 78,937 123,527 -- 97,625 --
Net income (loss) (1)(2)................... (140,107) (144,161) (111,377) -- (110,523) --
Preferred stock dividend................... -- -- -- -- -- --
Value assigned to warrants................. -- -- -- -- -- --
------------ ---------- ------------ --------- ------------ ---------
Net income (loss) applicable to common
stockholders............................. (140,107) (144,161) (111,377) -- (110,523) --
Net income (loss) per common share:
Basic.................................... $ (0.93) $ (0.95) $ (0.73) -- $ (0.73) --
Diluted.................................. (0.93) (0.95) (0.73) -- (0.73) --
Year ended December 31, 1996
Net revenues............................... $ 204,021 $ 164,605 $ 226,282 $ 159,323 $ 238,180 $ 187,073
Gross profit............................... 160,584 121,378 178,474 112,074 189,003 138,092
Net income (loss).......................... 15,891 (15,377) 21,628 (34,083) 26,181 (17,095)
Net income (loss) per share:
Basic.................................... $ 0.11 $ (0.10) $ 0.15 $ (0.23) $ 0.17 $ (0.11)
Diluted.................................. 0.10 (0.10) 0.14 (0.23) 0.17 (0.11)
Year ended December 31, 1995
Net revenues............................... $ 148,037 $ 146,120 $ 164,068 $ 141,175 $ 182,701 $ 166,929
Gross profit............................... 121,893 120,138 134,042 111,226 150,183 136,595
Net income (loss).......................... 17,646 16,177 20,184 (2,731) 23,896 7,759
Net income (loss) per share:
Basic.................................... $ 0.12 $ 0.11 $ 0.14 $ (0.02) $ 0.16 $ 0.05
Diluted.................................. 0.12 0.11 0.14 (0.02) 0.16 0.05
Year ended December 31, 1994
Net revenues............................... $ 96,242 $ 92,763 $ 106,214 $ 96,217 $ 117,081 $ 111,428
Gross profit............................... 81,429 77,950 89,765 79,768 98,106 92,453
Net income (loss).......................... 11,540 8,922 12,210 4,686 15,446 11,191
Net income (loss) per share:
Basic.................................... $ 0.09 $ 0.07 $ 0.09 $ 0.03 $ 0.11 $ 0.08
Diluted.................................. 0.08 0.06 0.09 0.03 0.11 0.08
<CAPTION>
FOURTH QUARTER
-----------------------
AS REPORTED RESTATED
------------ ---------
<S> <C> <C>
Year ended December 31, 1997
Net revenues............................... $ 181,152 --
Gross profit (1)(2)........................ 132,266 --
Net income (loss) (1)(2)................... 9,194 --
Preferred stock dividend................... (301) --
Value assigned to warrants................. (1,601) --
------------ ---------
Net income (loss) applicable to common
stockholders............................. 7,292 --
Net income (loss) per common share:
Basic.................................... $ 0.05 --
Diluted.................................. 0.04 --
Year ended December 31, 1996
Net revenues............................... $ 270,828 $ 216,848
Gross profit............................... 218,342 164,669
Net income (loss).......................... 34,118 (7,010)
Net income (loss) per share:
Basic.................................... $ 0.23 $ (0.05)
Diluted.................................. 0.22 (0.05)
Year ended December 31, 1995
Net revenues............................... $ 219,413 $ 178,546
Gross profit............................... 178,396 137,678
Net income (loss).......................... 35,918 17,372
Net income (loss) per share:
Basic.................................... $ 0.24 $ 0.12
Diluted.................................. 0.23 0.11
Year ended December 31, 1994
Net revenues............................... $ 150,575 $ 151,561
Gross profit............................... 129,520 130,506
Net income (loss).......................... 22,752 23,494
Net income (loss) per share:
Basic.................................... $ 0.16 $ 0.17
Diluted.................................. 0.16 0.16
</TABLE>
- ------------------------
(1) The Company recorded in the second quarter and again in the third quarter of
1997, restructuring charges of $59.6 million and $49.7 million,
respectively. The total restructuring expense decreased by $1.2 million
during the fourth quarter of 1997 primarily due to adjusting the original
estimate of the loss to be incurred on the sale of land to the actual loss.
(See Note 13)
F-30
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARY QUARTERLY INFORMATION (UNAUDITED) (CONTINUED)
(2) In the first quarter of 1997, the Company recorded a charge of $30.5 million
to write down the carrying values of certain of its Japanese subsidiary's
long-lived assets to their fair values. During the same quarter, the Company
also recorded a charge of $14.7 million to write down the carrying value of
capitalized software development costs for certain products to their net
realizable values.
NOTE 16--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (UNAUDITED)
In 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition" as amended
by Statement of Position 98-4 (SOP 98-4). The Company will be required to adopt
the provisions of the SOPs' as of January 1, 1998. The adoption may, in certain
circumstances, result in the deferral of software license revenues that would
have been recognized upon delivery of the related software under preceding
accounting standards. In response to these SOPs', the Company will likely change
its business practices, and, consequently, the Company cannot quantify the
effect the SOPs' will have on its operating results, financial position or cash
flows.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income (FAS No. 130) and Statement No. 131,
Disclosures About Segments of An Enterprise and Related Information (FAS No.
131). FAS No. 130 establishes rules for reporting and displaying comprehensive
income. FAS No. 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during 1998. The Company does not believe that the adoption of either FAS No.
130 or FAS No. 131 will have a material impact on the Company's results of
operations, financial position or cash flows.
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
In December 1997, the Company's Board of Directors authorized a second
option repricing which was effective January 9, 1998 (the "Second Repricing
Effective Date") based upon the closing sales price of the Company's Common
Stock as of the Second Repricing Effective Date. Under the terms of the second
repricing, each employee, excluding officers and directors of the Company, could
exchange any option granted and outstanding as of May 1, 1997 for a new option
with an exercise price equal to the closing sales price on the Second Repricing
Effective Date and with terms consistent with those of the original option,
except that options exchanged in the second repricing could not be exercised for
a period of one year from the Second Repricing Effective Date. The exercise
price for repriced options was $5.094, the closing sales price of the Company's
Common Stock on the Repricing Effective Date.
On February 13, 1998, the A-1 Preferred Stockholders exercised warrants
to purchase 60,000 additional shares of A-1 Preferred at $250 per share for net
proceeds to the Company of $14.1 million, and simultaneously converted 220,000
shares of A-1 Preferred into 12,769,908 shares of the Company's common stock.
F-31
<PAGE>
INFORMIX CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS END OF
OF PERIOD EXPENSES (1) (2) PERIOD
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year ended December 31, 1997...................... $ 21,429 $ 19,929 $ -- $ 7,551 $ 33,807
Year ended December 31, 1996...................... $ 12,854 $ 15,329 $ (346) $ 6,408 $ 21,429
Year ended December 31, 1995...................... $ 6,049 $ 8,247 $ 261 $ 1,703 $ 12,854
</TABLE>
- ------------------------
(1) Charged (credited) to revenues
(2) Uncollectible accounts written off, net of recoveries
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- ---------------------------------------------------------------------------------------------
<C> <S>
3.1 (3) Certificate of Incorporation of the Registrant, as amended
3.2 (3) Bylaws of the Registrant, as amended
3.3 (4) Certificate of Designation of Series A Convertible Preferred Stock
3.4 (5) Certificate of Designation of Series A-1 Convertible Preferred Stock
3.5 (5) Certificate of Designation of Series B Convertible Preferred Stock
4.1 (6) First Amended and Restated Rights Agreement, dated as of August 12, 1997, between the
Registrant and BankBoston N.A., including the form of Rights Certificate attached thereto as
Exhibit A
4.2 (7) Amendment, dated as of November 17, 1997, to the First Amended and Restated Rights Agreement
between the Registrant and BankBoston, N.A.
10.1 (2) Form of Change of Control Agreement
10.2 (9) Form of Amended Indemnity Agreement
10.3 (10) 1989 Outside Directors Stock Option Plan
10.4 (1) Amendment to the 1989 Outside Directors Stock Option Plan
10.5 (2) Form of Nonqualified Stock Option Agreement under the Registrant's 1989 Outside Director's
Stock Option Plan
10.6 (12) 1986 Stock Option Plan, as amended
10.7 (13) 1994 Stock Option and Award Plan
10.8 (1) Form of Stock Option Agreement and Performance Award Agreement under the Registrant's 1994
Stock Option and Award Plan
10.9 (13) Form of Nonqualified Stock Option Agreement under the Registrant's 1994 Stock Option Plan
10.10 (14) 1997 Employee Stock Purchase Plan
10.11 (2) Enrollment/Change Form under the Registrant's 1997 Employee Stock Purchase Plan
10.12 (15) Employment Agreement, dated July 18, 1997, between the Registrant and Robert J. Finocchio,
Jr.
10.13 (15) Offer of Employment Letter, dated September 18, 1997, from the Registrant to Wes Raffel
10.14 (15) Offer of Employment Letter, dated September 24, 1997, from the Registrant to Jean-Yves
Dexmier
10.15 (2) Separation Agreement, dated April 18, 1987, between the Registrant and Ronald M. Alvarez
10.16 (2) Separation Agreement, dated May 12, 1997, between the Registrant and Edwin C. Winder
10.17 (16) Employment Agreement, dated January 1, 1989, between the Registrant and Phillip E. White
10.18 (2) Contract of Employment, dated December 5, 1996, between the Registrant and Kenneth Coulter
10.19 (2) Employment Letter Agreement, dated November 25, 1996, between the Registrant and Kenneth
Coulter
10.20 (4) Subscription Agreement, dated August 12, 1997, between the Company and Fletcher International
Limited
10.21 (17) Exchange Agreement, dated as of November 17, 1997, between the Company and Fletcher
International Limited
10.22 (17) Amendment No. 1 to Subscription Agreement, dated as of November 17, 1997, between the Company
and Fletcher International Limited
10.23 (5) Securities Purchase Agreement, dated as of November 17, 1997, between the Company and the
purchasers listed therein
10.24 (5) Registration Rights Agreement, dated as of November 17, 1997, between the Company and the
purchasers listed therein
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
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<C> <S>
10.25 (8) Menlo Oaks Corporate Center Standard Business Lease, dated May 16, 1985, between the
Registrant and Amarok Bredero Partners for office space at 4100 Bohannon Drive, Menlo Park,
California
10.26 (8) Lease Amendment #1, dated July 2, 1986, between the Registrant and Amarok Bredero Partners
for office space at 4100 Bohannon Drive, Menlo Park, California
10.27 (18) Second Amendment to Lease, dated November 7, 1986 between the Registrant and Amarok Bredero
Partners for office space at 4100 Bohannon Drive, Menlo Park, California
10.28 (19) Third Amendment to Lease, dated June 18, 1991, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4100 Bohannon Drive, Menlo Park, California
10.29 (2) Fourth Amendment to Lease, dated June 30, 1997, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4100 Bohannon Drive, Menlo Park, California
10.30 (9) Menlo Oaks Corporate Center Standard Business Lease, dated September 4, 1987 between the
Registrant and Menlo Oaks Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo
Park, California
10.31 (2) Side Letter Agreement, dated August 31, 1987, between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.32 (2) Side Letter Agreement, dated October 27, 1987, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.33 (19) First Amendment to Lease, dated June 18, 1991, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.34 (20) Second Amendment to Lease, dated July 17, 1992, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.35 (2) Third Amendment to Lease, dated June 8, 1993 between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.36 (21) Fourth Amendment to Lease, dated February 10, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.37 (2) Fifth Amendment to Lease, dated June 30, 1997 between the Registrant and Menlo Oaks Partners,
L.P. for office space at 4300/4400 Bohannon Drive, Menlo Park, California
10.38 (21) Menlo Oaks Corporate Center Standard Business Lease, dated February 10, 1994 between the
Registrant and Menlo Oaks Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo
Park, California
10.39 (21) First Amendment to Lease, dated March 17, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo Park, California
10.40 (2) Second Amendment to Lease, dated September 22, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo Park, California
10.41 (2) Third Amendment to Lease, dated December 28, 1994, between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive, Menlo Park, California
10.42 (9) Office Lease, dated August 15, 1987, between the Registrant and Southlake Partners #1 for
office space at 15961 College Blvd. and 11170 Lakeview Avenue, Lenexa, Kansas
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
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<C> <S>
10.43 (2) First Amendment to Office Lease, dated April 15, 1988, between the Registrant and Southlake
Partners #1 for office space at 15901 College Blvd., Lenexa, Kansas
10.44 (2) Amendment to Office Lease, dated October 20, 1997, between the Registrant and Southlake
Partners #1 for office space at 15901 College Blvd. (now 16011 College Blvd) Lenexa, Kansas
10.45 (2) Office Lease, dated October 20, 1997, between the Registrant and Southlake Partners #1 for
office space at 11170 Lakeview Avenue, Lenexa, Kansas
10.46 (2) Senior Secured Credit Agreement, dated December 31, 1997, among Informix Software, Inc.,
certain banks and other financial institutions that either now or in the future are parties
to the agreement, BankBoston, N.A. and Canadian Imperial Bank of Commerce
10.47 (2) Pledge Agreement, dated December 31, 1997, by and between the Registrant and BankBoston, N.A.
10.48 (2) Pledge and Security Agreement, dated as of December 31, 1997, between Informix Software, Inc.
and BankBoston, N.A.
10.49 (2) Continuing Guaranty, dated as of December 31, 1997, by the Registrant
10.50 (1) 1997 Non-Statutory Stock Option Plan and form of Stock Option Agreement thereunder
10.51 (1) Offer of Employment Letter, dated January 23, 1998, from the Registrant to Susan T. Daniel
10.52 (1) Offer of Employment Letter, dated January 19, 1998, from the Registrant to Gary Lloyd
10.53 (1) Offer of Employment Letter, dated March 11, 1998, from the Registrant to Diane L. Fraiman
10.54 (1) Office Lease, dated November 10, 1994, between WVP Income Plus III and Siebel Systems, L.P.
(assigned to Informix Corporation) for office space at 4005 Bohannon Drive, including addenda
and amendments thereto.
10.55 (1) Office Lease, dated April 10, 1995, between the Registrant and 3905 Bohannon Partners for
office space at 3905 Bohannon Drive, including addenda thereto.
21.1 (23) Subsidiaries of the Registrant
23.1 (1) Consent of Ernst & Young LLP, Independent Auditors
24.1 (2) Power of Attorney (set forth on signature page)
27.1 (1) Financial Data Schedule
27.2 (1) Financial Data Schedule for fiscal years end December 31, 1996, 1995 and 1994
27.3 (1) Financial Data Schedule for quarters in the fiscal year end December 31, 1997
27.4 (1) Financial Data Schedule for quarters in the fiscal year end December 31, 1996
</TABLE>
- ------------------------
(1) Filed herewith
(2) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (333-43991)
(3) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended July 2, 1995
(4) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on August 25, 1997
(5) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on December 4, 1997
(6) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on September 3, 1997
(7) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on December 3, 1997.
<PAGE>
(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-8006)
(9) Incorporated by reference to exhibit filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1988
(10) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-31116)
(11) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-50608)
(12) Incorporated by reference to exhibits filed with Registrant's Registration
Statements on Form S-8 (File Nos: 33-22862, 33-31117 and 33-506-10)
(13) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31369) filed with the
Commission on July 16, 1997.
(14) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31371) filed with the
Commission on July 16, 1997
(15) Incorporated by reference to exhibits filed with the Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended September 28,
1997
(16) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1989
(17) Incorporated by reference to exhibits filed with Registrant's report on
Form 8-K filed with the Commission on December 2, 1997
(18) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1986
(19) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1991
(20) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1992
(21) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1993
(22) Incorporated by reference to exhibits filed with the Registrant's
amendment to its annual report on Form 10-K/A for the fiscal year ended
December 31, 1996 filed with the Commission on November 18, 1997
(23) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1996
<PAGE>
Exhibit 10.4
AMENDMENT TO INFORMIX CORPORATION
1989 OUTSIDE DIRECTORS STOCK OPTION PLAN
(Approved by the Board of Directors
of Informix Corporation on February 13, 1992)
SECTION 4 - SHARES SUBJECT TO OPTION IS AMENDED TO READ AS FOLLOWS:
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 200,000.
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 repurchase shares, may again be
subjected to an Option.
SECTION 6(a)(ii) IS AMENDED TO READ AS FOLLOWS:
Upon being elected or reelected to the Board, each Outside Director
shall be granted an Option for fifteen thousand (15,000) shares of
Stock. One-third of the shares subject to the Option will vest and
become exercisable per year for each full year of the Outside
Director's continuous service as a director of the Company.
<PAGE>
Exhibit 10.8
1994 STOCK OPTION AND AWARD PLAN
NOTICE OF PERFORMANCE SHARE AWARD
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Award.
[NAME]
[ADDRESS]
You have been awarded the right to receive (without payment to the
Company of any consideration by you) Common Stock of the Company (the
"Shares), if you achieve the performance goal set forth below. The Shares
will be subject to the Company's Reacquisition Option, which will lapse
(based on your ongoing status as an employee, director or consultant to the
Company (a "Service Provider")), according to the schedule set forth in the
attached Restricted Stock Agreement. If you do not achieve the Performance
Goal, you will have no right whatsoever to the Shares.
Date of Award
Total Number of Shares Subject
to Award
Performance Goal
By your signature and the signature of the Company's representative
below, you and the Company agree that the Shares are granted under and
governed by the terms and conditions of the 1994 Stock Option and Award Plan,
which is made a part of this document. You further agree to execute the
attached Restricted Stock Agreement as a condition to acquiring the Shares.
GRANTEE INFORMIX CORPORATION
______________________________ __________________________________
Signature By
______________________________ Its:______________________________
Print Name [TITLE]
<PAGE>
1994 STOCK OPTION AND AWARD PLAN
RESTRICTED STOCK AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Agreement.
WHEREAS the executive named in the Notice of Performance Share Award
(the "Executive") is a Service Provider, and the Executive's continued
service is considered by the Company to be vitally important to the Company's
success; and
WHEREAS the Executive has met the performance goal set forth in the
Notice of Performance Share Award and earned the right to acquire Common
Stock, subject to the terms and conditions of the Plan and the Notice of
Performance Share Award, which are incorporated herein by reference, and
pursuant to this Restricted Stock Agreement (the "Agreement");
NOW THEREFORE, the parties agree as follows:
1. TRANSFER OF STOCK. The Company hereby agrees to issue to the
Executive, and the Executive hereby accepts, the Shares on this ____ day of
_________, 1998 (the "Date of Transfer").
2. REACQUISITION OPTION.
(a) The Company shall, upon the date (as reasonably fixed and
determined by the Company) the Executive ceases to be a Service Provider for
any or no reason (including death or disability) have an irrevocable,
exclusive option (the "Reacquisition Option") for a period of sixty (60) days
from the date of such termination to reacquire up to that number of shares
which constitute the Unreleased Shares (as defined in Section 3) without
payment of any consideration to the Executive. The Reacquisition Option
shall be exercised by the Company by delivering written notice to the
Executive or the Executive's executor (with a copy to the Escrow Holder).
Upon delivery of such notice the Company shall become the legal and
beneficial owner of the Shares being reacquired and all rights and interests
therein or relating thereto, and the Company shall have the right to retain
and transfer to its own name the number of Shares being reacquired by the
Company.
(b) Whenever the Company shall have the right to reacquire Shares
hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's rights under this
Agreement and reacquire all or a part of such Shares, provided that any such
designee or assignee shall pay the Company cash equal to the fair market
value at the time of reacquisition.
3. RELEASE OF SHARES FROM REACQUISITION OPTION.
(a) [100% OF THE SHARES SHALL BE RELEASED FROM THE COMPANY'S
REACQUISITION OPTION ON DECEMBER 31, 2000, PROVIDED THAT THE EXECUTIVE
CONTINUES TO BE A SERVICE PROVIDER ON SUCH DATE.]
<PAGE>
(b) 100% of the Shares shall be released from the Company's
Reacquisition Option if the Executive's status as a Service Provider
terminates by reason of death, Disability or mutually agreed upon retirement.
(c) Any of the Shares that have not yet been released from the
Reacquisition Option are referred to herein as "Unreleased Shares."
(d) The Shares that have been released from the Reacquisition
Option shall be delivered to the Executive at the Executive's request (see
Section 5).
4. RESTRICTION ON TRANSFER. Except for the escrow described in
Section 5, or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Reacquisition Option in
accordance with the provisions of this Agreement, other than by will or the
laws of descent and distribution.
5. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Unreleased
Shares pursuant to the Reacquisition Option, the Executive shall, upon
execution of this Agreement, deliver and deposit with an escrow holder
designated by the Company (the "Escrow Holder") the share certificates
representing the Unreleased Shares, together with the stock assignment duly
endorsed in blank, attached hereto as Exhibit A. The Unreleased Shares and
stock assignment shall be held by the Escrow Holder, pursuant to the Joint
Escrow Instructions of the Company and Executive attached hereto as Exhibit
B, until such time as the Company's Reacquisition Option expires. As a
further condition to the Company's obligations under this Agreement, the
Company may require the spouse of Executive, if any, to execute and deliver
to the Company the Consent of Spouse attached hereto as Exhibit C.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Reacquisition
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Reacquisition Option has been exercised or expires
unexercised or a portion of the Shares has been released from the
Reacquisition Option, upon request the Escrow Holder shall promptly cause a
new certificate to be issued for the released Shares and shall deliver the
certificate to the Company or the Executive, as the case may be.
(e) Subject to the terms hereof, the Executive shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time
-2-
<PAGE>
during the term of the Reacquisition Option, there is (i) any stock dividend,
stock split or other change in the Shares, or (ii) any merger or sale of all
or substantially all of the assets or other acquisition of the Company, any
and all new, substituted or additional securities to which the Executive is
entitled by reason of the Executive's ownership of the Shares shall be
immediately subject to this escrow, deposited with the Escrow Holder and
included thereafter as "Shares" for purposes of this Agreement and the
Reacquisition Option.
6. LEGENDS. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to
any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REACQUISITION AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
7. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
8. TAX CONSEQUENCES. The Executive has reviewed with the Executive's
own tax advisors the federal, state and local tax consequences of the
transactions contemplated by this Agreement. The Executive is relying solely
on such advisors and not on any statements or representations of the Company
or any of its agents. The Executive understands that the Executive (and not
the Company) shall be responsible for the Executive's own tax liability that
may arise as a result of the transactions contemplated by this Agreement.
The Executive understands that Section 83 of the Internal Revenue Code of
1986, as amended (the "Code"), taxes as ordinary income the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to reacquire the
Shares pursuant to the Reacquisition Option. The Executive understands that
the Executive may elect to be taxed at the time the Shares are acquired
rather than when and as the Reacquisition Option expires by filing an
election under Section 83(b) of the Code with the IRS within 30 days from the
date of acquisition. The form for making this election is attached as
Exhibit D hereto.
THE EXECUTIVE ACKNOWLEDGES THAT IT IS THE EXECUTIVE'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(B), EVEN IF THE EXECUTIVE REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON THE EXECUTIVE'S BEHALF.
-3-
<PAGE>
9. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject
to the terms and conditions of the Plan and the Notice of Performance Share
Award, represents the entire agreement between the parties with respect to
the acquisition of the Shares by the Executive. Subject to Section 9.1 of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Agreement, the terms and conditions
of the Plan shall prevail. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Executive pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid,
and addressed to the parties at the addresses of the parties set forth at the
end of this Agreement or such other address as a party may request by
notifying the other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by,
the Company's successors and assigns. The rights and obligations of the
Executive under this Agreement may only be assigned with the prior written
consent of the Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such
provision, nor prevent that party from thereafter enforcing any other
provision of this Agreement. The rights granted both parties hereunder are
cumulative and shall not constitute a waiver of either party's right to
assert any other legal remedy available to it.
(e) The Executive agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED OR ACQUIRING SHARES HEREUNDER). EXECUTIVE FURTHER ACKNOWLEDGES AND
AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH EXECUTIVE'S RIGHT OR
THE COMPANY'S RIGHT TO TERMINATE EXECUTIVE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
-4-
<PAGE>
By Executive's signature below, Executive represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Executive has
reviewed the Plan and this Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement. Executive agrees to
accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan or this
Agreement. Executive further agrees to notify the Company upon any change in
the residence indicated in the Notice of Performance Share Award.
DATED:________________________
EXECUTIVE INFORMIX CORPORATION
______________________________ _________________________________
Signature By:
______________________________ Its:_____________________________
Print Name Title
______________________________
Social Security Number
-5-
<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto ___________________________________________ (__________)
shares of the Common Stock of Informix Corporation standing in my name on the
books of said corporation represented by Certificate No. _____ herewith and
do hereby irrevocably constitute and appoint ________________________________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Agreement (the "Agreement") between _________________________________
and the undersigned dated ______________, 19__.
Dated: _________________________, 19____
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. Do not date. The purpose of this assignment is to enable the Company
to exercise the Reacquisition Option, as set forth in the Agreement, without
requiring additional signatures on the part of the Executive.
<PAGE>
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
_________________, 19___
Corporate Secretary
Informix Corporation
4100 Bohannon Drive
Menlo Park, California 94025
Dear____________________:
As Escrow Agent for both Informix Corporation, a Nevada corporation (the
"Company"), and the undersigned Executive of stock of the Company (the
"Executive"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock
Agreement ("Agreement") between the Company and the undersigned, in
accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's
Reacquisition Option set forth in the Agreement, the Company shall give to
Executive and you a written notice specifying the number of shares of stock
to be acquired, the acquisition price, and the time for a closing hereunder
at the principal office of the Company. Executive and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, for the number of shares of stock being reacquired pursuant to the
exercise of the Company's Reacquisition Option.
3. Executive irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Executive does hereby irrevocably constitute and appoint you as Executive's
attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make
such securities negotiable and to complete any transaction herein
contemplated, including but not limited to the filing with any applicable
state blue sky authority of any required applications for consent to, or
notice of transfer of, the securities. Subject to the provisions of this
paragraph 3, Executive shall exercise all rights and privileges of a
shareholder of the Company while the stock is held by you.
<PAGE>
4. Upon written request of the Executive, but no more than once per
calendar year, unless the Company's Reacquisition Option has been exercised,
you shall deliver to Executive a certificate or certificates representing so
many shares of stock as are not then subject to the Company's Reacquisition
Option. Within 90 days after Executive ceases to be a Service Provider, you
shall deliver to Executive a certificate or certificates representing the
aggregate number of shares held or issued pursuant to the Agreement and not
reacquired by the Company or its assignees pursuant to exercise of the
Company's Reacquisition Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Executive, you shall deliver all of the same to Executive and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Executive while
acting in good faith, and any act done or omitted by you pursuant to the
advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are
hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case you obey or comply with any such order,
judgment or decree, you shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been
entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or
called for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such
termination, the Company shall appoint a successor Escrow Agent.
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13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such
instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain
in your possession without liability to anyone all or any part of said
securities until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses or at such other addresses as a
party may designate by ten days' advance written notice to each of the other
parties hereto.
COMPANY: Informix Corporation
4100 Bohannon Drive
Menlo Park, California 94025
EXECUTIVE: __________________________________
__________________________________
__________________________________
ESCROW AGENT: Corporate Secretary
Informix Corporation
4100 Bohannon Drive
Menlo Park, California 94025
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
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<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
INFORMIX CORPORATION
__________________________________
By:
Its:______________________________
Title
EXECUTIVE:
__________________________________
Signature
__________________________________
Print Name
ESCROW AGENT:
___________________________________________
Corporate Secretary of Informix Corporation
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EXHIBIT C
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the shares of Informix
Corporation, as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may
have any rights in said Agreement or any shares issued pursuant thereto under
the community property laws or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19____
__________________________________
Signature of Spouse
__________________________________
Printed Name
<PAGE>
EXHIBIT D
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross
income for the current taxable year the amount of any compensation taxable to
taxpayer in connection with his or her receipt of the property described
below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER:________________________ SPOUSE:_____________________
ADDRESS:________________________________________________________________
IDENTIFICATION NO.: TAXPAYER:________________ SPOUSE:________________
TAXABLE YEAR:________
2. The property with respect to which the election is made is described as
follows: ____________ shares (the "Shares") of the Common Stock of
Informix Corporation (the "Company").
3. The date on which the property was transferred is: _______________, 19__.
4. The property is subject to the following restrictions:
The Shares may be reacquired by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of
the above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated:_________________, 19____ ______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:_________________, 19____ ______________________________________
Spouse of Taxpayer
<PAGE>
Exhibit 10.50
INFORMIX CORPORATION
1997 NON-STATUTORY STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Non-Statutory Stock
Option Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, and
- to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options are, or will be, granted
under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Informix Corporation, a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
<PAGE>
(k) "EMPLOYEE" means any person, including Officers, employed by
the Company or any Parent or Subsidiary of the Company. An Employee shall
not cease to be an Employee in the case of (i) any leave of absence approved
by the Company or (ii) transfers between locations of the Company or between
the Company, its Parent, any Subsidiary, or any successor. Neither service
as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(o) "OFFICER" means a person who is an officer of the Company
pursuant to the specifications set forth in the By-Laws of the Company.
(p) "OPTION" means a nonstatutory stock option granted pursuant to
the Plan, that is not intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code and the regulations promulgated
thereunder.
(q) "OPTION AGREEMENT" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(r) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
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(s) "OPTIONED STOCK" means the Common Stock subject to an Option.
(t) "OPTIONEE" means the holder of an outstanding Option granted
under the Plan.
(u) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means this 1997 Non-Statutory Stock Option Plan.
(w) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(x) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by (i) the Board or (ii) a
Committee, which committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Employees to whom Options may be granted
hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation
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<PAGE>
regarding any Option or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator, in its sole discretion,
shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(x) to modify or amend each Option (subject to Section
14(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or
previously granted by the Administrator;
(xii) to determine the terms and restrictions applicable to
Options;
(xiii) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of
the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined. All elections by an Optionee to have
Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options.
5. ELIGIBILITY. Options may be granted hereunder to Employees and
Consultants, provided, however, that Options may only be granted to Officers
and Directors hereunder as an inducement essential into their entering into
an employment contract with the Company.
6. LIMITATION. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as
an Employee with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
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<PAGE>
7. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for ten (10) years, unless sooner
terminated under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
(viii) any combination of the foregoing methods of payment.
10. EXERCISE OF OPTION.
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<PAGE>
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS AN EMPLOYEE. If an Optionee
ceases to be a an Employee, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the
extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the
Option Agreement). If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be an
Employee as a result of the Optionee's Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of termination,
including as to accelerated vesting as set forth in the Option Agreement (but
in no event later than the expiration of the term of such Option as set forth
in the Option Agreement). If, on the date of termination, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while an Employee, the
Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than
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<PAGE>
the expiration of the term of such Option as set forth in the Notice of
Grant), by the Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance, but only to the extent that
the Option is vested on the date of death, including as to accelerated
vesting as set forth in the Option Agreement. If, at the time of death, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under
the Optionee's will or the laws of descent or distribution. If the Option is
not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by
the Administrator, an Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. If the Administrator makes
an Option transferable, such Option shall contain such additional terms and
conditions as the Administrator deems appropriate.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER,
ASSET SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not
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<PAGE>
otherwise be exercisable. In addition, the Administrator may provide that
any Company repurchase option applicable to any Shares purchased upon
exercise of an Option shall lapse as to all such Shares, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option
will terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph
(d) hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option shall be assumed or an equivalent option or right
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable.
If an Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option shall
be fully vested and exercisable for a period of fifteen (15) days from the
date of such notice, and the Option shall terminate upon the expiration of
such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock, immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger
or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option, for each Share of Optioned Stock to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control" of
the Company, the term and conditions of Optionee's employment agreement, if
any, shall govern the acceleration of vesting of Optionee's outstanding
Options, if any. A "Change in Control" shall be the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by
the Company's then outstanding voting securities;
(ii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of July 22, 1997, or
(B) are elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the
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<PAGE>
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to
the Company);
(iii) The consummation of a merger or consolidation of the
Company with any other corporation other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
(iv) The consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
options granted under the Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required.
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<PAGE>
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
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INFORMIX CORPORATION
1997 NON-STATUTORY STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Optionee:
As an inducement essential into your entering into an employment
agreement with the Company, you have been granted an option to purchase
Common Stock of the Company, subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share
Total Number of Shares Granted
Total Exercise Price
Type of Option: Nonstatutory Stock Option
Term/Expiration Date:
VESTING SCHEDULE:
Subject to the Optionee continuing to be an Employee on such dates, and
subject to accelerated vesting as provided in the employment agreement by and
between Employee and the Company (the "Employment Agreement") or in Section
II.2 of this Option Agreement, this Option shall vest and become exercisable
as to 25% of the Shares originally subject to the Option on each anniversary
of the date of grant. In the event Optionee continues to provide services as
a Consultant to the Company after
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termination of employment (and subject to approval by the Board), this Option
shall continue to vest and become exercisable as to 25% of the Shares
originally subject to the Option on each anniversary of the date of grant.
TERMINATION PERIOD:
In the event Optionee is terminated for Cause (as defined below), this
Option may be exercised for three months after Optionee ceases to be an
Employee (or, with the approval of the Board, a Consultant). Upon
termination for death or Disability of the Optionee, or if Optionee is
terminated other than for Cause, this Option may be exercised for twelve
months after Optionee ceases to be an Employee (or, with the approval of the
Board, a Consultant). In no event shall this Option be exercised later than
the Term/Expiration Date as provided above.
For purposes of this Stock Option Agreement, "Cause" shall mean (i)
Optionee's engaging in willful misconduct which is materially injurious to
the Company or its affiliates; (ii) Optionee's committing a felony, (iii)
Optionee's committing an act of fraud against the Company or its affiliates;
or (iv) Optionee's willful breaching, in any material respect, of the
Employee Confidentiality/Ownership/Nonsolicitation Agreement between Optionee
and the Company.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of
this Agreement (the "Optionee") an option (the "Option") to purchase the
number of Shares, as set forth in the Notice of Grant, at the exercise price
per share set forth in the Notice of Grant (the "Exercise Price"), subject to
the terms and conditions of the Plan, which is incorporated herein by
reference. Subject to Section 14(b) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
Notwithstanding any contrary provision of this Option Agreement, if the
Optionee's employment (or, with the Board's approval, consulting
relationship) is terminated due to death or Disability prior to the time when
this Option is fully exercisable, the right to exercise this Option shall, on
the date of death or Disability, accrue as to an additional 25% of the Shares
originally subject to this Option (but not as to more than 100% of the Shares
originally subject to the Option) in addition to the Shares (if any) which
have become exercisable in accordance with the Vesting Schedule.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the
-2-
<PAGE>
provisions of the Plan. The Exercise Notice shall be completed by the
Optionee and delivered to the Secretary of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt
by the Company of such fully executed Exercise Notice accompanied by such
aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised
with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. NON-TRANSFERABILITY OF OPTION. This 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 Optionee only by the
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. The Optionee may incur regular federal
income tax liability upon exercise of an NSO. The Optionee will be treated
as having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Exercised Shares
on the date of exercise over their aggregate Exercise Price. If the Optionee
is an
-3-
<PAGE>
Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(b) DISPOSITION OF SHARES. If the Optionee holds NSO Shares for
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Employment Agreement
are incorporated herein by reference. The Plan, Employment Agreement and
this Option Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all
prior undertakings and agreements of the Company and Optionee with respect to
the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS AN EMPLOYEE (OR, WITH THE APPROVAL OF THE BOARD,
CONSULTANT) AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS AN EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan, the Employment Agreement
and this Option Agreement. Optionee has reviewed the Plan, the Employment
Agreement and this Option Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Option Agreement and
fully understands all provisions of the Plan, the Employment Agreement and
this Option Agreement. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator
upon any questions relating to the Plan and Option Agreement. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
-4-
<PAGE>
OPTIONEE: INFORMIX CORPORATION
_______________________________ ______________________________________
By
______________________________________
Title
-5-
<PAGE>
EXHIBIT A
1997 NON-STATUTORY STOCK OPTION PLAN
EXERCISE NOTICE
Informix Corporation
4100 Bohannon Drive
Menlo Park, CA 94025
Attention: Stock Option Plan Administrator
1. EXERCISE OF OPTION. Effective as of today, ________________,
_____, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Informix Corporation (the
"Company") under and pursuant to the 1997 Non-Statutory Stock Option Plan
(the "Plan") and the Stock Option Agreement dated July 22, 1997 (the "Option
Agreement"). The purchase price for the Shares shall be $______________, as
required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS STOCKHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. The Shares
so acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date of issuance, except as
provided in Section 12 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition
of the Shares. Purchaser represents that Purchaser has consulted with any
tax consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company
for any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan, the Employment
Agreement and Option Agreement are incorporated herein by reference. This
Agreement, the Plan, the Employment Agreement and the Option Agreement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and
<PAGE>
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by
the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: INFORMIX CORPORATION
__________________________________ _____________________________________
By
_____________________________________
Title
_____________________________________
Date Received
ADDRESS:
4100 Bohannon Drive
Menlo Park, CA 94025
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<PAGE>
Exhibit 10.51
January 23, 1998
Susan T. Daniel
54 South Fourteenth Street
San Jose, CA 95112
Dear Susan:
We are very pleased that you are considering joining us at Informix Software,
Inc. (Company). The purpose of this letter is to set forth our offer of
employment. We propose that you begin employment with Informix Software, Inc.
in the capacity of Vice President, Human Resources, reporting to Bob Finocchio,
Chairman, President and Chief Executive Officer.
Your salary, computed on an annual basis beginning on the date you become an
employee of the Company, will be $230,000 per year and shall be paid in equal
semi-monthly installments.
You will also participate in the Executive Incentive Compensation Plan in 1998
at a rate of 40%. The first six months are guaranteed. Plan details will be
provided under separate cover.
It will be recommended to the Board of Directors that you receive a
non-qualified stock option under the Informix Corporation Employee Stock
Option Plan to acquire 200,000 shares of the common stock of Informix
Corporation on terms and conditions to be determined solely by the Board of
Directors at the time of the grant. In the event of a merger or change in
control of the Company within six months after the date of the agreement, the
exercisability of your options will accelerate as to two year's additional
vesting. If such change of control takes place after such six month period,
the exercisability of your options will accelerate so as to become fully
vested. You, of course, will be under no obligation to exercise any stock
options which may be granted to you.
In addition, a hire-on bonus of $15,000 will be awarded to you in which you will
become "vested" at the rate of $7,500 for each of your first two years with the
Company. In the event you terminate your employment before the end of the first
year you will be required to repay the full amount of the bonus and if you
terminate your employment after one year but before completing two years you
will be required to repay one-half of the bonus.
In the event of a change in ownership of the company during your first two years
of employment only for a termination other than cause, you will be entitled to
receive as severance an amount equal to one (1) year base salary, if your
employment terminates within 90 days of the initiating event irrespective of
which party initiates the termination.
This offer of employment is contingent upon the following:
- - Your signing of the Company's Employee Agreement for Nondisclosure of
Confidential Information, in the form attached.
- - Your acceptance of this offer by signing this letter below.
- - Your signing of the enclosed W-4 form.
- - Approval by the Informix Board of Directors.
- - Within your first day of employment, you must provide for examination,
proof of your legal right to work in the United States and complete the
Immigration Form I-9 as required by the U.S. Immigration and Naturalization
Service. These include either 1) a U.S. passport, a U.S. certificate of
citizenship, a U.S. certificate of naturalization, an unexpired foreign
passport with attached employment authorization or an alien registration card
with photograph: OR 2) a state driver's license, a state I.D. card, a U.S.
military card AND a Social Security
<PAGE>
Page 2
Susan T. Daniel
January 23, 1998
card or a U.S. birth certificate. If you do not have proof of identification
on the first day of employment, you will be sent home to obtain the
documents. You will not be placed on the payroll until this form is
completed by a Company representative. If for any reason you are unable to
provide proof of your identity as well as your legal right to work in the
United States within the first three days the Company may terminate your
employment. From time to time after your first day of employment, you may be
asked to provide proof of your identify as well as your legal right of work
in the United States.
This offer of employment is not for any specific period of time and your
employment may be terminated with or without cause by yourself or the Company
at any time for any reason.
As an employee of Informix, you also agree to comply with company policies,
procedures and standards of conduct that may be established by the Company.
This offer of employment contains all of the terms and conditions of your
employment with the Company and supersedes any and all prior, oral or written
representations or agreements made by anyone employed by, or associated with,
the Company.
The terms of this offer, if accepted, will become your terms of employment
and can only be added to or modified by a written document signed by the
Chief Executive Officer.
I am looking forward to your acceptance of this offer. Please be advised
that this offer of employment is valid only to January 30, 1998. Please
acknowledge your acceptance by signing and dating this letter and returning
it to us before February 2, 1998. In addition, please complete the W-4 form
and return it to the Human Resources Department prior to beginning your
employment or no later than 3 days after your date of hire. Enclosed for
your convenience in making the return is a self-addressed envelope. Please
bring your I-9 form, required identification, and Non-Disclosure Agreement
with you on your first day of employment for verification and witnessing by
your manager.
Sincerely,
INFORMIX SOFTWARE, INC.
/s/ Robert J. Finocchio
- --------------------------------
Bob Finocchio
Chairman, President and
Chief Executive Officer
Enclosures
1. Non-Disclosure Form
2. I-9 Form
3. W-4
4. Application of Employment
AGREED ON THE 26TH DAY OF JANUARY, 1998
ANTICIPATED START DATE: FEBRUARY 9, 1998
SIGNED: /S/ SUSAN DANIEL
-------------------------
Susan Daniel
<PAGE>
Exhibit 10.52
January 19, 1998
Gary Lloyd
99 Lyford Drive, No. 45
Tiburon, California 94920
Dear Gary:
We are very pleased that you are considering joining us at Informix Software,
Inc. (Company). The purpose of this letter is to set forth our offer of
employment. We propose that you begin employment with Informix Software,
Inc. in the capacity of Vice President and General Counsel in our Menlo Park
office, reporting to Bob Finocchio, Chairman, President and Chief Executive
Officer.
Your salary, computed on an annual basis beginning on the date you become an
employee of the Company, will be $200,000 per year and shall be paid in equal
semi-monthly installments.
You will also participate in the Executive Incentive Compensation Plan in
1998 at a rate of 35%. Plan details will be provided under separate cover.
It will be recommended to the Board of Directors that you receive a
non-qualified stock option under the Informix Corporation Employee Stock
Option Plan to acquire 150,000 shares of the common stock of Informix
Corporation on terms and conditions to be determined solely by the Board of
Directors at the time of the grant, but subject to the change of control
provision that has been given to recently hired officers. You, of course,
will be under no obligation to exercise any stock options which may be
granted to you.
This offer of employment is contingent upon the following:
- - Your signing of the Company's Employee Agreement for Nondisclosure of
Confidential Information, in the form attached.
- - Your acceptance of this offer by signing this letter below.
- - Your signing of the enclosed W-4 form.
- - Within your first day of employment, you must provide for examination,
proof of your legal right to work in the United States and complete the
Immigration Form I-9 as required by the U.S. Immigration and Naturalization
Service. These include either 1) a U.S. passport, a U.S. certificate of
citizenship, a U.S. certificate of naturalization, an unexpired foreign
passport with attached employment authorization or an alien registration card
with photograph: OR 2) a state driver's license, a state I.D. card, a U.S.
military card AND a Social Security card or a U.S. birth certificate. If you
do not have proof of identification on the first day of employment, you will
be sent home to obtain the documents. You will not be placed on the payroll
until this form is completed by a Company representative. If for any reason
you are unable to provide proof of your identity as well as your legal right
to work in the United States within the first three days the Company may
terminate your employment. From time to time after your first day of
employment, you may be asked to provide proof of your identify as well as
your legal right of work in the United States.
<PAGE>
Page 2
Gary Lloyd
January 19, 1998
This offer of employment is not for any specific period of time and your
employment may be terminated with or without cause by yourself or the Company
at any time for any reason.
As an employee of Informix, you also agree to comply with company policies,
procedures and standards of conduct that may be established by the Company.
This offer of employment contains all of the terms and conditions of your
employment with the Company and supersedes any and all prior, oral or written
representations or agreements made by anyone employed by, or associated with,
the Company.
The terms of this offer, if accepted, will become your terms of employment
and can only be added to or modified by a written document signed by the Vice
President of Human Resources or the President of the Company.
I am looking forward to your acceptance of this offer. Please be advised
that this offer of employment is valid only to January 26, 1998. Please
acknowledge your acceptance by signing and dating this letter and returning
it to us before January 29, 1998. In addition, please complete the W-4 form
and return it to the Human Resources Department prior to beginning your
employment or no later than 3 days after your date of hire. Enclosed for
your convenience in making the return is a self-addressed envelope. Please
bring your I-9 form, required identification, and Non-Disclosure Agreement
with you on your first day of employment for verification and witnessing by
your manager.
Sincerely,
INFORMIX SOFTWARE, INC.
/s/ Robert J. Finocchio
- -------------------------------
Bob Finocchio
Chairman, President and
Chief Executive Officer
Enclosures
1. Non-Disclosure Form
2. I-9 Form
3. W-4
4. Employee Handbook
AGREED ON THE 22ND DAY OF JANUARY, 1998
ANTICIPATED START DATE: JANUARY 26, 1998
SIGNED: /S/ GARY LLOYD
------------------------
Gary Lloyd
<PAGE>
Exhibit 10.53
March 11, 1998
Diane L. Fraiman
2857 Shenandoah Terrace
Portland, OR 97210
Dear Diane:
We are very pleased that you are considering joining us at Informix Software,
Inc. (Company). The purpose of this letter is to set forth our offer of
employment. We propose that you begin employment with Informix Software,
Inc. in the capacity of Vice President, Corporate Marketing, reporting to Bob
Finocchio, Chairman, President and Chief Executive Officer.
Your salary, computed on an annual basis beginning on the date you become an
employee of the Company, will be $250,000 per year and shall be paid in equal
semi-monthly installments.
You will also participate in the Executive Incentive Compensation Plan in
1998 at a rate of 40%. The first six months are guaranteed. Plan details
will be provided under separate cover.
It will be recommended to the Board of Directors that you receive a
non-qualified stock option under the Informix Corporation Employee Stock
Option Plan to acquire 200,000 shares of the common stock of Informix
Corporation on terms and conditions to be determined solely by the Board of
Directors at the time of the grant. In the event of a merger or change in
control of the Company within six months after the date of the agreement, the
exercisability of your options will accelerate as to two year's additional
vesting. If such change of control takes place after such six month period,
the exercisability of your options will accelerate so as to become fully
vested. You, of course, will be under no obligation to exercise any stock
options which may be granted to you.
In addition, a relocation bonus of $135,000 will be awarded to you in which
you will become "vested" at the rate of $67,500 for each of your first two
years with the Company. In the event you terminate your employment before
the end of the first year you will be required to repay the full amount of
the bonus and if you terminate your employment after one year but before
completing two years you will be required to repay one-half of the bonus.
The company will also pay for relocation costs as outlined in Attachment A.
In the event of a change in ownership of the company during your first two
years of employment, you will be entitled to receive as severance an amount
equal to one (1) year base salary, if your employment terminates within 90
days of the initiating event irrespective of which party initiates the
termination.
This offer of employment is contingent upon the following:
- - Your signing of the Company's Employee Agreement for Nondisclosure of
Confidential Information, in the form attached.
- - Your acceptance of this offer by signing this letter below.
- - Your signing of the enclosed W-4 form.
- - Approval by the Informix Board of Directors.
<PAGE>
Page 2
Diane Fraiman
March 11, 1998
- - Within your first day of employment, you must provide for examination,
proof of your legal right to work in the United States and complete the
Immigration Form I-9 as required by the U.S. Immigration and Naturalization
Service. These include either 1) a U.S. passport, a U.S. certificate of
citizenship, a U.S. certificate of naturalization, an unexpired foreign
passport with attached employment authorization or an alien registration
card with photograph; OR 2) a state driver's license, a state I.D. card, a
U.S. military card AND a Social Security card or a U.S. birth certificate.
If you do not have proof of identification on the first day of employment,
you will be sent home to obtain the documents. You will not be placed on the
payroll until this form is completed by a Company representative. If for any
reason you are unable to provide proof of your identity as well as your legal
right to work in the United States within the first three days the Company
may terminate your employment. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as
your legal right to work in the United States.
Except as stated above, this offer of employment is not for any specific
period of time and your employment may be terminated with or without cause by
yourself or the Company at any time for any reason.
As an employee of Informix, you also agree to comply with company policies,
procedures and standards of conduct that may be established by the Company.
This offer of employment contains all of the terms and conditions of your
employment with the Company and supersedes any and all prior, oral or written
representations or agreements made by anyone employed by, or associated with,
the Company. The terms of this offer, if accepted, will become your terms of
employment and can only be added to or modified by a written document signed
by the Chief Executive Officer or the Vice President, Human Resources.
I am looking forward to your acceptance of this offer. Please acknowledge
your acceptance by signing and dating this letter. In addition, please
complete the W-4 form and return it to the Human Resources Department prior
to beginning your employment or no later than 3 days after your date of hire.
Enclosed for your convenience in making the return is a self-addressed
envelope. Please bring your I-9 form, required identification, and
Non-Disclosure Agreement with you on your first day of employment for
verification and witnessing by your manager.
Sincerely,
INFORMIX SOFTWARE, INC.
/s/ SUSAN DANIEL
Susan Daniel
Vice President
Human Resources
AGREED ON THE 11th DAY OF MARCH
ANTICIPATED START DATE: MARCH 30, 1998
SIGNED: /s/ DIANE FRAIMAN
<PAGE>
ATTACHMENT A
A. TRAVEL AND LIVING EXPENSES: Reasonable and necessary expenses of travel
and living for the employee/spouse will be reimbursed for the following:
1. Travel of employee/spouse from former residence to new location
in order to commence employment. Includes travel, meals, and
lodging en route for one-way trip.
2. Three (3) months temporary living up to $3,000/month.
3. Residence search trip includes round-trip travel, meals, lodging
up to a total of eight (8) days (no limit on number of trips).
4. Travel expense is limited to coach air fare, train fare not to
exceed coach fare, or automobile mileage for one automobile at a
rate of 35 cents per mile.
B. MOVING ASSISTANCE: Informix Software, Inc. Finance Department, in
conjunction with the Human Resources Department, will select, authorize
and pay the moving company directly for the expense of moving the
employee's normal household goods and personal effects from his/her
former residence to his/her new residence, including the following:
1. SHIPMENT: Includes shipment of normal household goods and
personal effects from the former residence to the new residence.
Does not include shipping of livestock, boats, trailers, trees,
shrubs, firewood, construction material or other property
requiring special handling. Does not include exclusive use of
van, mover's overtime or waiting time, extra labor charges or
additional pickup and delivery stops.
2. PACKING AND UNPACKING: Includes packing of normal household
goods and personal effects for shipment at the former residence
and unpacking and placement of such goods at the new residence.
Does not include disassembly, assembly, handling or placement of
objects, equipment or permanently fixed installations; such as,
outdoor fireplaces, swing sets, TV antenna, etc. which require
extra labor charges.
3. DISCONNECTING AND CONNECTING APPLIANCES: Limited to services
arranged for or performed by the moving company. At the new
residence, assistance is provided only for connection to existing
outlets already in the house. Up to $100 maximum total for
disconnection of appliances at the old residence and reconnection
of the same appliances at the new residence (TV antenna not
covered).
4. STORAGE: Includes in-transit storage of household goods and
personal effects shipped from the former residence for a maximum
of 60 days.
5. SHIPMENT OF PETS: Includes shipment of normal household pets
such as cat or dog. Such animals should be taken as baggage with
the family traveling commercially, if possible. Board is limited
to the number of days of family temporarily living at the new
location. The Company assumes no liability for pets.
6. INSURANCE: Includes mover's coverage of $2 per pound for damage
to common household goods and personal effects. Does not cover
such items as valuable antiques, cash, documents, plants and
perishables. Does include insurance for art works.
2
<PAGE>
7. AUTOMOBILES: Includes shipment of one (1) automobile if
relocation is 1,500 miles or less; for distances over 1,500 miles
up to two (2) automobiles may be shipped provided commercial
travel accommodations are used by the employee and his/her
dependents in traveling to the new location. Reasonable judgment
should be used in considering the value of the automobile versus
its shipping costs.
8. LIMITATIONS: Expenses which are not authorized by Informix
Software, Inc. will not be reimbursed and are the financial
responsibility of the employee, including the following:
a) any handling, shipping, insuring or other services
performed by the mover requiring additional labor or
other charges
b) the cost of services performed by the employee, his/her
dependents, relatives or others not authorized by the
Company
c) Gratuities to moving company employees.
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
November 10, 1994 is made by and between WVP Income Plus, III L.P. ("Lessor")
and Siebel Systems ("Lessee"), (collectively the "Parties," or individually a
"Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 4005 Bohannon Drive located in the County of San
Mateo State of California and generally described as (describe briefly the
nature of the property) An approximate 12,000 square foot office building
("Premises). (See Paragraph 2 for further provisions.)
1.3 Term: 19 months ("Original Term") commencing January 1, 1995
("Commencement Date") and ending July 31, 1996 ("Expiration Date"). See
Paragraph 3 for further provisions.)
1.4 Early Possession: Tenant shall be allowed to install telephone
wiring, furniture prior to commencement. ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $11,400 per month ("Base Rent"), payable on the first day
of each month commencing January 1, 1995. There shall be no rent due for the
month of July, 1996. (See Paragraph 4 for further provisions.)
/ / If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $11,400 as Base Rent for the period
January, 1995.
1.7 Security Deposit: $11,400. ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: General office, computer software engineering and
marketing and other legal related (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Cornish & Carey Commercial represents
/ / Lessor exclusively ("Lessor's Broker"); / / both Lessor and Lessee, and
represents _
/ / _____ [deleted]
1.11 _____[deleted] ("Guarantor"). (See Paragraph 37 for further
provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 50 through 55 and Exhibits __ all of which constitute a part of this
Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease; or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
<PAGE>
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition as per paragraph 51 of the Addendum. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. [deleted]
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.6 [deleted]
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of his
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
[deleted] to pay Real Property shall be in effect during such period. Any such
early possession shall not affect nor advance the Expiration Date of the
Original Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4 or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within [30, 60?] days after the Commencement
Date, Lessee may, at its option, by notice in writing to Lessor within ten (10)
days thereafter, cancel this Lease, in which event the Parties shall be
discharged
<PAGE>
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, [deleted] may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. _ [deleted] Rent of this Lease, ____ [deleted] Lessor;
deposit additional moneys with Lessor sufficient to maintain the _ [deleted]
amounts are specified in the Basic Provisions. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee in a timely fashion or,
at Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any moneys to be paid by Lessee under this
Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8 or any other use which is comparable thereto and/for
no other purpose. Lessee shall not use or permit the use of the premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or
<PAGE>
intensity of existence, use, manufacture, disposal, transportation, spill,
release or effect, either by itself or in combination with other materials
expected to be on the Premises, is either: (I) potentially injurious to the
public health, safety or welfare, the environment or the Premises, (ii)
regulated or monitored by any governmental authority, or (iii) a basis for
liability f Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include, but
not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products,
by-products or fractions there. Lessee shall not engage in any activity in, on
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in timely manner (at Lessee's sole cost and expense) with
all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean
(I) the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, storage, use, transportation, or disposal of a
Hazardous Substance with respect to which any Applicable Law requires that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring properties
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises other than
as previously consented to by Lessor. Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses Involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to the effects of any contamination or injury to person, property
or the environment created or suffered by Lessee and the cost of investigation
(including consultant's and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this
<PAGE>
Lease. No termination, cancellation or release agreement entered into by Lessor
and Lessee shall release Lessee from its obligations under this Lease with
respect to Hazardous Substances or storage tanks, unless specifically so agreed
by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits the requirements of any
applicable fire insurance underwriter or rating bureau and the recommendations
of Lessor's engineers and/or consultants relating in any manner to the premises
(including but not limited to matters pertaining to (1) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance or storage tank), now in effect or which may hereafter
come into effect and whether or not reflecting a change in policy from any
previously existing policy. Lessee shall, within five (5) days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a) shall have the right to enter the Premises at any time in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent or unless the inspection is requested or ordered by a
governmental authority as a result of any such existing or imminent violation or
contamination, in any such case, Lessee shall upon reimburse Lessor or Lessor's
Lender, as the case may be, for the costs and expenses of such inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alternations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.).
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all times
keep the Premises and every part thereof in good order, condition and [deleted]
whether or not such portion of the Premises [deleted] to Lessee, and whether or
not the need for such repairs occurs [deleted] boilers, fired or unfired systems
and equipment, fire hydrants, fixtures, waits (interior and exterior), ceilings,
floors, windows, doors, plate glass, landscaping, driveways, fences, signs.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or
<PAGE>
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of, the Premises, the elements surrounding same or
neighboring properties that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include [deleted]
the Premises and all improvements thereon or a part thereof in good order,
condition [deleted].
(b) See Addendum paragraph 53.
7.2 See Addendum paragraph 53.
7.3 Utility Installations; Trade Fixtures; Alternations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alternations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls and the cumulative cost thereof during the term of this Lease
as extended does not exceed $25,000. Lessor acknowledges Lessee intends to
replace carpet.
(b) Consent. Any Alternations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (1) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) compliance by Lessee with all conditions of said permits in a
prompt and expeditious manner. Any Alternations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor, Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alternation or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialism lien against the Premises or any interest therein. Lessee shall give
Lessor not less than ten (10) days' notice prior to the commencement of any work
in, on or
<PAGE>
about the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, the Lessee
shall, at its sole expense defend and protect itself. Lessor and the Premises
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor the Premises.
If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the amount
of such contested lien claim or demand, indemnifying Lessor against liability
for the same, as required by law for the holding of the Premises free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specific part of the Lessee Owned alternations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alternations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned alternations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alternations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
expected. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance: Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the
<PAGE>
Lease term. Payment shall be made by Lessee to Lessor within ten (10) days
following receipt of an invoice for any amount due as per Addendum paragraph 53.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor, in the event Lessor is the Insuring Party.
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance --Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the [_________] shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value there if, by reason of the
unique nature or age of the improvements involved, such latter amount is less
than full replacement cost. If Lessor is the insuring Party, however, Lessor
Owned Alteration and Utility Installation shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an insured Loss, as defined in Paragraph 9.1(c)
(b) Rental Value. The Insuring party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor with loss payable to Lessor and Lender(s),
<PAGE>
insuring the loss of the full rental and other charges payable by Lessee to
Lessor under this Lease for one (1) year (including all real estate taxes,
insurance costs, and any schedule rental increases). Said insurance shall
provide that in the event the Lease is terminated by reason of an insured loss,
the period of indemnity for such overage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for nay deductible amount in the event of such
loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase int he premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring party, the
Lessor shall not be required to insure Lessee owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property. Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible or not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" at least
B+, V, or such other rating as may be required by a Lender having a lien on the
Premises, as set forth in the most current issue of "Best's Insurance Guide".
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. If Lessee is the Insuring
Party, Lessee shall cause to be delivered to Lessor certified copies of policies
of such insurance or certificates evidencing the existence and amounts of such
insurance with the insureds and loss payable clauses as required by this Lease.
No such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereof, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee to Lessor upon demand. If the Insuring party shall fail to
procure and maintain the insurance required to be carried by the Insuring Party
under this Paragraph 8, the other Party may, but shall not be required to,
procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover
<PAGE>
damages (whether in contract or in tort) against the other, for loss or damage
to the Waiving party's property arising out of or incident to the perils
required to be insurance against under Paragraph 8. The effect of such releases
and waivers of the right to recover damages shall not be limited by the amount
of insurance carried or required or by any deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnity, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees, or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment and
whether well founded or not, in any case any action or proceeding be brought
against Lessor by reason of nay of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonable
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliance, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portion s of the building or which the Premises are a
part or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstance be liable for injury to Lessee's
bassness or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
Improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations;
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premise, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction if 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installation,
which was caused by an event required to be
<PAGE>
covered by the insurance described in Paragraph 8.3(a). Irrespective of any
deductible amounts of coverage limits involved.
(d) "Replacement cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(1), in, on, or under the
Premises.
9.2 Partial Damage - insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lesser shall, at Lessor's expense,, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonable possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost of repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available. Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party reasonable for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make sure restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either party.
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an insured Loss occurs, unless caused by a negligent or willful act by
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as
<PAGE>
reasonably possible at Lessor's expense, in which even this Lease shall continue
in full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such damage
of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expenses and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by an
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not in the
damage or destruction in s an insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction was
caused by Lessee, Lessor shall have the right to recover Lessor's damages from
Lessee except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an insured Loss. Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance
<PAGE>
is required under Paragraph 8.3(b)), shall be abated in proportion to the degree
to which Lessee's use of the Premises is impaired. Except for abatement of Base
Rent, Real Property Taxes, insurance premiums, and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefore (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, and remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment. In
such even t this Lease shall continue in full force and effect, and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve months.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments
<PAGE>
made by Lessee to Lessor, Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been, or is not then required to be, used
by Lessor under the terms of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
<PAGE>
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned alterations, Utility
installation, Trade Fixtures, furnishings, equipment and personal property of
Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause
its Trade Fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten 910) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage r otherwise transfer or encumber (collectively, "assignment")
or sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessor shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurative Breach, Lessor
shall have the right to either:
<PAGE>
(i) terminate this Lease, or (ii) upon thirty (30) days written notice
("Lessor's Notice"), increase the monthly Base Rent to fair market rental value
or one hundred ten percent (110%) of the Base Rent then in effect, whichever is
greater. Pending determination of the new fair market rental value, if disputed
by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credited against the next installations) of Base Rent coming due,
and any underpayment for the period retroactively to the effective date of the
adjustment being due and payable immediately upon the determination thereof.
Further, in the event of such Breach and market value adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value (without the Lease
being considered an encumbrance or any deduction or depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition), or one hundred ten percent (115) of the price previously in
effect, whichever is greater, (ii) any undex-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of such
adjustment and (iii) any fixed rental adjustments scheduled during the remainder
of the Lease term shall be increased in the same ratio as the new market rental
bears to the Base Rent in effect immediately prior to the market value
adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessees of the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval o disapproval of such assignment nor
the acceptance of any rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the Default or Breach by Lessee
of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee without first exhausting Lessor's remedies
against any other person or entity responsible therefor to lessor, or any
security held by Lessor or Lessee.
<PAGE>
(e) Each request for consent to an assignment or subleeting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational reasonability and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as a reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to confirm and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to teh Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated herein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease. Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary,
<PAGE>
Lessee shall have no right or claim against said sublessee, or, until the Breach
has been cured, against Lessor, to any such rents and otehr charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the same right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure and notice is specified herein, the failure by
lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in
Paragraphs 13.2 and 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of Insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
<PAGE>
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3; (ii) the inspection, maintenance and service contracts required
under paragraph 7.1(b), (iii) the recision of an unauthorized assignment or
subletting per Paragraph 12.1(b); (iv) a Tenancy Statement per Paragraph 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraph 1.11 and 37., (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 thereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonable required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a
trustee or receiver to take possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located a the Premises or of Lessee
interest in this Lease, where such seizure is not discharged within thirty (30)
days; provided, however, int he event that any provision of this subparagraph
(e) is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure within sixty (60) days following written notice by or on
behalf of Lessor to Lessee, equals or exceeds the combined financial resources
of Lessee and the guarantors that existed at the time of execution of this
Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation o f Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at its
option (but without obligation to do so), perform such duty or obligation on
Lessee's
<PAGE>
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored but he bank upon which it is drawn Lessor, at its option,
may require all future payments to be made under the Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease, and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event, Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonable avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which int he ordinary course of things would be
likely to result therefrom, including, but not limited to the cost of recovering
possession of the Premise, expenses of reletting, including necessary renovation
and alteration of the Premise, reasonable attorney's fees, and that portion of
the leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c), or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraph 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statue shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of two
such grace period shall constitute both an unlawful detainer and a Breach of
this Lease entitling the Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the
<PAGE>
appointment of a receiver to protect the Lessor's interest under the Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus inducement or
consideration therefore abated, given or paid by Lessor under such an Inducement
Provision shall be immediately due and payable by Lessee to Lessor, and
recoverable by Lessor as additional rent due under this Lease, notwithstanding
any subsequent cure of said Breach by Lessee. The acceptance by Lessor of the
provisions of this Paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due then, without any requirement for notice to Lessor, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such over due amount, not
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease on the
contrary, Base Rent shall, at Lessor option, become due and payable quarterly in
advance.
13.5 Breach by Lessee. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and
<PAGE>
address shall have been furnished Lessee in writing for such purposes, of
written notice specifying wherein such obligation of Lessor has not been
performed; provide, however, that if the nature of Lessor's obligation is such
that more than thirty (30) days period and thereafter diligently pursued to
completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemned authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation. Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers [deleted] for brokerage services rendered by said Brokers to
Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which
<PAGE>
Lessor has an interest, or (e) if Base Rent is increased, whether by agreement
or operation of an escalation clause herein, then as to any of said
transactions. Lessor shall pay said Brokers a fee in accordance with the
schedule of said Brokers in effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or , if this
is a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
<PAGE>
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
<PAGE>
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee in connection
therewith, which such statements and/or conditions shall be of no force or
effect whatsoever unless specifically agreed to in writing by Lessor at or
before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Laws. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
<PAGE>
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (1) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorneys to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request fro Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writing as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notice of
Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. Lessor's Access; Showing Premises; Repairs, Lessor and Lessor's agents
shall have the right to enter the Premises at any time. In the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
<PAGE>
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination of cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or an otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
or any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee
<PAGE>
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and Information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
<PAGE>
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (iii) if Lessee
commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provision shall be controlled by the typewritten or
handwritten provisions.
<PAGE>
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
that one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
49. Addendum: Attached hereto is an addendum containing paragraphs 50-55 which
constitute a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OT LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
<PAGE>
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at LOS ALTOS, CA Executed at MENLO PARK, CA
---------------------- -----------------
on 11/10/94 on 10 NOVEMBER 1994
------------------------------ --------------------------
by LESSOR: WVP Income Plus, III by LESSEE: Siebel Systems
- --------------------------------- ----------------------------
- --------------------------------- ----------------------------
By /s/ Jonathan M. Rayden By /s/ Thomas M. Siebel
------------------------------- ---------------------------
Name Printed: Jonathan M. Rayden Name Printed: Thomas M. Siebel
--------------------- ------------------
Title: General Partner Title: President
--------------------------- -------------------------
By By
------------------------------- ---------------------------
Name Printed Name Printed
--------------------- ------------------
Title: Title:
--------------------------- -------------------------
Address: Address:
-------------------------- ------------------------
- --------------------------------- -------------------------------
Tel. No. Tel. No.
------------------------ -----------------------
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071. (213) 687-8777. Fax No. (213) 687-8616.
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE AGREEMENT DATED
NOVEMBER 10, 1994 MADE BY AND BETWEEN WVP INCOME PLUS, III,
HEREIN CALLED "LESSOR" AND SIEBEL SYSTEMS, A CALIFORNIA CORPORATION,
HEREIN CALLED "LESSEE"
50. RENT SCHEDULE-NET NET NET. Rent shall be due on the first day of each
month. Rent for the period January 1, 1995 though July 31, 1996 shall be
$11,400.00 per month. Lessor agrees to grant Lessee a rent credit not to exceed
$11,400.00 during the last month of the lease term.
51. CONDITION OF PREMISES. Lessor shall warrant that all electrical including
lighting and plumbing and HVAC and mechanical systems shall be in good working
order for the term of the Lease and any extension hereof. Lessor shall provide
Premises in clean condition and in an otherwise "as is" condition to Lessee.
The premises are a part of a two building complex (the "Complex") and, in
this connection, Lessee agrees to abide by, keep and observe all reasonable
rules and regulations which Lessor may make from time to time for the
management, safety, care and the cleanliness of the Complex. Without limiting
the foregoing, Lessee shall not use, keep or permit to be kept, any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner that unreasonably interferes in any way with other
tenants or those having business in the Complex.
52. HAZARDOUS MATERIALS
A. DEFINITIONS.
As used herein, the term "Hazardous Materials" shall mean any
hazardous wastes, materials or substances and other pollutants or contaminants,
which are or become regulated by any federal, state or local laws, ordinances,
regulations, rules or requirements, including but not limited to, the resource
Conservation and Recovery Act, as amended, (42 U.S.C. Sections 6901 ET SEQ.),
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, (42 U.S.C. SS 9601 ET SEQ.), the California Hazardous Materials Control
Act, as amended, (Cal. Health & Safety Code SS 25100 ET SEQ.), the California
Hazardous Substance Account Act, as amended, (Cal. Health & Safety Code SS 25300
ET SEQ.) and the Safe Drinking Water and Toxic Enforcement Act (Cal. Health &
Safety Code S 25249.8) (Proposition 65). Without limiting the above, the term
"Hazardous Materials" also includes petroleum (including crude oil and any of
its fractions), radioactive materials, asbestos, pesticides, PCB's, and medical
or biologic wastes.
B. COMPLIANCE WITH LAW.
(1) Lessee shall comply with all federal, state and local laws,
ordinances, regulations, rules or requirements relating to the Lessee's use, and
occupancy of the Leased Premises, including but not limited to those relating to
worker safety, public health and the environment ("Applicable Laws").
Specifically, but without limiting Lessee's obligations described above, Lessee
shall establish and adhere to any hazardous material management plan (the
"Plan") required by the County of San Mateo, City of Menlo Park or any other
federal, state or local governmental agency having jurisdiction ("Agency"), and
<PAGE>
if a Plan is required, Lessee shall, not later than six months from the
commencement of this Lease, allow Lessor and Agency representatives to inspect
the Leased Premises for compliance with the Plan, and correct and items not in
compliance with the Plan, and correct any items not in compliance with
Applicable Laws. Lessor may require that Lessee coordinate its Plan with the
other occupants of the Building. Lessee also shall not cause, maintain or
permit any nuisance in, on or about the Premises, and shall not install any
tanks outside or within the Premises, above or below ground, without the express
written consent of Lessor.
(2) If an Agency directs Lessee or Lessor to take any action with
respect to the presence, release or threatened release of any Hazardous
Materials on, under or about the Premises, and that directive arises out of
Lessee's use of Hazardous Materials at the Premises or at any common area,
Lessee shall promptly commence and thereafter diligently prosecute to
completion, at Lessee's sole expense, any and all actions required by the
Agency. Lessor shall retain the right to review and approve any remediation
action proposed by Lessee. Lessee shall; notify Lessor prior to taking any
action in response to the directive.
C. LESSEE'S USE OF HAZARDOUS MATERIALS
(1) Lessee shall not, and Lessee shall not permit its employees,
agents, contractors, subtenants, licensees, customers, invitees or parties
permitted to enter the Premises by any of the foregoing (Lessee and such
persons, collectively, "Lessee Parties") to, manage, handle, store or use in any
way on the Premises any Hazardous Materials other than those necessary or useful
for Lessee's business, and all activity involving Hazardous Materials must be in
full and strict compliance with all Applicable Laws. Lessee parties shall not
spill, leak, pump, pour, emit, empty, discharge, inject, leach, dump or dispose
(hereinafter "Release")( any Hazardous Materials onto, into or about the
Premises, except to the extent permitted under Applicable Laws. Upon Lessor's
request, Lessee shall provide Lessor with a list of all Hazardous Materials
managed, handled, stored, used, or located on the Leased Premises at any time
during the Lease Term, together with evidence that Lease has complied with all
Applicable Laws, including obtaintment of a state identification number for
Hazardous Materials uses, if Applicable Laws require that Lessee obtain the
same. Lessee shall comply fully, including the completion of any corrective or
remediation action, with any premises closure requirements under Applicable Laws
relating to Lessee's or Lessee Parties use of Hazardous Materials NOT LATER THAN
the end of the Lease Term.
(2) Lessee shall have an individual on staff (on at least a part-time
basis) who is trained and assigned to handle environmental, health and safety
numbers, such as, but not limited to, radiation safety and emergency planning.
D. LESSOR'S RIGHT TO INSPECT
Upon prior written notice to Lessee, Lessor shall have the right at
all times during the Lease Term to conduct a reasonable inspection of the Leased
Premises, including performing reasonable tests and investigation to determine
if Lessee is in compliance with the terms of this Lease. In conducting these
inspections, Lessor shall use its best efforts not to unreasonably disrupt
Lessee'
<PAGE>
business operations. Lessor shall bear the cost of any tests and/or
investigations, except that the cost of such test and /or investigations shall
be borne by Lessee if (a) the tests and/or investigations indicate that
Hazardous Materials are present on or under the Premises at concentrations
exceeding levels for which remediation is required under any Applicable Law, and
(b) Lessee is responsible for the presence of such Hazardous Materials.
E. NOTICES.
Lessee will immediately notify Lessor orally (with a written follow-up
notice with five days) if Lessee knows or has reasonable cause to believe that a
Release of Hazardous Material has come or will come to be located on, in about
or beneath the Premises in violation of Applicable Laws, provided that such
notification obligation shall not in itself imply the existence of a remediation
obligation on the part of Lessee. Lessee also shall notify Lessor of (a) any
formal or informal correspondence or communication from any Agency concerning
the release of Hazardous Materials on or migrating to or from the Premises, or
the violation or possible violation of any Applicable Law; or (b) any claims
made or threatened by any third party relating to loss, damage or injury claimed
to have been caused by and Lessee party's handling, storage or use of any kind
of Hazardous Materials on the Premises or any Leased Party's alleged violation
of any Application Laws.
F. INDEMNIFICATION.
(1) Lessee shall indemnify, defend (with legal counsel acceptable to
Lessor) and hold Lessor, its shareholders, officers, agents, employees,
successor's and assigns harmless from any and all claims, demands, judgments,
damages, liabilities or losses (including diminution in value of the Premises or
damages from loss or restriction on use of the Premises), costs and expenses
(including attorneys' fees, consulting fees and expert fees), response and/or
removal costs (including costs associated with site restoration, monitoring,
corrective action, or closure), penalties, fines and punitive damages arising
out of or in connection with the handling, storage, use, generation, treatments,
manufacture, other management or Release of any Hazardous Materials by any
Lessee Party.
(2) Lessor shall indemnify, defend and hold Lessee, its shareholders,
officers, agents, employees, successors and assigns harmless from any and all
claims, demands, judgments, liabilities or losses, penalties, fines and punitive
damages arising out of or in connection with the handling, storage, use,
generations, treatment, manufacture, other management or Release of any
Hazardous Materials in or about the Premises, the Building or Complex caused by
any portion or entity other than a Lessee Party.
G. REMEDIATION OF HAZARDOUS MATERIALS
If a Release of any Hazardous Materials occurs on the Leased Premises
during the term of the Lease as a result of any act or omission at any Lessee
Party, Lessee, at its sole expense, shall (a) promptly make all reasonable
efforts to contain an mitigate such Release, (b) provide prompt notification to
the proper authorities if required by an Applicable Law, and (c) upon notice to
Lessor and with
<PAGE>
Lessor's approval, investigate and take all appropriate removal or remedial
actions necessary to comply with any Applicable Law. This provision shall
survive the expiration or termination of this Lease.
53. OPERATING EXPENSES:
(A) The term "Operating Expenses" as defined in the lease, shall
also include (a) the repair and maintenance of the roof and roof covering to
the building (b) the repair and maintenance of any HVAC system serving the
building (c) the repair and maintenance of all plumbing and electrical
systems (d) any and all other repairs and maintenance costs of any kind
attributable to the Premises or to Common Areas. (e) all costs of utilities
to the building, and the common areas including but not limited to, water,
gas, electricity, and garbage removal (f) landscape maintenance and (g) a
property management fee equal to 5% of the total amount of base rent,
operating expenses, insurance premiums, and real property taxes.
(B) The term "Operating Expenses" as defined in the lease, shall
not include (a) any and all repairs and maintenance costs of any kind
attributable to any part of the Complex leased to other tenants and (b)
replacement of either the roof or the HVAC system.
(C) All "Operating Expenses" as defined in the lease, which are not
solely attributable to the Premises but are attributable the Complex, shall
be allocated by Lessor among the tenants in the Complex. Lessor shall
allocate these costs on an equitable basis such that all such costs and
charges are paid by tenants and not by Lessor, whether or not the Building or
the Complex are fully occupied. (If Lessee is the only occupant of the
building, Lessee shall pay 100% of the operating expenses for the building
and Common Area, except for common area costs allocated to the other Building
in the Complex.) All "Operating Expenses" attributable specifically to the
Premises, shall be allocated and paid 100% by Lessee.
(D) All insurance premiums and property taxes shall be allocated
by Lessor as though the Building and/or the Complex were fully leased.
Lessee shall pay the insurance premiums and property taxes allocated to the
Premises. The Building's share of these expenses shall be prorated for the
Complex.
(E) Notwithstanding anything to the contrary, Lessor shall be
responsible for providing and paying for all services to the building,
including but not limited to repairs, maintenance, real estate taxes,
building insurance, and all other items for the use and operation of the
Building. However, Lessee shall be responsible for providing and paying for
its own janitorial service and utilities. This paragraph is intended to
identify the party who will do the work and Lessee shall still pay for all of
these items as they are including operating expenses as provided in the
lease.
54. INDEMNITY
Notwithstanding anything to the contrary in the Lease, Lessee shall
not be required to indemnify, defend, or hold Lessor harmless from or against
claims, liability, loss, cost or expense arising out of the breach by Lessor, or
Lessor's agents, employees, licensee, invitees, or independent contractors
<PAGE>
(collectively "Lessor's Agents"), of any convenient, representation or warranty
under this Lease, or any negligence or willful misconduct of Lessor or Lessor's
Agent.
Any claim by Lessee against Lessor shall be limited as described in
the lease, and furthermore, Lessee expressly waives any and all rights to
proceed against the individual partners, General Partners, officers or agents of
Lessor, and shall look solely to the assets of the partnership, WVP Income Plus
III, for any liability that Lessor may have to Lessee.
55. OPTION TO EXTEND
If this Lease shall not have been terminated pursuant to any
provisions hereof, and Lessee is not in receipt of notice of default under the
terms hereof, then Lessee may, at Lessee's option, extend the term of this lease
for one (1) additional term of twelve (12) months commencing on the expiration
of the original lease term. Lessee may exercise this option by giving Lessor a
minimum of four (4) months prior written notice, but shall use a "best effort"
to give Lessor written notice as soon as feasible. Upon giving Lessor notice,
Lessor or Lessee shall execute an extension of the Lease which will incorporate
all the same terms and conditions of the original Lease, including rent.
Any conflict between the printed Lease and this Addendum shall be controlled by
the Addendum.
The parties have signed this Addendum to Lease, which for reference purposes
shall be deemed to be dated as of the first written above.
LESSOR LESSEE
WVP Income Plus III Siebel Systems, LP
A California Limited Partnership
By: /s/ Authorized Signatory By: /s/ Authorized Signatory
--------------------------------- --------------------------
Its: General Partner Its: President
--------------------------------- -------------------------
Dated: 11/10/94 Date: 11/10/94
------------------------------- ------------------------
<PAGE>
FIRST AMENDMENT OF LEASE
This First Amendment of Lease ("Amendment") is made and entered into this
15TH day of MARCH, 1996, by and between WVP Income Plus III, a California
Limited Partnership ("Lessor") and Siebel Systems, Inc., a California
Corporation ("Lessee").
RECITALS
A. Lessor and Lessee entered into a lease dated November 10, 1994
wherein Lessee agreed to lease from Lessor approximately 12,000 rentable
square feet of space at 4005 Bohannon Drive, Menlo Park, California
("Premises").
B. Lessor and Lessee now desire to amend the terms of the Lease.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt of which is hereby acknowledged, Lessor and Lessee
agree as follows:
1. The term of the Lease shall be extended such that the expiration
date of the Lease shall be July 31, 1997.
The parties have signed this First Amendment of Lease, which for reference
purposes shall be deemed to be dated as of the date first written above.
LESSOR LESSEE
WVP Income Plus 3, Siebel Systems, Inc.,
A California Limited Partnership A California Corporation (initialed)
By: /s/ Authorized Signatory By: /S/ Thomas M. Siebel
------------------------------ -------------------------------------
Thomas M. Siebel
Chairman and CEO
Date: 3/18/96 Date: April 10, 1996
--------------------------- -----------------------------------
<PAGE>
SECOND AMENDMENT OF LEASE
THIS SECOND AMENDMENT OF LEASE ("Second Amendment") is made as of November 1,
1996 by and between WVP Income Plus III, a California Limited Partnership
("Lessor")and Informix Software, Inc., a Delaware corporation ("Lessee").
WHEREAS, Lessor and Siebel Systems, Inc., a California Corporation
("Assignor"), entered into a Standard Industrial/Commercial Single Tenant
Lease-Net, dated November 10, 1994 ("Lease") wherein Assignor agreed to lease
from Lessor approximately 12,000 rentable square feet of space at 4005
Bohannon Drive, Menlo Park, California ("Premises") for a 19 month period
commencing January 1, 1995 and ending July 31, 1996.
WHEREAS, Lessor and Assignor entered into a First Amendment of Lease, dated
March 15, 1996, extending the term of the Lease to end July 31, 1997.
WHEREAS, by Assignment and Assumption of Lease Agreement, dated August 15,
1996, Assignor assigned all of its right, title and interest in and to the
Lease and Premises, including the security deposit, to Lessee. Lessor
consented to this assignment in writing.
WHEREAS, Lessor and Lessee desire to amend the Lease as follows.
NOW, THEREFORE, in consideration of the mutual promises and obligation herein
contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. The term of the Lease is extended to May 30, 1998.
2. The Base Rent is $14,400.00 per month commencing September 1, 1996.
Effective August 1, 1997, the Base Rent increases to $16,200.00 per
month for the remainder of the Lease term. Lessor will apply the
rent credit of $11,400.00 against the rent payment due for the month
of May 1998.
3. Assignor has assigned all right, title and interest in and to the
Security Deposit to Lessee. Lessor will return the Security Deposit
to Lessee as provided by the Lease.
4. This Second Amendment is effective as of November 1, 1996. All
unmodified and remaining terms and conditions of the Agreement shall
remain in full force and effect.
<PAGE>
LESSOR:
WVP INCOME PLUS III
West Valley Properties, Inc., General Partner
By: /s/ Jonathan M. Rayden, President
-------------------------------------------
Signature
Jonathan M. Rayden, General Partner
- -------------------------------------
Printed Name/Title
2/1/97
- -----------------------
Date
ASSIGNEE:
INFORMIX SOFTWARE, INC.
4100 Bohannon Drive
Menlo Park, California 94025
Attn.: General Counsel
Phone: (415) 926-6300
/s/ Authorized Signatory
- --------------------------------------
Signature
[Name Ilegible]
- --------------------------------------
Printed Name/Title
11/1/96
- --------------------------------------
Date
<PAGE>
SIEBEL
SIEBEL SYSTEMS, INC. 1966 SOUTH GRANT STREET
SAN MATEO, CA 94402-2667 PHONE (415) 296-600
FAX (415) 296-6111
VIA FAX 446-2904
August 30, 1996
Mr. Jon Rayden
President
West Valley Companies
19400 Stevens Creek Blvd.
Suite 200
Cupertino, CA 95014
RE: LEASE DATED NOVEMBER 11, 1994 (THE "LEASE") BETWEEN SIEBEL SYSTEMS, INC.
(SIEBEL) AND WVP INCOME PLUS III ("WVP"); PROPOSED ASSIGNMENT OF LEASE BY SIEBEL
TO INFORMIX SOFTWARE, INC. ("ASSIGNMENT").
Dear Mr. Rayden:
This will confirm the understanding we reached concerning the Assignment.
In consideration of WVP's agreement to execute and return its written consent to
the Assignment to Siebel and the Assignment becoming a binding and effective
agreement upon all parties, the WVP and Siebel agree as follows:
1. WVP will waive the $1,140 fee otherwise payable under the Lease in
connection with the Assignment;
2. The Base Rent of the Lease will be adjusted to $1.20/square foot effective
September 1, 1996;
3. The rent credit of $11,400 shall be assigned by Siebel to Informix and
applied by WVP during the last month of the Lease;
<PAGE>
Jon, I believe this accurately reflects the understanding we reached. Please
sign below indicating your agreement to these terms.
Sincerely,
/s/ Justin R. Dooley
Justin R. Dooley
Vice President, Finance and Administration
Agreed and Accepted:
WVP Income Plus III
/s/ Authorized Signatory
Title: President
---------------------------
Date: 8/30/96
---------------------------
cc: Thomas M. Siebel
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT ("Agreement") is made as
of the 15 day of August, 1996 by and between SIEBEL SYSTEMS, INC., a Delaware
corporation ("Assignor") and INFORMIX SOFTWARE, INC., a Delaware corporation
("Assignee").
WHEREAS, Assignor is tenant under that certain Lease dated November 10,
1994 by and between Assignor and WVP Income Plus, III, a California limited
partnership ("Landlord"), an addendum thereto of even date (the "Lease"),
respecting certain premises (the "Premises") in San Mateo, CA, as more
particurly described therein;
WHEREAS, Assignor desires to assign its interest in the Lease to Assignee
and Assignee desires to assume Assignor's obligations under the Lease;
NOW THEREFORE, for the purpose of including Assignee to assume the Lease
and in consideration of the foregoing terms and conditions and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Assignor and Assignee agree as follows:
1. ASSIGNMENT OF LEASE.
Assignor does hereby transfer, assign, convey and deliver to Assignee its
entire, right, title and interest in the Lease and the Premises.
2. ASSUMPTION OF OBLIGATIONS.
Assignee does hereby accept this assignment and expressly assumes and
agrees to hereafter perform all of the terms, covenants, conditions and
obligations of Assignor under the Lease arising on or after the Effective Date
of this Assignment.
3. INDEMNITY.
Assignor shall defend, indemnify and hold Assignee harmless from all
claims, liabilities, indebtedness and obligations arising under the Lease
prior to the Effective Date of the assignment. Assignee shall defend,
indemnify and hold Assignor harmless from all claims, liabilities,
indebtedness and obligations arising under the Lease from and including the
Effective Date of the assignment.
4. EFFECTIVE DATE.
This Agreement shall become effective on that date which is one day
after the date on which Assignor vacates the Premises, but in no event later
than August 31, 1996 (the "Effective Date"). If Assignor is unable for any
reason whatsoever to vacate the Premises as provided herein, this Agreement
shall be and become void and of no force and effect to either party, and
Assignor shall not be liable to Assignee for any loss or liability resulting
therefrom.
<PAGE>
5. CONDITION PRECEDENT.
This Agreement is conditioned upon obtaining Landlord's consent hereto and
the assignment contained herein shall not be effective until such consent is
obtained.
6. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding and shall inure to the benefit of Assignor,
Assignee and their respective successors and assigns.
7. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the State
of California.
EXECUTED as of the date first above written.
ASSIGNOR:
SIEBEL SYSTEMS, INC.
a Delaware corporation
By: /s/ Authorized Signatory
----------------------------
Its: CEO
ASSIGNER:
INFORMIX SOFTWARE, INC.,
a Delaware corporation
By: /s/John Wolfe
----------------------------
Its: Sr. Counsel and Asst. Sec.
<PAGE>
THE FOREGOING ASSIGNMENTS IS
HEREBY CONSENTED TO BY LANDLORD:
SUBJECT to Terms in letter From Justin Dooley Dated 8/30/96
WVP INCOME PLUS, III.
a California limited partnership
By:
By: West Valley Property Inc
------------------------------
Its General Partner
/s/Authorized Signatory
8/30/96
<PAGE>
INDUSTRIAL REAL ESTATE LEASE
(MULTI-TENANT FACILITY)
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs
of the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: April 10, 1995
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): 3905 Bohannon Partners
Address of Landlord: 2596 Bay Road, Redwood City, CA 94063
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Informix Software, Inc.
Address of Tenant: 4100 Bohannon Drive, Menlo Park, CA 94025
Section 1.04. PROPERTY: The Property is part of Landlord's multi-tenant
real property development known as 3905 Bohannon Drive, Menlo Park, CA 94025
and described or depicted in Exhibit "A" (the "Project"). The Project includes
the land, the buildings and all other improvements located on the land, and the
common areas described in Paragraph 4.05(a). The Property is (include street
address, approximate square footage and description) 3905 Bohannon Drive, a
single story, multi-tenant building consisting of approximately 17,038 square
feet and is further described as the space occupied by Informix consisting of
Suites E, C, D, & G consisting of approximately 10,327 square feet.
Section 1.05. LEASE TERM: Five (5) years, Zero (0) months beginning on
June 1, 1995 or such other date as is specified in this Lease, and ending on
May 31, 2000.
Section 1.06. PERMITTED USES: (See Article Five): General office use,
computer room, and associated uses.
Section 1.07. TENANT'S GUARANTOR: (If none, so state) None
Section 1.08. BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: James J. Fletcher, CB Commercial Real Estate
Group, Inc.
Tenant's Broker: James J. Fletcher, CB Commercial Real Estate Group,
Inc.
<PAGE>
2
Section l.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ By separate agreement.
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ None
Section 1.11.VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See Section 4.05)
34 spaces (3.29/1000).
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: See Addendum for Rent Schedule. Dollars ($________) per month
for the first twelve months, as provided in Section 3.01, and shall be increased
on the first day of the 13th, 25th, 31st, and 49th months(s) after the
Commencement Date, either (i) as provided in Section 3.02, or
(ii) ______________. (If (ii) is completed, then (i) and Section 3.02 are
inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes above the "Base Real
Property Taxes" (See Section 4.02); (ii) Utilities (See Section 4.03); (iii)
Increased Insurance Premiums above the "Base Premiums" (See Section 4.04); (iv)
Tenant's Initial Pro Rate Share of Common Area Expenses ________% (See Section
4.05); (v) Impounds for Tenant's Share of
Insurance Premiums and Property Taxes (See Section 4.08); (vi) Maintenance,
Repairs and Alterations (See Article Six).
Section 1.13. COSTS AND CHARGES PAYABLE BY LANDLORD: (a) Base Real Property
Taxes (See Section 4.02); (b) Base Insurance Premiums (See Section 4.04(c)); (c)
Maintenance and Repair (See Article Six).
Section 1.14. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) Fifty percent (50 %) of the Profit (the "Landlord's Share").
Section 1.15. RIDERS: The following Riders are attached to and made a part
of this Lease: (If none, so state) Rent Schedule per Site Plan and Calendar
Schedule -- Addendum Occupancy Schedule per Site Plan -- Addendum Additional
general provisions -- Addendum
* Lease term subject to successful relocation to Tenant, Tabula
Interactive.
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
<PAGE>
3
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60) -day period ends. If Tenant gives such notice, the Lease shall be
cancelled and neither Landlord nor Tenant shall have any further obligations to
the other. If Tenant does not give such notice, Tenant's right to cancel the
Lease shall expire and the Lease Term shall commence upon the delivery of
possession of the Property to Tenant. If delivery of possession of the Property
to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an
amendment to this Lease setting forth the actual Commencement Date and
expiration date of the Lease. Failure to execute such amendment shall not
affect the actual Commencement Date and expiration date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnity Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph 1. 12
(a) above for the first month of the Lease Term. On the first day of the second
month of the Lease Term and each month thereafter, Tenant shall pay Landlord the
Base Rent, in advance, without offset, deduction or prior demand. The Base Rent
shall be payable at Landlord's address or at such other place as Landlord may
designate in writing.
<PAGE>
4
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be increased
on each date (the "Rental Adjustment Date") stated in Paragraph 1.12(a) above in
accordance with the increase in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for All Urban Consumers (all items for
the geographical Statistical Area in which the Property is located on the basis
of 1982-1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect immediately
before each Rental Adjustment Date shall be increased by the percentage that
the Index has increased from the date (the "Comparison Date") on which
payment of the Comparison Base Rent began through the month in which the
applicable Rental Adjustment Date occurs. The Base Rent shall not be reduced
by reason of such computation. Landlord shall notify Tenant of each increase
by a written statement which shall include the Index for the applicable
Comparison Date, the Index for the applicable Rental Adjustment Date, the
percentage increase between those two Indices, and the new Base Rent. Any
increase in the Base Rent provided for in this Section 3.02 shall be subject
to any minimum or maximum increase, if provided for in Paragraph 1.12 (a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may
be given after the applicable Rental Adjustment Date of the increase, and
Tenant shall pay Landlord the accrued rental adjustment for the months
elapsed between the effective date of the increase and Landlord's notice of
such increase within ten (10) days after Landlord's notice. If the format or
components of the Index are materially changed after the Commencement Date,
Landlord shall substitute an index which is published by the Bureau of Labor
Statistics or similar agency and which is most nearly equivalent to the Index
in effect on the Commencement Date. The substitute index shall be used to
calculate the increase in the Base Rent unless Tenant objects to such index
in writing within fifteen (15) days after receipt of Landlord's notice. If
Tenant objects, Landlord and Tenant shall submit the selection of the
substitute index for binding arbitration in accordance with the rules and
regulations of the American Arbitration Association at its office closest to
the Property. The costs of arbitration shall be borne equally by Landlord
and Tenant.
Section 3.04. [deleted]
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
<PAGE>
5
(a) REAL PROPERTY TAXES. Landlord shall pay the "Base Real Property
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the most
recent tax fiscal year ending prior to the Commencement Date. However, if the
structures on the Property are not completed by the tax lien date of such tax
fiscal year, the Base Real Property Taxes are the taxes shown on the first tax
bill showing the full assessed value of the Property after completion of the
structures. Tenant shall pay Landlord the amount, if any, by which the real
property taxes during the Lease Term exceed the Base Real Property Taxes.
Subject to Paragraph 4.02(c), Tenant shall make such payments within fifteen
(I5) days after receipt of Landlord's statement showing the amount and
computation of such increase. Landlord shall reimburse Tenant for any real
property taxes paid by Tenant covering any period of time prior to or after the
Lease Term.
(b) DEFINITION OF REAL PROPERTY TAX. "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real properly tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) JOINT ASSESSMENT. If the Property is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax payable by
Tenant under Paragraph 4.02 (a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within fifteen
(15) days after Tenant receives a written statement from Landlord for such
personal property taxes.
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other
<PAGE>
6
property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing and (ii)
contain cross-liability endorsements. [deleted and initialed] The amount and
coverage of such insurance shall not limit Tenant's liability nor relieve Tenant
of any other obligation under this Lease. Landlord may also obtain
comprehensive public liability insurance in an amount and with coverage
determined by Landlord insuring Landlord against liability arising out of
ownership, operation, use or occupancy of the Property. The policy obtained by
Landlord shall not be contributory and shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to
the Property in the full amount of its replacement value. Such policy shall
contain an Inflation Guard Endorsement and shall provide protection against
all perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (all risk), sprinkler
leakage and any other perils which Landlord deems reasonably necessary.
Landlord shall have the right to obtain flood and earthquake insurance if
required by any lender holding a security interest in the Property. Landlord
shall not obtain insurance for Tenant's fixtures or equipment or building
improvements installed by Tenant on the Property. During the Lease Term,
Landlord shall also maintain a rental income insurance policy, with loss
payable to Landlord, in an amount equal to one year's Base Rent, plus
estimated real property taxes and insurance premiums. Tenant shall be liable
for the payment of any deductible amount under Landlord's or Tenant's
insurance policies maintained pursuant to this Section 4.04, in an amount not
to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or permit
anything to be done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS.
(i) Landlord shall pay the "Base Premiums" for the insurance policies
maintained by Landlord under Paragraph 4.04(b). If the Property has been
previously fully occupied, the "Base Premiums" are the insurance premiums paid
during or applicable to the last twelve (12) months of
<PAGE>
7
such prior occupancy. If the Property has not been previously fully occupied or
has been occupied for less than twelve (12) months, the Base Premiums are the
lowest annual premiums reasonably obtainable for the required insurance for the
Property as of the Commencement Date.
(ii) Tenant shall pay Landlord the amount, if any, by which the
insurance premiums for all policies maintained by Landlord under Paragraph
4.04(b) have increased over the Base Premiums, whether such increases result
from the nature of Tenant's occupancy, any act or omission of Tenant, the
requirement of any lender referred to in Article Eleven (Protection of Lenders),
the increased value of the Property or general rate increases. However, if
Landlord substantially increases the amount of insurance carried or the
percentage of insured value after the period during which the Base Premiums were
calculated, Tenant shall only pay Landlord the amount of increased premiums
which would have been charged by the insurance carrier if the amount of
insurance or percentage of insured value had not been substantially increased by
Landlord. This adjustment in the amount due from Tenant shall be made only once
during the Lease Term. Thereafter, Tenant shall be obligated to pay the full
amount of any additional increases in the insurance premiums, including
increases resulting from any further increases in the amount of insurance or
percentage of insured value. Subject to Section 4.05, Tenant shall pay Landlord
the increases over the Base Premiums within fifteen (15) days after receipt by
Tenant of a copy of the premium statement or other evidence of the amount due.
If the insurance policies maintained by Landlord cover improvements or real
property other than the Property, Landlord shall also deliver to Tenant a
statement of the amount of the premiums applicable to the Property showing, in
reasonable detail, how such amount was computed. If the Lease Term expires
before the expiration of the insurance period, Tenant's liability shall be pro
rated on an annual basis.
(d) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if any
such policy is cancelled or modified during the Lease Term without Landlord's
consent, Landlord may obtain such insurance, in which case Tenant shall
reimburse Landlord for the cost of such insurance within fifteen (15) days after
receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set forth
in the most current issue of "Best Key Rating Guide". Landlord and Tenant
acknowledge the insurance markets are rapidly changing and that insurance in the
form and amounts described in this Section 4.04 may not be available in the
future. Tenant acknowledges that the insurance described in this Section 4.04
is for the primary benefit of Landlord. If at any time during the Lease Term,
Tenant is unable to maintain the insurance
<PAGE>
8
required under the Lease, Tenant shall nevertheless maintain insurance coverage
which is customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to time.
Landlord makes no representation as to the adequacy of such insurance to protect
Landlord's or Tenant's interests. Therefore, Tenant shall obtain any such
additional property or liability insurance which Tenant deems necessary to
protect Landlord and Tenant.
(iv) [deleted and initialled] Landlord and Tenant each hereby waive
any and all rights of recovery against the other, or against the officers,
employees, agents or representatives of the other, for loss of or damage to its
property or the property of others under its control, if such loss or damage is
covered by any insurance policy in force (whether or not described in this
Lease) or required to be covered hereunder [initialled] at the time of such loss
or damage. Upon obtaining the required policies of insurance, Landlord and
Tenant shall give notice to the insurance carriers of this mutual waiver of
subrogation.
Section 4.05. COMMON AREAS; USE, MAINTENANCE AND COSTS.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant or
other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time, may change the size, location, nature and
use of any of the Common Areas, convert Common Areas into leasable areas,
construct additional parking facilities (including parking structures) in the
Common Areas, and increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activities may result in inconvenience to Tenant.
Such activities and changes are permitted if they do not materially affect
Tenant's use of the Property.
(b) USE OF COMMON AREAS. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time. Tenant shall abide by such rules and regulations
and shall use its best effort to cause others who use the Common Areas with
Tenant's express or implied permission to abide by Landlord's rules and
regulations. At any time, Landlord may close any Common Areas to perform any
acts in the Common Areas as, in Landlord's judgment, are desirable to improve
the Project. Tenant shall not interfere with the rights of Landlord, other
tenants or any other person entitled to use the Common Areas.
(c) SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be entitled to
use the number of vehicle parking spaces in the Project allocated to Tenant in
Section 1.11 of the Lease without paying any additional rent. Tenant's parking
shall not be reserved and shall be limited to vehicles no larger than standard
size automobiles or pickup utility vehicles. Tenant shall not cause large
trucks or other large vehicles to be parked within the Project or on the
adjacent public streets. Temporary parking
<PAGE>
9
of large delivery vehicles in the Project may be permitted by the rules and
regulations established by Landlord. Vehicles shall be parked only in striped
parking spaces and not in driveways, loading areas or other locations not
specifically designated for parking. Handicapped spaces shall only be used by
those legally permitted to use them. If Tenant parks more vehicles in the
parking area than the number set forth in Section 1.11 of this Lease, such
conduct shall be a material breach of this Lease. In addition to Landlord's
other remedies under the Lease, Tenant shall pay a daily charge determined by
Landlord for each such additional vehicle.
(d) MAINTENANCE OF COMMON AREAS. Landlord shall maintain the Common
Areas in good order, condition and repair and shall operate the Project, in
Landlord's sole discretion, as a first-class industrial/commercial real
property development. Tenant shall pay Tenant's pro rata share (as
determined below) of all costs incurred by Landlord for the operation and
maintenance of the Common Areas. Common Area costs include, but are not
limited to, costs and expenses for the following: gardening and landscaping;
utilities, water and sewage charges; maintenance of signs (other than
tenants' signs); premiums for liability, property damage, fire and other
types of casualty insurance on the Common Areas and worker's compensation
insurance; all property taxes and assessments levied on or attributable to
the Common Areas and all Common Area improvements; all personal property
taxes levied on or attributable to personal property used in connection with
the Common Areas; straight-line depreciation on personal property owned by
Landlord which is consumed in the operation or maintenance of the Common
Areas; rental or lease payments paid by Landlord for rented or leased
personal property used in the operation or maintenance of the Common Areas;
fees for required licenses and permits; repairing, resurfacing, repaving,
maintaining, painting, fighting, cleaning, refuse removal, security and
similar items; reserves for roof replacement and exterior painting and other
appropriate reserves; and a reasonable allowance to Landlord for Landlord's
supervision of the Common Areas (not to exceed five percent (5%) of the gross
rents of the Project for the calendar year). Landlord may cause any or all
of such services to be provided by third parties and the cost of such
services shall be included in Common Area costs. Common Area costs shall not
include depreciation of real property which forms part of the Common Areas.
(e) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's annual pro rata
share of all Common Area costs (prorated for any fractional month) upon written
notice from Landlord that such costs are due and payable, and in any event prior
to delinquency. Tenant's pro rata share shall be calculated by dividing the
square foot area of the Property, as set forth in Section 1.04 of the Lease, by
the aggregate square foot area of the Project which is leased or held for lease
by tenants, as of the date on which the computation is made. Tenant's initial
pro rata share is set out in Paragraph 1.12(b). Any changes in the Common Area
costs and/or the aggregate area of the Project leased or held for lease during
the Lease Term shall be effective on the first day of the month after such
change occurs. Landlord may, at Landlord's election, estimate in advance and
charge to Tenant as Common Area costs, all real property taxes for which Tenant
is liable under Section 4.02 of the Lease, all insurance premiums for which
Tenant is liable under Section 4.04 of the Lease, all maintenance and repair
costs for which Tenant is liable under Section 6.04 of the Lease, and all other
Common Area costs payable by Tenant hereunder. At Landlord's election, such
statements of
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10
estimated Common Area costs shall be delivered monthly, quarterly or at any
other periodic Intervals to be designated by Landlord. Landlord may adjust such
estimates at any time based upon Landlord's experience and reasonable
anticipation of costs. Such adjustments shall be effective as of the next rent
payment date after notice to Tenant. Within sixty (60) days after the end of
each calendar year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted accounting principles
setting forth, In reasonable detail, the Common Area costs paid or incurred by
Landlord during the preceding calendar year and Tenant's pro rata share. Upon
receipt of such statement, there shall be an adjustment between Landlord and
Tenant, with payment to or credit given by Landlord (as the case may be) so that
Landlord shall receive the entire amount of Tenant's share of such costs and
expenses for such period.
Section 4.06. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to 6% of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.07. INTEREST ON PAST DUE 0BLIGATIONS. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12) month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord upon
written request. If Tenant defaults under this Lease, Landlord may apply any
funds in the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section l.06 above.
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Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the Project, or which constitutes a nuisance or waste. Tenant shall
obtain and pay for all permits, including a Certificate of Occupancy, required
for Tenant's occupancy of the Property and shall promptly take all actions
necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks on the Property. * See Section III of Addendum to Lease
for additional terms and conditions.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other negligent acts or omissions of Tenant. Tenant shall defend Landlord
against any such cost, claim or lability at Tenant's expense with counsel
reasonably acceptable to Landlord and will be given the choice of 3 firms. As a
material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of the Landlord's gross negligence or
willful
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misconduct . As used in this Section, the term "Tenant" shall include Tenant's
employees, agents, contractors and invitees, if applicable.
Section 5.06 LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
enrivonmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, 24 hours, except in the case of an
emergency. Landlord may place customary "For Sale: or "For Lease" signs on the
Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY, MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of the Project, or from other sources or places;
or (d) any act or omission of any other tenant of the Project. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of
Article Seven (Damage or Destruction) and Article Eight (Condemnation), and
except for damage caused by any act or
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13
omission of Tenant, or Tenant's employees, agents, contractors or invitees,
Landlord shall keep the foundation, roof and structural portions of the
improvements on the Property in good order, condition and repair. However,
Landlord shall not be obligated to maintain or repair windows, doors, plate
glass or the surfaces of walls. Landlord shall not be obligated to make any
repairs under this Section 6.03 until a reasonable time after receipt of a
written notice from Tenant of the need for such repairs. Tenant waives the
benefit of any present or future law which might give Tenant the right to repair
the Property at Landlord's expense or to terminate the Lease because of the
condition of the Property.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of
the Property (including nonstructural, interior, systems and equipment) in good
order, condition and repair (including interior repainting and refinishing, as
needed). If any portion of the Property or any system or equipment in the
Property which Tenant is obligated to repair cannot be-fully repaired or
restored, Tenant shall promptly replace such portion of the Property or system
or equipment in the Property, regardless of whether the benefit of such
replacement extends beyond the Lease Term; but if the benefit or useful life of
such replacement extends beyond the Lease Term (as such term may be extended by
exercise of any options), the useful life of such replacement shall be prorated
over the remaining portion of the Lease Term (as extended), and Tenant shall be
liable only for that portion of the cost which is applicable to the Lease Term
(as extended) and Landlord shall be responsible for the remainder. This is not
applicable to any improvements made by Tenant. Tenant shall maintain a
preventive maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed heating and
air conditioning contractor. Landlord shall have the right, upon written notice
to Tenant, to undertake the responsibility for preventive maintenance of the
heating and air conditioning system at Tenant's expense. In addition, Tenant
shall, at Tenant's expense, repair any damage to the roof, foundation or
structural portions of walls caused by Tenant's acts or omissions. It is the
intention of Landlord and Tenant that, at all times during the Lease Term,
Tenant shall maintain the Property in an attractive, first-class and fully
operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. ALTERNATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, not to be unreasonably
withheld, except for non-structural
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14
alterations which do not exceed Ten Thousand Dollars ($10,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same condition as received except for ordinary wear and tear which Tenant
was not otherwise obligated to remedy under any provision of this Lease.
However, Tenant shall not be obligated to repair any damage which Landlord
is required to repair under Article Seven (Damage or Destruction). In
addition, Landlord may require Tenant to remove any alterations, additions or
improvements (whether or not made with Landlord's consent) prior to the
expiration of the Lease and to restore the Property to its prior condition,
all at Tenant's expense. All alterations, additions and improvements which
Landlord has not required Tenant to remove shall become Landlord's property
and shall be surrendered to Landlord upon the expiration or earlier
termination of the Lease, except that Tenant may remove any of Tenant's
machinery or equipment which can be removed without material damage to the
Property. Tenant shall repair, at Tenant's expense, any damage to the
Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's
prior written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets
or other floor coverings; heaters, air conditioners or any other heating or
air conditioning equipment; fencing or security gates; or other similar
building operating equipment and decorations. *See Section III of Addendum
to Lease for additional terms and conditions.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage to the Property. If the Property is only partially damaged (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenant's
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15
operations are materially impaired) and if the proceeds received by Landlord
from the insurance policies described in Paragraph 4.04(b) are sufficient to pay
for the necessary repairs, this Lease shall remain in effect and Landlord shall
repair the damage as soon as reasonably possible. Landlord may elect (but is
not required) to repair any damage to Tenant's fixtures, equipment, or
improvements.
(b) If the insurance proceeds received by Landlord re not sufficient to pay
the entire cost of repair, or if the cause of the damage is not covered by the
insurance policies which Landlord maintains under Paragraph 4.04(b), Landlord
may elect either to (i) repair the damage as soon as reasonably possible, in
which case this Lease shall remain in full force and effect, or 9ii) terminate
this Lease as of the date the damage occurred. Landlord shall notify Tenant
within thirty (30) days after receipt of notice of the occurrence of the damage
whether Landlord elects to repair the damage or terminate the Lease. If
Landlord elects to repair the damage, Tenant shall pay Landlord the "deductive
amount" (if any) under Landlord's insurance policies and, if the damage was due
to an act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, the difference between the actual cost of repair and any insurance
proceeds received by Landlord. If Landlord elects to terminate the Lease,
Tenant may elect to continue this Lease in full force and effect, in which case
Tenant shall repair any damage to the Property and any building in which the
Property is located. Tenant shall pay the cost of such repairs, except that
upon satisfactory completion of such repairs, Landlord shall deliver to Tenant
any insurance proceeds received by Landlord for the damage repaired by Tenant.
Tenant shall give Landlord written notice of such election within ten (10) days
after receiving Landlord's termination notice.
(c) if the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. *See Section III of Addendum to Lease for additional terms and
conditions. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
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16
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04. WAIVER. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are
called "Condemnation"), this Lease shall terminate as to the part taken or
sold on the date the condemning authority takes title or possession,
whichever occurs first. If more than twenty percent (20%) of the floor area
of the building in which the Property is located, or which is located on the
Property, is taken, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes title or possession, by delivering
written notice to the other within ten (10) days after receipt of written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease, this Lease shall remain in effect
as to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed
in the following order: (a) first, to any ground lessor, mortgagee or
beneficiary under a deed of trust encumbering the Property, the amount of its
interest in the Property; (b) second, to Tenant, only the amount of any award
specifically designated for loss of or damage to Tenant's trade fixtures or
removable personal property; and (c) third, to Landlord, the remainder of
such award, whether as compensation for reduction in the value of the
leasehold. the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If
the severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
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Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
(deleted and initialed)
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to a corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all
of Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease
or sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed
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assignment solely because of the net worth and/or financial reputation of the
proposed assignee, Tenant may nonetheless sublease (but not assign), all or a
portion of the Property to the proposed transferee, but only on the other terms
of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.14) of the Profit (defined below)
on such transaction as and when received by Tenant, unless Landlord gives
written notice to Tenant and the assignee or subtenant that Landlord's
Share shall be paid by the assignee or subtenant to Landlord directly.
The "Profit" means (A) all amounts paid to Tenant for such assignment or
sublease, including "key" money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration paid for the
assignment or sublease, including fees under any collateral agreements,
less (B) costs and expenses directly incurred by Tenant in connection with
the execution and performance of such assignment or sublease for real
estate broker's commissions and costs of renovation or construction of
tenant improvements required under such assignment or sublease. Tenant is
entitled to recover such costs and expenses before Tenant is obligated to
pay the Landlord's Share to Landlord. The Profit in the case of a sublease
of less than all the Property is the rent allocable to the subleased space
as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt
of Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06 NO MERGER. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in
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19
possession of the Property is conditioned upon such performance. Time is of the
essence in the performance of all covenants and conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any Insurance described in Section
4.04;
(b) If Tenant fails to pay rent or any other charge (deleted per initials)
[after 10 days written notice that the same is past] (handwritten comments);
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30)-day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any
portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
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20
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
(Deletion of Section 10.04 per initials)
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any
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21
bankruptcy court or other court with respect to the Lease; the obtaining of
relief from any stay in bankruptcy restraining any action to evict Tenant; or
the pursuing of any action with respect to Landlord's right to possession of the
Property. All such damages suffered (apart from Base Rent and other rent
payable hereunder) shall constitute pecuniary damages which must be reimbursed
to Landlord prior to assumption of the Lease by Tenant or any successor to
Tenant in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. *See Section III of Addendum to Lease for additional
terms and conditions. Tenant shall cooperate with Landlord and shall any lender
which is acquiring a security interest in the Property or the Lease. Tenant
shall execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
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22
Section. 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representatives or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver
such statement to Landlord within ten (10) days after Landlord's request.
Landlord may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver may statement to Landlord within such ten
(10-day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section. 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net wroth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants Landlord that each such financial statement is a
true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the"Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs. Tenant shall also indemnify
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23
Landlord against and hold Landlord harmless from all costs, expenses, demands
and liability Landlord may incur if Landlord becomes or is made a party to any
claim or action (a) instituted by Tenant against any third party, or by any
third party against Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord. (deleted and initialed) Addition:
See Section III of Addendum to Lease for additional terms and conditions.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landord's reasonable
attorneys' fees incurred to a maximum of $3,000 in connection with Tenant's
request for Landlord's consent under Article Nine (Assignment and Subletting),
or in connection with any other act which Tenant proposes to do and which
requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or Project or the leasehold
estate under a ground lease of the Property or Project at the time in question.
Each Landlord is obligated to perform the obligations of Landlord under this
Lease only during the time such Landlord owns such interest or title. Any
Landlord who transfers its title or interest is relieved of all liability with
respect to the obligations of Landlord under this Lease to be performed on or
after the date of transfer. However, each Landlord shall deliver to its
transferee all funds that Tenant previously paid if such funds have not yet been
applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not
be in default under this Lease unless Landlord (or such ground lessor, mortgagee
or beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably
requires more than thirty (30) days
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24
to cure, Landlord shall not be in default if such cure is commenced within such
thirty (30)-day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.03 above, except that upon
Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to the
other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form"
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25
memorandum of this Lease executed by both parties be recorded. The party
requiring such recording shall pay all transfer taxes and recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.1 1. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
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26
Section 14.01. BROKER'S FEE. When this Lease is signed by and delivered
to both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker, or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Landlord shall pay Landlord's Broker a commission if Tenant
exercises any option to extend the Lease Term or to buy the Property, or any
similar option or right which Landlord may grant to Tenant, or if Landlord's
Broker is the procuring cause of any other lease or sale entered into between
Landlord and Tenant covering the Property. Such commission shall be the amount
set forth in Landlord's Broker's commission schedule in effect as of the
execution of this Lease. If a Tenant's Broker is named in Section 1.08 above,
Landlord's Broker shall pay an appropriate portion of its commission to Tenant's
Broker if so provided in any agreement between Landlord's Broker and Tenant's
Broker. Nothing contained In this Lease shall impose any obligation on Landlord
to pay a commission or fee to any party other than Landlord's Broker.
Section 14.02. PROTECTION OF BROKERS. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
Section 14.03. AGENCY DISCLOSURE; NO OTHER BROKERS. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except: CB Commercial Real Estate Group, Inc.,
who represents Informix Software, Inc. and 3905 Bohannon Partners who represents
In the event that CB Commercial represents both Landlord and Tenant,
Landlord and Tenant hereby confirm that they were timely advised of the dual
representation and that they consent to the same, and that they do not expect
said broker to disclose to either of them the confidential information of the
other party.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment In Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
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27
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialed all Riders which
are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on 5/30/1995 3905 Bohannon Partners
at Redwood City, CA
By: /s/ Alyn Beals
Its: Managing Partner
"TENANT"
Signed on (blank), 19___ Informix Software. Inc.
at (blank) By: /s/ David H. Stanley, Vice
President Legal and Corporate Services
and General Counsel
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,
INC.-Registered Trademark-, ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED
HEREIN, OR THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT
OR TAX CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT
SHOULD RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON
THE ADVICE OF SUCH LEGAL COUNSEL.
<PAGE>
CB COMMERCIAL ADDENDUM TO INDUSTRIAL REAL ESTATE LEASE
This is an Addendum to the Industrial Real Estate Lease dated April 10, 1995,
between 3905 Bohannon Partners as Landlord and Informix Software, Inc. As Tenant
(the "Lease"), concerning the property known as 3905 Bohannon Drive, Menlo Park,
California 94025, as more specifically described in the Lease.
I. The following Rent Schedule is for those suites identified as "A" through
"G" per the attached Site Plan.
1. Suite "E" (formerly Gupta), approximately 4,136 square feet, will be
$0.95 industrial gross commencing June 1, 1995 or as soon as possible
for a monthly rent total of $3,929.20.
2. Suite "D" (formerly Tabula Interactive), approximately 1,487 square
feet, will be $1.50 industrial gross commencing June 1, 1995 for a
monthly rent total of $2,230.50. (NOTE: This is subject to the
successful relocation of Tabula to Suite "A".)
3. Suite "G" (formerly GSA), approximately 3,670 square feet, will be
$0.95 industrial gross commencing November 1, 1995 for a monthly rent
total of $3,486.50.
4. Suite "C" (formerly ETA), approximately 1.034 square feet, will be
$0.75 industrial gross commencing July 1, 1995 for a monthly rent
total of $775.50. Rent will adjust to $0,95 on November 1, 1995 for
a monthly rent total of $982.30.
5. Monthly rent commencing June 1, 1995 Suites E & D $6,159.70
Monthly rent commencing July 1, 1995 Suites E, C & D $6,935.20
Monthly rent commencing Nov. 1, 1995 Suites E, C, D & G $10,628.50
6. The lease expiration for all suites will be October 30, 2000.
II. THE FOLLOWING ADDITIONAL GENERAL PROVISIONS SHALL APPLY TO THE LEASE.
1. Informix will take the leased premises on an "As Is" basis and will be
solely responsible for tenant improvement costs. Informix will
construct a computer center and assorted uses in compliance will all
state, federal, and city codes and regulations.
2. Informix will be allowed, at Informix's sole cost and expense and
within Menlo Park City signage guidelines to plan a monument sign at
the entrance to the Property, while still [word unintelligible]
signage capacity for Gupta's sign.
3. Landlord will contribute a maximum of Five Hundred Dollars ($500.00)
to Tabula for moving expenses. Informix will contribute a maximum of
Two Thousand Six Hundred Dollars ($2,600.00) to Tabula for moving
expenses.
-2-
<PAGE>
4. Informix will have two extension options at fair market value. The
fair market rental value of the property shall be determined without
regard to any improvements which have been made to the Property at
Tenant's cost and expense. If the parties do not mutually agree on
the fair market rental within 30 days prior to the beginning of the
option term, each party shall select a real estate broker with at
least five years experience leasing industrial buildings in Santa
Clara or San Mateo County who shall not have worked for either party
within the last ten years. If the two real estate brokers are unable
to agree on a fair market rental value, the two real estate brokers
shall select a third real estate broker with similar qualifications
who shall estimate the fair market rental value of the Property. This
determination shall be averaged with the closest determination of the
other two brokers to determine the fair market rental value for the
option term. Each party shall bear the cost of the broker's selected
and one half of the cost of any third broker. The first option will
extend the term of all leased premises to September 30, 2001. The
second option will have a two year extension commencing October 1,
2001.
5. Informix will have the right of first refusal on space F[remainder of
sentence deleted by initial]. The rent will be at fair market value.
6. Tenant is not responsible for structural changes required by law which
do not relate to Tenant's specific use or improvements.
III. The following Amendments shall apply to specific Lease terms.
1. Section 5.03. Hazardous Materials. Landlord represents and warrants
to Tenant that to the best of Landlord's knowledge there are no
Hazardous Materials located on the Property as of the date of
execution of this Lease in violation of any governmental laws or
regulations. Landlord shall indemnify, defend and hold Tenant
harmless from and against any claims or liability incurred by Tenant
as a result of the breach of the foregoing representation and
warranty.
2. Section 6.06. Condition Upon Termination. At lease termination,
Tenant may remove any equipment specific to a computer room use that
is not affixed to the property, and restore the property to its prior
condition. At Landlord's discretion, Tenant may be required to
restore any improvements removed by Tenant during the course of their
tenancy.
3. Section 7.01(c). Partial Damage to Property. ; provided, however,
that if Tenant exercises either of its options to extend the term of
this Lease within thirty (30) days of Landlord's election, this
section shall not apply.
4. Section 11.01. Subordination. ;provided Tenant receives a
nondisturbance agreement from the party to whom it is subordinated.
-3-
<PAGE>
5. Section 12.01. Legal Proceedings. Any disputes outside of rental
determination will be settled through binding arbitration in the
County of San Mateo. Prevailing party shall have its court/attorney
costs covered up to the maximum of $10,000.
In the event of any conflict between the terms of this Addendum and the Lease,
the terms of this Addendum shall prevail.
<TABLE>
<S><C>
Landlord: 3905 Bohannon Partners Purchaser: Informix Software, Inc.
--------------------------- -----------------------------------
By: /s/ Alyn Beals By: /s/ David H. Stanley
--------------------------- --------------------------------------
Alyn Beals David H. Stanley, Vice President
Title: Managing Partner Title: Legal & Corp. Services/General Counsel
---------------------------- --------------------------------------
Address: 2596 Bay Road Address: 4100 Bohannon Drive
---------------------------- -------------------------------------
Redwood City, Ca 94053 Menlo Park, Ca 94025
--------------------------- -------------------------------------
Date: 5/30/95 Date:
---------------------------- -----------------------------------------
</TABLE>
-4-
<PAGE>
SECOND ADDENDUM TO LEASE DATED APRIL 10, 1995, BY AND BETWEEN 3905 BOHANNON
PARTNERS, LESSOR, AND INFORMIX SOFTWARE, INC., LESSEE, FOR THAT SPACE LOCATED AT
3905 BOHANNON DRIVE, MENLO PARK, CA 94025
- --------------------------------------------------------------------------------
Per this agreement, Lessee shall occupy (110' x 50') Parking Lot Storage @ 3905
Bohannon Drive, Menlo Park, CA 94025, as specified on page A-1 of plans dated
11/15/95, by Charles Doerr, Architect. Lessee's occupancy of this space shall
be under the same terms and conditions of the existing Lease dated April 10,
1995, for 3905 Bohannon Drive, Suites C, D, E, & G, Menlo Park, CA 94025 with
the exception of the following items:
RENT: On this added five thousand five hundred square
feet (5,500s.f.) of storage area, the monthly rent
shall be fifteen cents ($0.15) per square foot or
eight hundred twenty-five dollars ($825.00)
industrial gross. This amount is subject to
annual increase as per Section 3.02 of the
original Lease Agreement.
COMMENCEMENT DATE: February 1, 1997
Lessee shall be responsible for all clean up and/or remediation costs due
to any potential leakage of hazardous materials from the storage tank to be
placed in the parking lot storage area.
At termination of tenancy, Lessee will be required, at Lessor's discretion,
to return the Premises to its original condition.
Please sign below to indicate your understanding and acceptance of this
agreement.
3905 BOHANNON PARTNERS
/s/ Alyn T. Beals 1/17/97
- ------------------------- ------------------------
ALYN T. BEALS DATE
MANAGING PARTNER
INFORMIX SOFTWARE, INC.
/s/ David H. Stanley 1/27/97
- ------------------------- ------------------------
DAVID H. STANLEY DATE
VICE PRESIDENT
<PAGE>
THIRD ADDENDUM TO INDUSTRIAL REAL ESTATE LEASE
This Third Addendum to industrial Real Estate Lease is made this 17th day of
December 1997, by and between Informix Software, Inc.("Lessee") and 3905
Bohannon Partners ("Lessor").
RECITALS
Lessee currently leases from Lessor approximately 10,327 square feet of building
consisting of Suites C, D, E, and G, and 5,500 square feet of Parking Lot
Storage located at 3905 Bohannon Drive, Menlo Park, California ("Property")
under that Lease dated April 10, 1995, and amended by an Addendum to Industrial
Lease executed by Lessor on May 30, 1995, and amended by Second Addendum to
Lease executed by Lessee on January 27, 1997 ("Lease").
NOW THEREFORE, in the consideration of the above recital and the mutual
covenants and agreements contained herein, the parties hereby amend the Lease as
follows:
1. Property: Effective January 1, 1998, the Property is amended to
include Suite F of approximately 4,183 square feet and Suite A of
approximately 1,359 square feet.
2. Base Rent: Effective January 1, 1998, in addition to the Base Rent
under the Lease, Lessee shall pay additional Base Rent of $9,144.30
per month. This additional Base Rent payment shall increase to
$9,421.40 per month on November 1, 1998 and to $9,698.50 per month on
November 1, 1999. This additional Base Rent shall not be subject to
the Cost of Living Increases under Section 3.02 of t he Lease.
3. Lessee leases Suites F and A on an "AS IS" basis and will be solely
responsible for tenant improvement costs.
4. The provisions of Section 6.06 of the Lease shall apply to Suites F
and A.
5. Lessee shall not make any alterations to Suite F or A without the
prior written consent of Lessor which consent shall not be
unreasonably withheld or delayed.
6. Option to Extend. The option to extend is amended as follows:
Lessee shall have one option to extend the Lease for a
period of three years by giving written notice to Lessor of
not less than 120 days prior to the end of the lease term
which termination date is October 30, 2000. The rental rate
for the extended term shall be at fair market value. The fair
market value for the Property shall be determined without
regard to any improvements which have been made to the,
Property at Lessee's cost and expense. If the parties do not
mutually agree on the fair market value within 30 days prior
to the beginning of the extended term, each party shall select
a real estate broker with at least five years experience
leasing industrial buildings in Santa Clara or San Mateo
County, who shall not have worked for either party for the
past ten years. The two real estate brokers will within 30
days attempt to agree on the fair market value of the
Property. Should the two real estate brokers be unable to
agree on a fair market value, the two real estate brokers
shall select a third real estate broker with similar
qualifications who shall estimate the fair market rental value
of the Property. This determination shall be averaged with
the closest determination of
<PAGE>
the other two brokers to determine the fair market value for
the extended term. Each party shall bear the cost of their
broker and one half of the cost of any third broker.
7. Except as specifically modified herein, all terms, covenants and
conditions of the Lease shall remain in full force. In the event of
any conflict between this Third Addendum and the Lease, the terms of
this Addendum shall prevail.
IN WITNESS WHEREOF, the parties have executed this Amendment on the day and
year first above written.
LESSOR: LESSEE:
3905 Bohannon Partners Informix Software Inc.
By: /s/ Authorized Signatory By: /s/ Robert J. Finocchio
Its: Managing Partner Its: President & CEO
Date: 1/9/98 Date: 1/9/98
<PAGE>
July 2, 1997
Informix Software, Inc.
Worldwide Real Estate and Facilities
Atten: Lease Administrator
4100 Bohannon Drive
Menlo Park, CA 94025
Re: Lease Escalation @ 3905 Bohannon Drive, Suites C,D,E,G & Parking Lot
Storage
Menlo Park, CA 94025
Dear Sir or Ma'am:
As per Paragraph 5 of the Addendum to your lease dated 4/10/95, for the above
referenced locations, please be informed your monthly rental payment is
increased 3.0% from $11,719.21 to $12,070.79 effective 7/1/97. The following is
a breakdown of the per unit rent:
<TABLE>
<S> <C> <C>
Suite C = $1,006.86 x 1.03 = $ 1,037.07
Suite D = $2,286.26 x 1.03 = $ 2,354.85
Suite E = $4,027.43 x 1.03 = $ 4,148.25
Suite G = $3,573.66 x 1.03 = $ 3,680.87
Parking Lot Storage = $ 825.00 x 1.03 = $ 849.75
-----------
TOTAL MONTHLY RENT: $ 12,070.79
</TABLE>
Please remit the total amount due with your July rent payment and adjust your
records for future payments. Thank you.
Sincerely,
/s/ Sandra Sarvis
Sandra Sarvis
Assistant Property Manager
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-46715, 33-50610, 33-50608, 33-50607, 333-01409,
33-31371 and 333-31369) pertaining to the Employee Stock Purchase Plan and the
Employee Stock Option Plans of Informix Corporation of our report dated March 2,
1998, with respect to the consolidated financial statements and schedule of
Informix Corporation included in this Annual Report (Form 10-K) for the year
ended December 31, 1997.
/s/ ERNST & YOUNG LLP
San Jose, California
March 30, 1998
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<SECURITIES> 16,069
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0
3
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
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0 0 0
0 0 0
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
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<PERIOD-END> MAR-30-1997 JUN-29-1997 SEP-28-1997
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0 0 0
0 0 0
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<SALES> 85,714 108,736 77,164
<TOTAL-REVENUES> 149,223 182,012 149,911
<CGS> 29,134 11,933 11,793
<TOTAL-COSTS> 70,286 58,485 52,286
<OTHER-EXPENSES> 231,812 239,524 203,929
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,789) (1,753) (1,830)
<INCOME-PRETAX> (141,361) (110,177) (107,723)
<INCOME-TAX> 2,800 1,200 2,800
<INCOME-CONTINUING> (144,161) (111,377) (110,523)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (144,161) (111,377) (110,523)
<EPS-PRIMARY> (0.95) (0.73) (0.73)
<EPS-DILUTED> (0.95) (0.73) (0.73)
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 APR-01-1996 JUL-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-29-1996
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<SECURITIES> 131,901 142,690 132,212
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<INVENTORY> 0 0 0
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<TOTAL-ASSETS> 684,680 759,225 818,349
<CURRENT-LIABILITIES> 353,229 461,850 539,114
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0 0 0
0 0 0
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<TOTAL-LIABILITY-AND-EQUITY> 684,680 759,225 818,349
<SALES> 114,188 103,331 128,696
<TOTAL-REVENUES> 164,605 159,323 187,073
<CGS> 9,818 11,753 13,058
<TOTAL-COSTS> 43,227 47,249 48,981
<OTHER-EXPENSES> 136,216 145,029 152,103
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<INTEREST-EXPENSE> (851) (1,281) (1,941)
<INCOME-PRETAX> (12,244) (30,848) (14,293)
<INCOME-TAX> 3,133 3,235 2,802
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</TABLE>
