<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIEWSTAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
CALIFORNIA 7372 94-2997267
(PRIOR TO (PRIMARY STANDARD (I.R.S. EMPLOYER
REINCORPORATION) INDUSTRIAL IDENTIFICATION NUMBER)
CLASSIFICATION CODE
NUMBER)
DELAWARE
(AFTER REINCORPORATION)
(STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
1101 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
(510) 337-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KAMRAN KHEIROLOMOOM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIEWSTAR CORPORATION
1101 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
(510) 337-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------
COPIES TO:
ROBERT B. JACK, ESQ. MARK P. TANOURY, ESQ.
CHRISTOPHER M. KOA, ESQ. JULIA L. DAVIDSON, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD CASTRO HUDDLESON &
PROFESSIONAL CORPORATION TATUM
650 PAGE MILL ROAD 3000 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304-1050 BUILDING 3, SUITE 230
(415) 493-9300 MENLO PARK, CA 94025
------------------- (415) 843-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AMOUNT AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE (2) FEE
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<S> <C> <C> <C>
Common Stock, $0.001 par value........ 2,300,000 $27,600,000 $9,517.50
</TABLE>
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(1) Includes 300,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 5, 1996
PROSPECTUS
2,000,000 SHARES
[LOGO OF VIEWSTAR(TM)]
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting"
for a discussion of the factors considered in determining the offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol VSTA.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total (3)................................ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company and certain of the Company's stockholders (the "Selling
Stockholders") have granted the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock on the same terms and
conditions set forth above, solely to cover over-allotments, if any. The
Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. If all such shares are purchased, the total Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996 at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
, 1996
<PAGE>
[Graphic depicting a document-intensive workflow process and how the Company's
products are used to capture, automate and output documents in the workflow.]
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
THE COMPANY
ViewStar Corporation ("ViewStar" or the "Company") provides client/server
document workflow software that enables customers to automate and improve
document-intensive business processes across the enterprise. The ViewStar
Enterprise Document Workflow System (the "ViewStar System") allows customers to
easily define and change work content, work flows, business rules and user
roles, facilitating the rapid design, development and deployment of business
process applications. The Company's products are used in a wide variety of
applications including consumer and mortgage lending, claims processing,
underwriting, trust management, contract management, accounts payable and
customer service.
In today's highly competitive marketplace, companies must continuously
improve their core business processes and operations. Having spent considerable
resources in recent years for strategic business process reengineering ("BPR"),
many organizations now require innovative software solutions to automate and
improve their reengineered business processes. Companies worldwide are
implementing business process automation solutions to shorten document-
intensive processing cycles, increase productivity and deliver superior
customer service. In addition, organizations increasingly seek enterprise
applications that can integrate structured data, typically stored in databases,
with unstructured data such as imaged documents, faxes, electronic documents,
mainframe generated reports, digitized voice messages and Web documents.
The ViewStar System is an enterprise-class, client/server application
framework that is built around Windows NT and utilizes Microsoft's enterprise
computing architecture. The ViewStar System is specifically designed for
document-intensive business processes that require the integration of
structured and unstructured data, moving beyond document management and simple
workflow to deliver an integrated document workflow solution. The Company's
software supports deployments ranging from small departmental applications to
large systems distributed over multiple locations, serving hundreds to
thousands of users throughout the enterprise. The first of the Company's @Work
Internet products, expected to be available before the end of 1996, is designed
to enable users to originate work and track work-in-progress using Web
browsers.
The Company's objective is to be the leading global provider of enterprise
document workflow software solutions. As part of its strategy, the Company
intends to expand its market presence by further leveraging its relationships
with system integrators, service providers and other information technology
leaders. In addition, the Company intends to increase its penetration of the
financial services and insurance industries by providing pre-configured
vertical applications to these markets. The Company also plans to continue to
enhance its product architecture to encompass Internet technologies, adding
functionality to take advantage of the Internet infrastructure and Web-based
application platforms.
The Company sells directly through a field sales organization and indirectly
through system integrators and distributors to medium and large-size
organizations worldwide. The Company has over 300 installations in a core group
of vertical markets including financial services, insurance, healthcare,
utilities, energy, telecommunications and government. The Company's customers
include Aetna, American Express, Blue Cross/Blue Shield, MCI, Nissan Motor,
Norwest Bank, PNC Bank, Texas Commerce Bank, Zurich American and the United
States government, as well as numerous international accounts including GAN
Insurance Company Ltd., The Halifax Building Society and PPP Healthcare in the
U.K., Barclays Bank in Australia, debitel Kommunikation in Germany, Finnish P&T
in Finland and SE Banken in Sweden.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company... 2,000,000 shares
Common Stock to be outstanding after
the offering......................... 7,296,472 shares (1)
Use of proceeds....................... Repayment of approximately $2.0 million
of indebtedness and general corporate
purposes, including working capital
Proposed Nasdaq National Market
symbol............................... VSTA
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Total revenues......... $12,450 $23,131 $28,096 $ 22,812 $25,238 $ 9,644 $ 14,741
Operating income
(loss)................ (893) (226) (1,876) (11,122) (7,451) (6,878) 491
Net income (loss)...... (841) (412) (2,315) (11,262) (7,956) (7,071) 403
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
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<S> <C> <C> <C> <C> <C> <C>
Total revenues......... $ 3,836 $ 5,808 $7,511 $8,083 $6,940 $7,801
Operating income
(loss)(2)............. (4,325) (2,553) (223) (350) 136 355
Net income (loss)...... (4,372) (2,699) (369) (516) 103 300
Pro forma net income
(loss) per share (3).. $ (0.76) $ (0.46) $(0.06) $(0.09) $ 0.02 $ 0.04
Shares used in per
share computations
(3)................... 5,764 5,813 5,821 5,843 6,456 7,257
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED (4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,276
Total assets.......................................... 11,298
Long-term debt........................................ 747
Total stockholders' equity (deficit).................. (5,071)
</TABLE>
- --------------------
(1) Based on shares outstanding as of June 30, 1996. Excludes 40,459 shares
issuable upon the exercise of certain warrants to purchase Common Stock at
a weighted average exercise price of $9.30 per share and an aggregate of
857,019 shares of Common Stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $0.37 per share. See
"Management--Stock Plans," and "Description of Capital Stock--Warrants."
(2) Excluding nonrecurring charges, operating income would have been $379,000
and $421,000 for the three months ended September 30, 1995 and December 31,
1995, respectively.
(3) See Note 1 of Notes to Consolidated Financial Statements for a description
of the calculation of pro forma net income (loss) per share.
(4) Gives effect to (i) the issuance of 57,792 shares issuable upon net
exercise of certain outstanding warrants to purchase Common Stock that
terminate immediately prior to the closing of this offering, (ii) the
conversion of all outstanding shares of Preferred Stock into Common Stock,
which will occur automatically upon the closing of this offering and (iii)
the sale of 2,000,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $ per share after
deduction of the estimated underwriting discount and offering expenses
payable by the Company. See "Use of Proceeds."
--------------------
Except as otherwise indicated, the information contained in this Prospectus
assumes (i) the 1-for-3.5 reverse stock split of the Company's Common Stock to
be effected prior to the closing of this offering, (ii) the reincorporation of
the Company in Delaware prior to the effective date of this offering, (iii) no
exercise of the Underwriters' over-allotment option, (iv) the conversion of all
outstanding shares of Preferred Stock into shares of Common Stock upon the
closing of this offering and (v) the issuance of 57,792 shares of Common Stock
upon net exercise of the warrants expiring prior to the closing of this
offering. See "Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
History of Operating Losses; Accumulated Deficit. The Company has incurred
net losses in each year through 1995 including net losses of $11.3 million in
1994 and $8.0 million in 1995. As of June 30, 1996, the Company had an
accumulated deficit of $32.1 million. Although the Company achieved
profitability in the first six months of 1996, there can be no assurance that
the Company's business can operate profitably in any quarter or on a sustained
basis in the future.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results; Seasonality. The Company's operating results have fluctuated in the
past and are likely to do so in the future, particularly on a quarterly basis.
The Company's operating results are dependent on many factors including the
demand for the Company's products; the size, structure and timing of
significant licenses; successful implementations and upgrades of referenceable
customers; the Company's ability to maintain and expand its distribution
channels; the introduction of new products and product enhancements by the
Company or its competitors, including customer order deferrals in anticipation
of new versions of the Company's products and the effects of potential delays
in availability of announced or anticipated products; customer budgeting
cycles; seasonality; price changes by the Company or its competitors; the mix
of license fee and service revenue; changes in foreign currency exchange
rates; and the timing of significant marketing and sales promotions. In
addition, changes in levels of consulting activity and seasonality in training
revenues, which tend to lag license fee revenue by approximately one quarter,
have resulted in variability of service revenue from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company historically has operated with little backlog because its
software products are generally shipped as orders are received. As a result,
license fee revenue in any quarter depends substantially on orders booked and
shipped in that quarter. Further, relatively few contracts may constitute a
significant portion of revenues and operating profits in any quarter.
Historically, the Company has often recognized a substantial portion of its
revenues in the last month of the quarter, with these revenues frequently
concentrated in the last week of the quarter. Because the Company's operating
expenses are based on anticipated revenue levels and a high percentage of the
Company's expenses are relatively fixed, the timing of revenues from a single
contract can cause significant fluctuations in operating results from quarter
to quarter and may materially adversely affect operating results.
The Company has generally realized lower revenues from license fees in the
first quarter of the year than in the immediately preceding quarter. The
Company believes that this has been due primarily to the structure of the
Company's sales commission program and the concentration by some customers of
larger capital purchases in the fourth quarter of the calendar year, followed
by lower purchasing activity during the first quarter of the next calendar
year. To the extent that international operations in the future constitute a
higher percentage of total revenues, the Company anticipates that it may also
experience relatively weaker demand in the quarter ending September 30 due to
reduced customer activity in Europe during the summer months.
As a result of these and other factors, revenues for any quarter are
difficult to forecast and subject to significant variation. The Company
believes that results of operations for any period are not necessarily
indicative of future performance. In particular, the Company does not believe
that the revenue growth rate achieved in the first half of 1996 compared to
the first half of 1995 is sustainable. Furthermore, due to all of the
foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock
5
<PAGE>
would likely be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Product Concentration; Dependence on Document Management and Workflow
Software Market. All of the Company's revenues are generated from sales of
licenses of the ViewStar System and related services and maintenance. If
factors such as competition or technological change, among others, adversely
affect this concentrated product line, there could be a greater adverse effect
on the Company's business, results of operations and financial condition than
if the Company had a more diversified product line. The Company's product
concentration makes it dependent on the continued growth of the document
management and workflow software market. There can be no assurance that the
number of organizations adopting document management and workflow solutions
will continue to grow. See "Business--Industry Background" and "--Products and
Technology."
Lengthy Sales Cycle. The license of the Company's software products is
usually a significant decision by prospective customers requiring the Company
to engage in a lengthy sales cycle, typically between six and twelve months.
This sales cycle often requires the Company to provide to prospective
customers a significant level of education regarding the benefits of the
Company's products, validation of these benefits through customer references
and the design and deployment of prototype applications to demonstrate the
benefits in a prospective customer's individual environment. In addition,
marketing to prospective accounts involves time and effort by management and
other employees without any assurance that new accounts will result. The
implementation by customers of the Company's products involves a significant
commitment of resources by such customers over an extended time period, where
the cost to the customer of the Company's product is typically only a portion
of the related hardware, software, development, training and integration costs
of implementing a large-scale document workflow system. For these and other
reasons, the sales cycle is subject to a number of significant delays over
which the Company has little or no control. Delay in a limited number of
license transactions could have a material adverse effect on the Company's
business and cause the Company's operating results to vary significantly from
quarter to quarter.
The Company's customers often initially purchase entry level licenses to
begin departmental application development and demonstrate the benefits of the
Company's products. The Company depends on a significant number of these entry
level customers expanding their use of the Company's products to additional
applications involving greater numbers of users, as well as certain of these
expansion customers adopting the Company's products as an enterprise-wide
solution. Following a customer's initial purchase, an enterprise-wide
commitment, if any, may require an additional lengthy sales cycle. If the
Company's customers fail to make enterprise-wide commitments to the Company's
products, or make the enterprise commitment more slowly than anticipated, the
Company's business, results of operations and financial condition would be
materially adversely affected. See "Business--Industry Background" and "--
Products and Technology."
Complex Service Requirements; Lengthy Implementation Cycle. Successful
implementation of the Company's software often requires lengthy and complex
implementation and integration services. These complex services may be
provided by the Company or by third party service providers and require close
coordination between the Company's service and support functions, the
customer's internal support resources and third party service providers. The
Company's future operating results will depend upon its ability to coordinate
these complex service resources and assure successful implementation of the
Company's software products, while limiting costs to the Company. Customer
satisfaction in certain key accounts may be critical to generating additional
business in these customers' industries or geographic areas. In such accounts,
the Company may have to devote significant additional resources to ensure
successful implementation and integration, thereby negatively affecting
profitability. Failure to achieve customer satisfaction despite such efforts
could materially adversely affect future operating results. In the future, the
Company intends to increase its reliance on third party service providers for
implementation of the Company's products, and therefore the Company's success
will become increasingly dependent on whether such third parties provide
competent services on a sufficient and timely basis to meet customer service
demands. There can be no assurance that such third party service providers
will provide competent, adequate or timely services. If the
6
<PAGE>
services provided by third parties are unsatisfactory or result in delays in
or unanticipated complications to the implementation of ViewStar products
resulting in customer dissatisfaction, the Company's business, results of
operations and financial condition would be materially adversely affected.
Competition. The market for the Company's products is intensely competitive
and subject to rapid change caused by new product introductions and other
market activities of industry participants. The Company's products are
targeted for document workflow software solutions, and the Company's
competitors offer a variety of products and services to address this market.
The Company currently encounters direct competition from a number of public
and private companies or divisions thereof including FileNet, IBM and Wang
Software. In addition, the Company may face competition from new competitors
including client/server application vendors such as Oracle, PeopleSoft and
SAP; document management vendors such as Documentum and PC DOCS Group; and
vendors of workflow products such as Action Technologies and Staffware.
Certain of these companies have announced, and others may announce, document
workflow capabilities for their existing or future products. Many of these
companies have longer operating histories; significantly greater financial,
marketing, service, support, technical and other resources and name
recognition; and a larger installed customer base than the Company. As a
result, such competitors 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.
The Company also faces indirect competition from system integrators. The
Company relies on a number of system integration firms for implementation and
other services, as well as recommendations of its products during the
evaluation stage of the purchasing process. Although the Company seeks to
maintain close relationships with these service providers, many of these third
parties have similar, and often more established, relationships with the
Company's principal competitors. If the Company is unable to develop and
retain effective, long-term relationships with these third parties, the
Company's competitive position would be materially adversely affected.
Further, there can be no assurance that these third parties, many of which
have significantly greater financial, marketing, service, support, technical
and other resources than the Company, will not market software products in
competition with the Company in the future or otherwise reduce or discontinue
their relationships with or support of the Company and its products. See
"System Integrators and Distribution Partners"and "Business--Competition."
It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. In addition, the Company
expects competition to increase as a result of software industry
consolidation. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which may could materially
adversely affect the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, results of operations and financial condition.
System Integrators and Distribution Partners. Since 1994, the Company has
increased its reliance on sales through system integrators and distributors.
The Company relies on system integrators and distributors for the
identification of prospective customers and for substantial sales, service and
support efforts which the Company would otherwise have to provide directly.
Most of the Company's system integrators and distributors do not have long-
standing relationships with the Company and may cease actively marketing the
Company's products at any time. Some of the Company's system integrators and
distributors also offer competing products or systems manufactured by third
parties or themselves. Any failure by the Company to maintain its existing
relationships or to establish new relationships with system integrators or
distributors would have a material adverse effect on the Company's business,
results of operations and financial condition. If the Company is unable to
recruit or adequately train a sufficient number of system integrators or
distributors, or if for any reason such system integrators or distributors do
not have or devote the resources necessary to facilitate implementation of the
Company's products or if such system integrators or distributors adopt a
competing product or technology, the Company's business, results of operations
and financial condition would be materially adversely affected.
7
<PAGE>
Market Acceptance of Windows NT and Other Core Microsoft Technologies. The
Company's success depends upon the continued acceptance and use in critical
business applications of Microsoft's Windows NT platform and other core
Microsoft technologies, such as the Windows NT Server, the Microsoft SQL
Server database and related Back Office software on which the Company's
products are based. For the first six months of 1996, approximately 80% of the
Company's license revenues were generated from Windows NT-based software.
There can be no assurance that the Windows NT platform will continue to
achieve market acceptance. If the Windows NT platform market fails to grow or
grows more slowly than anticipated or becomes obsolete, the Company's
business, results of operations and financial condition would be materially
adversely affected. See "Business--Industry Background" and "--Products and
Technology."
Technological Change and New Products. The document management and workflow
software market in which the Company participates is characterized by rapid
technological change, frequent product introductions and improvements and
decreasing prices for both hardware and software. Accordingly, the Company's
success will depend in part upon its ability to develop product enhancements
and new products that keep pace with continuing changes in technology and
customer preferences while remaining price competitive. There can be no
assurance that the Company will be successful in developing product
enhancements or new products to keep abreast of changing technologies, that it
will be able to introduce such products on a timely basis or that any such
products or enhancements will be successful in the marketplace. The Company's
failure to develop technological improvements or to adapt its products to
technological change on a timely basis would, over time, have a material
adverse effect on the Company's business, results of operations and financial
condition. The introduction of new or enhanced products requires the Company
to manage the transition from older products. The Company must encourage the
transition of customers to new product releases in order to minimize the costs
associated with supporting multiple product versions. The Company has from
time to time experienced delays in the shipment of new products. There can be
no assurance that the Company will manage successfully future product
transitions.
The Company has incurred, and expects to continue to incur, substantial
expenses associated with the introduction and promotion of new products,
including its @Work family of products for the Internet and its AppReady
products for industry applications. There can be no assurance that the
expenses incurred will not exceed development budgets, that the Company will
introduce products in a timely fashion, if at all, or that such products will
achieve market acceptance and generate sales sufficient to offset development
costs. In addition, programs as complex as those offered by the Company may
contain a number of undetected errors or defects when they are first
introduced or as new versions are released. There can be no assurance that,
despite testing by the Company, errors will not be found in future releases of
the Company's products, which would negatively affect market acceptance of
these products. The success of the Company's @Work family of products for the
Internet, the first of which are scheduled to be released before the end of
1996, will depend upon the acceptance of the Internet, intranets and the World
Wide Web technologies. As the commercial market for products for use on the
Internet and World Wide Web have only recently begun to develop, there can be
no assurance that the Company's new products or enhancements will meet
customer requirements or be compatible with the emerging standards of the
Internet or World Wide Web. Furthermore, the Internet and the World Wide Web
may not prove to be a viable network with the necessary speed, data capability
and security to support document workflow applications, and there can be no
assurance that the Internet and the World Wide Web will be able to support the
demands placed on it by continued growth. If the Internet and the World Wide
Web do not become a viable network, the Company's business would be materially
adversely affected. See "Business--Products and Technology" and "--Research
and Development."
International Sales. The Company's international sales for the years ended
December 31, 1994 and 1995 and the six month period ended June 30, 1996
represented approximately 8%, 25% and 20% of the Company's total revenues,
respectively. The Company intends to allocate additional resources to increase
international sales as a percentage of the Company's total revenues in the
future. There can be no assurance that the Company will achieve this
objective. If the Company fails to increase international sales, or maintain
current levels of revenues, the Company's business would be materially
adversely affected.
8
<PAGE>
In addition, the Company will be subject to the normal risks of
international sales, such as currency fluctuations, longer payment cycles,
greater difficulties in accounts receivable collections and the requirement of
complying with export laws and a wide variety of foreign laws. Although the
Company has not previously experienced any difficulties under foreign law in
exporting its products to other countries, there can be no assurance that the
Company will not experience such difficulties in the future. Any such
difficulties would have a material adverse effect on the Company's
international sales. In addition, because the Company invoices certain of its
foreign sales in local currency and does not hedge these transactions,
fluctuations in exchange rates could materially adversely affect revenues and
costs, and could create significant foreign currency losses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Management of Growth; Key Personnel. The Company's ability to manage
effectively its future growth, if any, will require it to continue to improve
its operational, financial and management controls; accounting and reporting
systems; and other internal processes. There can be no assurance that the
Company will experience any future growth, or if such growth occurs, that the
Company will be able to make such improvements in an efficient and timely
manner or that such improvements will be sufficient to manage its growth. If
the Company is unable to manage growth effectively, the Company's business,
results of operations and financial condition would be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The success of the Company depends to a large extent on its ability to
retain and attract highly skilled personnel, including key management,
technical and sales and marketing personnel. During 1995 and early 1996, the
Company experienced various changes in its senior management team and
engineering and sales personnel, requiring the replacement of some of its
executives and senior managers. There can be no assurance that the Company
will be able to retain its key personnel or that it will be able to attract
sufficient qualified employees to support growth in the Company's business.
Competition for employees in the software industry is intense. Accordingly, if
the business of the Company grows, it may become increasingly difficult to
hire, train and assimilate new employees as needed. The Company's inability to
retain and attract key employees would have a material adverse effect on the
Company's product development and results of operations. See "Management."
Dependence on Proprietary Rights; Uncertainty of Obtaining Licenses. The
Company's success depends in part upon protecting its proprietary technology.
The Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. The Company presently has no patents or patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy the Company's products or to obtain
and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and since 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 as great an extent as the laws of the United States.
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 technology. Although the Company has received
communications asserting that its products infringe the proprietary rights of
third parties or seeking indemnification against such infringement, the
Company is not aware that any of its products infringe the proprietary rights
of third parties. There can be no assurance, however, that other third parties
will not claim infringement by the Company with respect to 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 market grows and the functionality of products in
different markets 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. In addition, the Company also relies on certain software that it
licenses from third parties, including
9
<PAGE>
software that is integrated with internally developed software and used in the
Company's products to perform key functions. There can be no assurance that
such firms will remain in business, that they will continue to support their
products or that their products will otherwise continue to be available to the
Company on commercially reasonable terms. The loss or inability to maintain
any of these software licenses could result in delays or reductions in product
shipments until equivalent software can be developed, identified, licensed and
integrated, which would materially adversely affect the Company's business,
results of operations and financial condition. See "Business--Intellectual
Property and Other Proprietary Rights."
Risk of Product Defects. Software products as internally complex as those
offered by the Company frequently contain errors or defects, especially when
first introduced or when new versions are released. Although the Company
conducts extensive product testing during product development, the Company has
been forced to delay commercial release of products until the correction of
software problems, and in some cases, has provided product enhancements to
correct errors or defects in released products. The Company could, in the
future, lose revenues as a result of software errors or defects. The Company's
products and future products are intended for use in applications that are
critical to a customer's business. As a result, the Company expects that its
customers and potential customers have a greater sensitivity to product
defects than the market for software products generally. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors or defects will not be found in new products or releases
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, diversion of development resources, damage to the
Company's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Product Liability. The Company's license agreements with its customers
typically contain provisions intended to limit the Company's exposure to
potential product liability claims. However, it is possible that the
limitation of liability provisions contained in the Company's license
agreements may not be effective. 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 no assurance that
the Company will not be subject to such claims in the future. Furthermore,
although the Company carries product liability insurance coverage, there can
be no assurance that such insurance coverage will be sufficient in the event
of a successful product liability claim brought against the Company. A
successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, results of operations and
financial condition.
No Prior Public Market for Common Stock; Possible Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the offering. The initial
public offering price will be determined by negotiations between the Company
and the representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The trading price of the Company's Common Stock could be
subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant orders, changes in earning
estimates by analysts, announcements of technological innovations or new
products by the Company or its competitors, general conditions in the software
and computer industries and other events or factors. In addition, the stock
market in general has experienced extreme price and volume fluctuations which
have affected the market price for many companies in industries similar or
related to that of the Company and which have been unrelated to the operating
performance of these companies. These market fluctuations may materially
adversely affect the market price of the Company's Common Stock.
Shares Eligible for Future Sale; Registration Rights. Sales of Common Stock
(including shares issued upon the exercise of outstanding options and
warrants) in the public market after this offering could materially adversely
affect the market price of the Common Stock. Such sales also might make it
more difficult for the Company to sell equity securities or equity-related
securities in the future at a time and price that the Company deems
appropriate. Upon the completion of this offering, the Company will have
7,296,472 shares
10
<PAGE>
of Common Stock outstanding, assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options or warrants, based
upon the number of shares outstanding as of June 30, 1996. All of the
2,000,000 shares offered hereby will be freely tradeable (unless held by
affiliates of the Company) without restriction. The remaining 5,296,472 shares
will be restricted securities within the meaning of the Securities Act of
1933, as amended (the "Securities Act"). Of such shares, approximately 95,167
will be freely tradeable (unless held by affiliates of the Company) without
restriction. The Company's directors, executive officers and certain of its
stockholders, who in the aggregate hold approximately 98% of the shares of
Common Stock of the Company outstanding immediately prior to the completion of
this offering, have entered into lock-up agreements under which they have
agreed not to sell, directly or indirectly, any shares owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of Hambrecht & Quist LLC. Hambrecht & Quist LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to such lock-up agreements. Upon expiration of the 180-day
lock-up agreements, approximately 3,903,225 additional shares of Common Stock
(including approximately 548,990 shares subject to outstanding vested options)
will become eligible for public resale, subject in some cases to volume
limitations pursuant to Rule 144. The remaining approximately 1,887,529 shares
held by existing stockholders (including 40,459 shares issuable upon exercise
of certain outstanding warrants) will become eligible for public resale at
various times over a period of less than two years following the completion of
this offering, subject in some cases to vesting provisions and volume
limitations. 4,120,334 of the shares outstanding immediately following the
completion of this offering (including 21,071 shares issuable upon the
exercise of certain outstanding warrants) will be entitled to registration
rights with respect to such shares upon termination of lock-up agreements. The
number of shares sold in the public market could increase if registration
rights are exercised and such sales may have an adverse effect on the market
price of the Common Stock. Furthermore, the Securities and Exchange Commission
has proposed amendments to Rules 144 and 144(k) which, if adopted, would
substantially increase the number of Restricted Shares available for sale in
the public market beginning 180 days after the date of this Prospectus. To the
extent that a significant portion of the Restricted Shares are sold by the
holders thereof, such sales may materially adversely affect the market price
of the Company's Common Stock. A significant decline in the price of the
Company's Common Stock due to these or other factors would reduce the ability
of the Company to obtain significant operating capital through the offering of
additional shares of such Common Stock. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
Anti-Takeover Effect of Certain Charter and Bylaws Provisions and Delaware
Law. The Company intends to reincorporate in Delaware prior to the closing of
this offering. Certain provisions of the Company's Restated Certificate of
Incorporation and Bylaws may have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company. Certain of these provisions allow the Company
to issue Preferred Stock without any vote or further action by the
stockholders, eliminate the right of stockholders to act by written consent
without a meeting or call a special meeting of stockholders and specify
procedures for director nominations by stockholders and submission of other
proposals for consideration at stockholder meetings. Section 203 of the
Delaware General Corporation Law prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years unless certain conditions are met. The possible issuance
of Preferred Stock, the procedures required for director nominations and
stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of the Company, including without
limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay
in the future for shares of the Company's Common Stock. See "Description of
Capital Stock--Preferred Stock" and "--Certain Change of Control Provisions."
Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and entities affiliated with them
will, in the aggregate, beneficially own approximately 43% of the Company's
outstanding shares of Common Stock following the completion of this offering.
These stockholders, if acting together, would be able to determine all matters
requiring approval by the stockholders
11
<PAGE>
of the Company, including the election of directors and the approval of
mergers or other business combination transactions. This may prevent or
discourage tender offers for the Company's Common Stock or changes in the
control of the Company unless the terms are approved by such stockholders. See
"Principal Stockholders."
Discretion as to Use of Proceeds. The Company has no specific plans to use
the net proceeds from this offering other than to pay down debt from capital
lease obligations of approximately $2.0 million. The Company's management will
retain broad discretion as to the allocation of the net proceeds from this
offering. See "Use of Proceeds."
Immediate and Substantial Dilution. Investors participating in this offering
will incur immediate and substantial dilution of $ in tangible book value
per share. To the extent outstanding options to purchase the Company's Common
Stock are exercised, there will be further dilution. See "Dilution."
Lack of Dividends. The Company has not paid any dividends and does not
anticipate paying any dividends in the foreseeable future. See "Dividend
Policy."
12
<PAGE>
THE COMPANY
The Company was incorporated in California in February 1986, and the Company
expects to reincorporate in Delaware prior to the closing of this offering.
Unless the context otherwise requires, references in this Prospectus to
"ViewStar" and the "Company" refer to ViewStar Corporation, a Delaware
corporation, and its subsidiaries, and where applicable, its California
predecessor. The Company's principal executive offices are located at 1101
Marina Village Parkway, Alameda, California 94501. Its telephone number is
(510) 337-2000. The Company maintains a site on the World Wide Web.
Information contained in the Company's Web site shall not be deemed part of
this Prospectus.
ViewStar, Process Architect and Process@Work are trademarks of the Company.
All other trade names or trademarks appearing in this Prospectus are the
property of their respective holders.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $ per share, are estimated to be $ ($ if
the Underwriters' over-allotment option is exercised in full), after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal Stockholders."
The Company intends to use the net proceeds of this offering primarily for
working capital, to pay down debt from capital lease obligations of
approximately $2.0 million and for other general corporate purposes, including
expansion of general sales and marketing, customer support and internal
infrastructure activities to accommodate anticipated growth in the Company's
business and customer base. The amounts actually expended by the Company for
working capital purposes will vary significantly depending on a number of
factors, including future revenue growth, if any, the amount of cash generated
by the Company's operations and the progress of the Company's product
development efforts. Therefore, the Company's management will retain broad
discretion in the allocation of the net proceeds from this offering. In
addition, the Company may make one or more acquisitions of complementary
technologies, products or businesses which broaden or enhance the Company's
current product offerings. However, the Company has no specific plans,
agreements or commitments and is not currently engaged in any negotiations for
any such acquisition. Pending the uses described above, the net proceeds will
be invested in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. The Company's current
loan agreement with a bank prohibits the payment of dividends without the
bank's prior written consent.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the capitalization of
the Company, (ii) the pro forma capitalization of the Company after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock and the net exercise of certain outstanding warrants to purchase
Common Stock prior to the closing of this offering and (iii) the
capitalization as adjusted to reflect the sale by the Company of 2,000,000
shares of the Common Stock offered hereby at an assumed initial offering price
of $ , and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Noncurrent portion of capital lease obligations
and notes payable............................. $ 747 $ 747
-------- --------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; actual--
5,950,000 shares authorized, 1,357,851
shares issued and outstanding; pro forma and
as adjusted--2,000,000 shares authorized,
none issued and outstanding................. 1 --
Common stock, $0.001 par value; actual--
40,000,000 shares authorized, 3,880,829
shares issued and outstanding; pro
forma--25,000,000 shares authorized,
5,296,472 shares issued and outstanding; as
adjusted--25,000,000 shares authorized,
7,296,472 shares issued and outstanding(1).. 4 5
Additional paid-in capital................... 27,440 27,440
Notes receivable from stockholders........... (450) (450)
Accumulated deficit.......................... (32,066) (32,066)
-------- --------
Total stockholders equity (deficit)......... (5,071) (5,071)
-------- --------
Total capitalization........................ $ (4,324) $ (4,324)
======== ========
</TABLE>
- ---------------------
(1) Excludes 40,459 shares issuable upon the exercise of certain outstanding
warrants to purchase Common Stock at a weighted average exercise price of
$9.30 per share and an aggregate of 857,019 shares of Common Stock
issuable upon exercise of outstanding options at a weighted average
exercise price of $0.37 per share. See "Management--Stock Plans" and
"Description of Capital Stock--Warrants."
14
<PAGE>
DILUTION
The pro forma net tangible book deficit of the Company as of June 30, 1996,
was approximately $5,071,000 or $0.96 per share. Pro forma net tangible book
deficit per share is equal to the Company's total tangible assets less its
total liabilities, divided by the number of pro forma outstanding shares of
Common Stock, after giving effect to the conversion of all outstanding shares
of Preferred Stock into Common Stock upon the closing of this offering. After
giving effect to the sale of the 2,000,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $ per
share (after deducting estimated underwriting discounts and commissions and
offering expenses), the pro forma as adjusted net tangible book value of the
Company at June 30, 1996 would have been approximately $ million or $ per
share. This represents an immediate increase in such net tangible book value
of $ per share to existing stockholders and an immediate dilution of $ per
share to new investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book deficit per share as of June 30,
1996......................................................... $(0.96)
Increase per share attributable to new investors..............
------
Pro forma as adjusted net tangible book value per share after
this offering..................................................
------
Dilution per share of Common Stock to new investors............. $
======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by the new investors purchasing shares of Common
Stock offered hereby at an assumed initial public offering price of $ per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........... 5,296,472 72.6% $26,951,000 $5.10
New Investors (1)............... 2,000,000 27.4
--------- ----- ----------- --- -----
Total......................... 7,296,472 100.0%
========= ===== =========== === =====
</TABLE>
- ---------------------
(1) Excludes 40,459 shares issuable upon the exercise of certain outstanding
warrants to purchase Common Stock at a weighted average exercise price of
$9.30 per share and an aggregate of 857,019 shares of Common Stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $0.37 per share. To the extent that any outstanding
options are exercised, there will be further dilution to new investors.
See "Management--Stock Plans" and "Description of Capital Stock--
Warrants."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statements of operations data for the years ended December 31,
1993, 1994 and 1995 and the consolidated balance sheet data at December 31,
1994 and December 31, 1995 are derived from the consolidated financial
statements of the Company, which have been audited by KPMG Peat Marwick LLP,
independent auditors, included elsewhere herein. The consolidated statements
of operations data for the two years ended December 31, 1991 and 1992 and the
consolidated balance sheet data at December 31, 1991, 1992 and 1993 are
derived from unaudited consolidated financial statements not included in this
Prospectus. The consolidated statements of operations data for the six months
ended June 30, 1995 and 1996 and the consolidated balance sheet data at June
30, 1996 are derived from the Company's unaudited financial statements also
appearing herein and which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the unaudited interim periods. Operating
results for the six months ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the full year or for any future
period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License fees.......... $ 6,580 $10,790 $15,847 $ 10,436 $ 13,031 $ 4,062 $ 7,457
Services.............. 3,381 6,616 10,205 11,857 12,137 5,510 7,284
Hardware.............. 2,489 5,725 2,044 519 70 72 --
------- ------- ------- -------- -------- ------- -------
Total revenues....... 12,450 23,131 28,096 22,812 25,238 9,644 14,741
------- ------- ------- -------- -------- ------- -------
Cost of revenues:
License fees.......... 140 481 606 720 536 277 553
Services.............. 2,298 4,703 6,695 7,995 7,959 4,075 4,033
Hardware.............. 1,355 3,929 1,348 42 -- -- --
------- ------- ------- -------- -------- ------- -------
Total cost of
revenues............ 3,793 9,113 8,649 8,757 8,495 4,352 4,586
------- ------- ------- -------- -------- ------- -------
Gross profit......... 8,657 14,018 19,447 14,055 16,743 5,292 10,155
------- ------- ------- -------- -------- ------- -------
Operating expenses:
Sales and marketing... 5,188 8,627 12,894 15,568 14,912 7,635 6,284
Research and
development.......... 2,997 3,559 5,814 6,617 5,572 3,015 2,436
General and
administrative....... 1,365 2,058 2,615 2,914 1,970 1,153 944
Nonrecurring charges.. -- -- -- 78 1,740 367 --
------- ------- ------- -------- -------- ------- -------
Total operating
expenses............ 9,550 14,244 21,323 25,177 24,194 12,170 9,664
------- ------- ------- -------- -------- ------- -------
Operating income
(loss).............. (893) (226) (1,876) (11,122) (7,451) (6,878) 491
Other income
(expense)............. 52 (109) (320) (85) (456) (161) (77)
------- ------- ------- -------- -------- ------- -------
Income (loss) before
income taxes........ (841) (335) (2,196) (11,207) (7,907) (7,039) 414
Income taxes........... -- 77 119 55 49 32 11
------- ------- ------- -------- -------- ------- -------
Net income (loss).... $ (841) $ (412) $(2,315) $(11,262) $ (7,956) $(7,071) $ 403
======= ======= ======= ======== ======== ======= =======
Pro forma net income
(loss) per share...... $ (1.37) $ (1.22) $ 0.06
======== ======= =======
Shares used in per
share
computations (1)...... 5,810 5,789 6,857
======== ======= =======
<CAPTION>
DECEMBER 31,
--------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital
deficit............... $ 5,119 $ 4,666 $ 5,800 $ (3,513) $(10,585) $(6,718)
Deferred revenue....... 579 1,760 6,121 9,767 10,625 8,718
Total assets........... 9,395 15,199 18,581 17,856 12,380 11,298
Short-term debt........ 864 3,262 701 2,446 3,055 946
Long-term
obligations........... 304 626 857 955 994 747
Stockholders' equity
(deficit)............. 5,801 5,546 7,175 (978) (8,829) (5,071)
</TABLE>
- ---------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the calculation of pro forma net income (loss) per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus includes forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
The Company was incorporated in 1986 and shipped its first product in 1988.
The Company provides client/server document workflow software that enables
customers to automate and improve document-intensive business processes. The
Company's license fee revenue rose consistently from 1989 through 1993.
License fee revenue decreased in 1994 compared to 1993 primarily as a result
of customer dissatisfaction with the Company's inability to fulfill customer
service and support demands that particularly arose from several large orders
received in the second half of 1993. Such customer dissatisfaction and the
resulting lost revenue opportunities also contributed to a significant number
of resignations in the Company's direct sales force, which had further adverse
effects on license fee revenue through the first half of 1995. The Company
addressed these problems by (i) expanding its use of system integrators and
distributors to market the Company's products and service its customer base,
(ii) strengthening its senior management team, (iii) restructuring its sales
and distribution organization, (iv) adding employees to meet service and
support requirements and (v) adding employees to redevelop the Company's core
technology focusing on Windows NT. Costs associated with certain of these
actions, combined with reduced revenues, resulted in net losses in 1994 and
1995 of $11.3 million and $8.0 million, respectively. Favorable market
acceptance of Releases 4.0 and 4.1, focused on Windows NT, in the third and
fourth quarters of 1995, combined with decreases in operating expenses,
provided the Company with renewed revenue growth and improved operating
results. The Company operated profitably for the first two quarters of 1996
and was also profitable in the third and fourth quarters of 1995, before
nonrecurring charges. Although the Company has recently experienced revenue
growth, such growth should not be considered indicative of future revenue
growth, if any, or of future operating results. There can be no assurance that
the Company's business can operate profitably on a sustained basis in the
future.
Prior to 1994, a portion of the Company's revenues consisted of sales of
hardware, including optical storage devices, scanners and high speed printers,
as part of its document workflow systems. Since 1994, the Company has not sold
hardware directly to customers, but instead has relied on outside hardware
distributors to make direct hardware sales to the Company's customers.
The Company's international sales for the years ended December 31, 1994 and
1995 and the six month period ended June 30, 1996 represented approximately
8%, 25% and 20% of the Company's total revenues, respectively. The Company
intends to allocate additional resources to increase international sales as a
percentage of the Company's total revenues in the future. There can be no
assurance that the Company will achieve additional revenues from international
sales. If the Company fails to increase international sales, the Company's
business would be materially adversely affected. See "Risk Factors--
International Sales."
Substantially all of the Company's revenues are derived from licenses of the
ViewStar System and related consulting and maintenance services. Software
license fee revenue is recognized when (i) a signed contract exists, (ii)
delivery has occurred, (iii) the fee is fixed and collectibility is probable
and (iv) remaining vendor obligations are insignificant. Generally, revenue
from the sale of software licenses through distributors is recognized after
contract signing and shipment and upon the earlier of sale to an end user or
upon receipt of nonrefundable cash payments from the distributors. Revenue
from software installation and consulting contracts is recognized as services
are performed. Revenue from software maintenance agreements is recognized
ratably over the service period. The Company has not capitalized any software
development costs to date.
17
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
REVENUES
Total Revenues. Total revenues increased 52.9% to $14.7 million for the six
months ended June 30, 1996 compared to $9.6 million for the comparable period
in 1995. The increase was due primarily to increased license fee revenue
resulting from increased market acceptance of the Company's products.
License Fees. License fee revenue increased 83.6% to $7.5 million for the
six months ended June 30, 1996 compared to $4.1 million for the comparable
period in 1995. The increase was due to the increased market acceptance of the
Company's products, especially versions 4.0 and later, which were first
introduced in the second half of 1995 and are focused on Windows NT, and to
the increased referenceability of the Company's installed customer base. The
Company does not believe that this rate of license fee revenue growth is
sustainable into the future, and year-to-year comparisons should not be relied
upon as indicative of future results.
Services. Service revenue, which includes revenue for both consulting
service revenue and maintenance fees, increased 32.2% for the six months ended
June 30, 1996 to $7.3 million from $5.5 million for the comparable period in
1995 due to increased license fee revenue in the second half of 1995, which
resulted in the increase in both maintenance fees and the demand for the
Company's consulting services. Additionally, consulting services increased due
to the addition of several new service providers allowing the Company to meet
the demand for installation, upgrade and other consulting services. Consulting
service revenue increased 49.1% to $3.6 million for the six months ended June
30, 1996 from $2.4 million for the comparable period in 1995 due to the
increased demand for consulting services. Maintenance fees increased 19.1% to
$3.7 million for the six months ended June 30, 1996 from $3.1 million for the
comparable period in 1995 due to increases in maintenance renewals and the
increased license fee revenue.
COST OF REVENUE
License Fees. Cost of license fee revenue consists of commissions paid to
partners for their participation in certain license transactions, royalty
payments to third party software vendors and costs of product media,
duplication and packaging. Cost of license fee revenue increased to $553,000,
or 7.4% of license fee revenue, for the six month period ended June 30, 1996,
compared to $277,000, or 6.8% of license fee revenue, for the comparable
period in 1995. This increase as a percentage of license fee revenue was due
to a relatively large commission paid to a partner on a license transaction
which was partially offset by a percentage decrease in royalty payments to
third party software vendors.
Services. Cost of service revenue consists primarily of the cost of
providing implementation, consulting, maintenance and training services. Cost
of service revenue includes both direct costs and the cost of third party
consulting providers. Cost of service revenue was $4.0 million, or 55.4% of
service revenue, for the six months ended June 30, 1996, compared to $4.1
million, or 74.0% of service revenue, for the comparable period in 1995. This
decrease in cost of service revenue was due to a reduction in the Company's
headcount in consulting and customer support from early 1995 levels reflecting
the Company's increased use of third party service providers. The Company
expects cost of service revenue as a percentage of service revenue to
fluctuate and does not expect cost of service revenue to continue to decrease,
in absolute dollars or as a percentage of service revenue.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expense consists primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
field office expense, and travel, entertainment and
18
<PAGE>
promotional expense. Sales and marketing expense decreased to $6.3 million, or
42.6% of total revenues, for the six months ended June 30, 1996, from $7.6
million, or 79.2% of total revenues, for the comparable period in 1995. The
decrease in sales and marketing expense in absolute dollars and as a
percentage of total revenues was due to reductions in headcount. The Company
expects sales and marketing expense to increase in absolute dollars, but not
necessarily as a percentage of total revenues.
Research and Development. Research and development expense consists
primarily of costs of personnel and equipment needed to conduct the Company's
product development efforts. Research and development expense decreased to
$2.4 million, or 16.5% of total revenues, for the six months ended June 30,
1996, from $3.0 million, or 31.3% of total revenues, for the comparable period
in 1995, due to a reduction in headcount and decreased utilization of third
party consultants for product testing. The Company is committed to providing
continuing enhancements to current products as well as to developing new
technologies for the future. The Company expects research and development
expense to increase in absolute dollars and to fluctuate as a percentage of
total revenues in the future.
General and Administrative. General and administrative expense consists
primarily of the salaries of the Company's executive, administrative and
financial personnel and outside legal, audit and associated administration
expenses. General and administrative expense was $944,000, or 6.4% of total
revenues, for the six months ended June 30, 1996, compared to $1.2 million, or
12.0% of total revenues, for the comparable period in 1995, due to reductions
in both headcount and bad debt expense. The Company expects general and
administrative expense to increase in absolute dollars and to fluctuate as a
percentage of total revenues in the future.
Nonrecurring Charges. The Company incurred nonrecurring charges of $367,000
in the first half of 1995 which included such items as severance pay,
educational programs and job search fees in connection with a reduction in
headcount. There was no such similar expense incurred during the six months
ended June 30, 1996.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income earned on short term
investments and interest expense incurred on lines of credit, bank loans and
capital leases. Other expense decreased to $77,000 for the six months ended
June 30, 1996 from $161,000 for the comparable period in 1995 due to decreased
interest expense from reduced borrowings during the first half of 1996. See
"Liquidity and Capital Resources."
INCOME TAXES
Income tax expense decreased to $11,000 for the six months ended June 30,
1996 from $32,000 for the comparable period in 1995. These expenses reflect
foreign taxes incurred on certain foreign license fee revenue. The Company
incurred a net loss in the 1995 period and no provision for tax was required.
As of December 31, 1995, the Company had net operating loss carryforwards in
the amount of $22.7 million for federal income tax purposes, expiring from
2003 through 2010, and $9.2 million for state franchise tax purposes expiring
from 1996 through 2000. In addition, as of December 31, 1995, the Company had
federal and state research and development credit carryforwards of $920,000
and $605,000 respectively, expiring from 2001 through 2010. Due to the change
of ownership provisions of the Tax Reform Act of 1986, the availability of the
Company's net operating loss and credit carryforwards will be subject to an
annual limitation against taxable income in future periods if a change of
ownership for income tax purposes should occur over a three year period, which
could substantially limit the eventual tax utilization of these carryforwards.
19
<PAGE>
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
REVENUES
Total Revenues. Total revenues increased 10.6% to $25.2 million for 1995
from $22.8 million for 1994 due to increased license fee revenue. Total
revenues decreased 18.8% to $22.8 million for 1994 from $28.1 million for 1993
because of weakened demand for the Company's products and the factors
described in "Overview" above.
License Fees. License fee revenue increased 24.9% to $13.0 million for 1995
compared to $10.4 million for 1994 due to stronger demand for the Company's
4.0 and 4.1 product versions released in 1995. License fee revenue decreased
34.1% to $10.4 million for 1994 from $15.8 million for 1993, due in part to
customer dissatisfaction with the Company's inability to fulfill customer
service and support demands that particularly arose from several large orders
received in the second half of 1993. Such customer dissatisfaction and
resulting lost revenue opportunities also contributed to a significant number
of resignations in the Company's direct sales force, which had further adverse
effects on license fee revenue.
Services. Service revenue increased 2.4% to $12.1 million for 1995 from
$11.9 million for 1994, due to an increase in maintenance fees, offset by a
reduction in consulting service revenue. Service revenue increased 16.2% to
$11.9 million in 1994 from $10.2 million for 1993, primarily because of
increases in maintenance and training fees due to the expansion of the
Company's installed base. Consulting service revenue decreased 16.1% to $5.7
million for 1995 from $6.8 million for 1994. This decrease reflected a
reduction in services personnel and increased reliance on third party
consulting providers to provide consulting services, as described above.
Consulting service revenue decreased 4.8% to $6.8 million for 1994 from $7.2
million for 1993 due to decreased demand resulting from lower license fee
revenue. Maintenance fees for 1995 increased 27.4% to $6.4 million from $5.0
million for 1994, due to the expansion of the Company's installed base.
Maintenance fees increased 65.4% to $5.0 million for 1994 from $3.0 million
for 1993, due to the increase in 1993 license fee revenue.
Hardware. Hardware revenue declined to $70,000 in 1995 from $519,000 and
$2.0 million in 1994 and 1993, respectively, due to the Company's decision to
rely on third parties to sell hardware to its customers. The Company does not
expect to generate hardware revenue in the future.
COST OF REVENUE
License Fees. Cost of license fee revenue was $536,000, or 4.1% of license
fee revenue, for 1995, compared to $720,000, or 6.9% of license fee revenue,
for 1994, due to reductions in third party royalties on the new version of the
Company's products. Cost of license fee revenue was $720,000 for 1994,
compared to $606,000, or 3.8% of license fee revenue, for 1993, due to higher
production costs and royalties paid to third parties.
Services. Cost of service revenue was $8.0 million, or 65.6% of service
revenue, for 1995 compared to $8.0 million, or 67.4% of service revenue, for
1994, reflecting an increased use of third party consulting providers, offset
by a decrease in consulting headcount. Cost of service revenue was $8.0
million for 1994 compared to $6.7 million, or 65.6% of service revenue for
1993, due to the increase in headcount in the latter part of 1994 and an
increase in the cost of third party service providers.
Hardware. Since 1994, the Company has not sold hardware directly to
customers, but instead has relied on outside hardware distributors to make
direct hardware sales to the Company's customers. As a result, the cost of
hardware for 1995 was zero compared to $42,000, or 8.1% of hardware revenue,
for 1994. The cost of hardware for 1994 was $42,000 compared to $1.3 million,
or 65.9% of hardware revenue, for 1993. The Company does not anticipate having
any costs associated with the sale of hardware in the future.
20
<PAGE>
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expense decreased to $14.9 million,
or 59.1% of total revenues, for 1995 from $15.6 million, or 68.2% of total
revenues, for 1994 resulting from expense reductions due to decreased
headcount in both departments, partially offset by increases in costs and
commissions associated with higher revenues. Sales and marketing expense
increased to $15.6 million for 1994 from $12.9 million, or 45.9% of total
revenues, for 1993 due primarily to personnel increases intended to provide
sales support for anticipated 1994 revenue growth, together with an additional
$1.0 million in expenses relating to the formation and operation of the U.K.
subsidiary.
Research and Development. Research and development expense decreased to $5.6
million, or 22.1% of total revenues, for 1995 from $6.6 million, or 29.0% of
total revenues, for 1994 due to a modest reduction in personnel and cost
containment measures. Research and development expense increased to $6.6
million for 1994 from $5.8 million, or 20.7% of total revenues, for 1993 due
to increased staffing of software engineers required to enhance the Company's
product line. The Company is committed to providing continuing enhancements to
current products as well as to developing new technologies for the future. The
Company expects to continue to invest heavily in research and development in
future periods.
General and Administrative. General and administrative expense decreased to
$2.0 million, or 7.8% of total revenues for 1995 from $2.9 million, or 12.8%
of total revenues, for 1994 due primarily to reductions in headcount. General
and administrative expenses increased to $2.9 million for 1994 from $2.6
million, or 9.3% of total revenues, for 1993 due to increases in staffing in
1993 and 1994.
Nonrecurring Charges. During 1995, the Company incurred $1.7 million in
nonrecurring expenses consisting of legal fees and settlement costs associated
with the termination of a proposed merger and expenses such as severance pay,
educational programs and job search fees resulting from a reduction in
headcount. The Company incurred $78,000 in severance related expense in 1994
and incurred no such similar expense in 1993.
OTHER INCOME (EXPENSE)
Other expense increased to $456,000 for 1995 from $85,000 for 1994 due to
increased interest expense incurred in 1995 related to the Company's Line of
Credit, Bridge Loan and additional financings of capital equipment. Other
expense decreased to $85,000 in 1994 from $320,000 for the comparable period
in 1993, due to decreased interest expense from reduced borrowings in 1994
compared to 1993. See "Liquidity and Capital Resources."
INCOME TAXES
Income tax expense for 1995 decreased to $49,000 from $55,000 for 1994,
primarily due to a slight decrease in state and foreign tax obligations.
Income tax expense decreased to $55,000 for 1994 from $119,000 for 1993, due
to the increased losses in 1994.
21
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited consolidated financial
information for each of the six quarters ended June 30, 1996, as well as such
data expressed as a percentage of the Company's total revenues for the period
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. Such statements of operations data should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto. The Company believes that quarter-to-quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues:
License fees.......... $ 1,086 $ 2,976 $4,428 $4,541 $3,457 $4,000
Services.............. 2,723 2,787 3,085 3,542 3,483 3,801
Hardware.............. 27 45 (2) -- -- --
------- ------- ------ ------ ------ ------
Total revenues....... 3,836 5,808 7,511 8,083 6,940 7,801
Total cost of
revenues............ 2,268 2,084 1,925 2,218 2,198 2,388
------- ------- ------ ------ ------ ------
Gross profit......... 1,568 3,724 5,586 5,865 4,742 5,413
------- ------- ------ ------ ------ ------
Operating expenses:
Sales and marketing... 3,483 4,152 3,496 3,781 2,980 3,304
Research and
development.......... 1,528 1,487 1,290 1,267 1,193 1,243
General and
administrative....... 562 591 421 396 433 511
Nonrecurring charges.. 320 47 602 771 -- --
------- ------- ------ ------ ------ ------
Total operating
expenses............ 5,893 6,277 5,809 6,215 4,606 5,058
------- ------- ------ ------ ------ ------
Operating income
(loss).............. (4,325) (2,553) (223) (350) 136 355
Other income
(expense)............. (47) (114) (146) (149) (22) (55)
------- ------- ------ ------ ------ ------
Income (loss) before
taxes............... (4,372) (2,667) (369) (499) 114 300
Income taxes........... -- 32 -- 17 11 --
------- ------- ------ ------ ------ ------
Net income (loss).... $(4,372) $(2,699) $ (369) $ (516) $ 103 $ 300
======= ======= ====== ====== ====== ======
Pro forma net income
(loss) per share (1).. $ (0.76) $ (0.46) $(0.06) $(0.09) $ 0.02 $ 0.04
======= ======= ====== ====== ====== ======
Shares used in per
share computations
(1)................... 5,764 5,813 5,821 5,843 6,456 7,257
======= ======= ====== ====== ====== ======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... 28.3% 51.2% 58.9% 56.2% 49.8% 51.3%
Services.............. 71.0 48.0 41.1 43.8 50.2 48.7
Hardware.............. 0.7 0.8 -- -- -- --
------- ------- ------ ------ ------ ------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0
Total cost of
revenues............ 59.1 35.9 25.6 27.5 31.7 30.6
------- ------- ------ ------ ------ ------
Gross profit......... 40.9 64.1 74.4 72.5 68.3 69.4
------- ------- ------ ------ ------ ------
Operating expenses:
Sales and marketing... 90.8 71.5 46.6 46.8 43.0 42.3
Research and
development.......... 39.9 25.6 17.2 15.7 17.2 15.9
General and
administrative....... 14.7 10.2 5.6 4.9 6.2 6.6
Nonrecurring charges.. 8.3 0.8 8.0 9.5 -- --
------- ------- ------ ------ ------ ------
Total operating
expenses............ 153.7 108.1 77.4 76.9 66.4 64.8
------- ------- ------ ------ ------ ------
Operating income
(loss).............. (112.8) (44.0) (3.0) (4.4) 1.9 4.6
Other income
(expense)............. (1.2) (2.0) (1.9) (1.8) (0.3) (0.7)
------- ------- ------ ------ ------ ------
Income (loss) before
taxes............... (114.0) (46.0) (4.9) (6.2) 1.6 3.9
Income taxes........... -- 0.5 -- 0.2 0.2 --
------- ------- ------ ------ ------ ------
Net income (loss).... (114.0)% (46.5)% (4.9)% (6.4)% 1.4% 3.9%
======= ======= ====== ====== ====== ======
</TABLE>
- ---------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the calculation of pro forma net income (loss) per share.
22
<PAGE>
The Company's license fee revenue is difficult to forecast because the
Company's sales cycle is relatively long and quarterly revenues depend on a
relatively few large contracts that are subject to changes in customer budgets
and general economic conditions. Because the Company's operating expenses are
based on anticipated revenue levels and a high percentage of the Company's
expenses are relatively fixed, the timing of revenues from a single contract
can cause significant fluctuations in operating results from quarter to
quarter and may materially adversely affect operating results. The Company
historically has operated with little backlog because its software products
are generally shipped as orders are received. As a result, license fee revenue
in any quarter depends substantially on orders booked and shipped in that
quarter. Further, relatively few contracts may constitute a significant
portion of the operating profits in any quarter. Historically, the Company has
often recognized a substantial portion of its revenues in the last month of
the quarter, with these revenues frequently concentrated in the last week of
the quarter. In addition, changes in levels of consulting activity and
seasonality in training revenues, which tend to lag license fee revenue by
approximately one quarter, have resulted in variability of services revenues
from quarter to quarter.
The Company has generally realized lower license fee revenue in the first
quarter of the year than in the immediately preceding quarter. The Company
believes that this has been primarily due to the structure of the Company's
sales commission program and the concentration by some customers of larger
capital purchases in the fourth quarter of the calendar year, followed by
lower purchasing activity during the first quarter of the next calendar year.
To the extent that international operations in the future constitute a higher
percentage of total revenues, the Company anticipates that it may also
experience relatively weaker demand in the quarter ending September 30 as a
result of reduced customer activity in Europe during the summer months. As a
result of these factors, revenues for any quarter are subject to significant
variation, and the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. Furthermore, due to all of the
foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected. See "Risk Factors--Uncertainty of Future
Operating Results; Fluctuations in Quarterly Operating Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through the private
sale of equity securities totaling $27.0 million, borrowings from its
principal stockholders and bank indebtedness. The Company's cash balance as of
June 30, 1996 was $2.3 million. Net cash used in operating activities was
$14,000, $1.8 million and $4.3 million for the first half of 1996, 1995 and
1994, respectively. Under the Company's secured bank line of credit, as of
June 30, 1996 up to $4.0 million was available for working capital advances,
based upon the level of eligible accounts receivable. The Company has not
needed to borrow against this facility during the six months ended June 30,
1996. The Company intends to finance its operations through the initial public
offering date with its available cash and borrowings on its bank line of
credit, if needed. In June 1995, the Company borrowed $2.0 million from
certain of its existing Preferred Stock investors. These borrowings were
subordinated to its bank line of credit. This loan was converted to equity in
March 1996. See Notes 4 and 7 of Notes to Consolidated Financial Statements.
The Company's cash used for investing activities has consisted primarily of
capital equipment purchases. The Company's total capital expenditures,
including those under capital leases, totaled $438,000 for the first half of
1996. The Company forecasts additional capital expenditures of approximately
$600,000 during the remainder of 1996. The Company currently has an active
lease line, open to provide an additional $700,000 of lease capacity at 8%
interest and payable over 36 months, which expires on December 31, 1996.
The Company had a working capital deficit of $6.7 million at June 30, 1996
and $10.6 million at December 31, 1995. Excluding deferred revenues of $8.7
million at June 30, 1996 and $10.6 million at
23
<PAGE>
December 31, 1995, the Company had positive working capital of $2.0 million at
June 30, 1996 and $40,000 at December 31, 1995.
The Company believes that the net proceeds from this offering together with
cash generated by operations and availability under its bank credit facility,
will be sufficient to fund the Company's operations for at least one year
following the completion of this offering. Thereafter, the Company may require
additional funds to support its working capital requirements or for other
purposes and may seek to raise such additional funds through public or private
equity financing or from other sources. There can be no assurance that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to the Company and will not be dilutive
to the Company's then current stockholders.
24
<PAGE>
BUSINESS
ViewStar Corporation provides client/server document workflow software that
enables customers to automate and improve document-intensive business
processes across the enterprise. The ViewStar Enterprise Document Workflow
System (the "ViewStar System") allows customers to easily define and change
work content, work flows, business rules and user roles, facilitating the
rapid design, development and deployment of business process applications. The
Company's products are used in a wide variety of applications including
consumer and mortgage lending, claims processing, underwriting, trust
management, contract management, accounts payable and customer service.
INDUSTRY BACKGROUND
In today's highly competitive marketplace, companies must continuously
improve their core business processes and operations, many of which involve
managing and processing vast amounts of information. The increasing volume,
variety and complexity of this information poses a significant challenge to
organizations for which the efficient and timely processing of information is
critical. As a result, companies seek to implement business process automation
solutions to shorten document-intensive processing cycles, increase
productivity, deliver superior customer service and gain competitive
advantage. The rapid adoption of Windows NT and other enabling technologies is
providing these companies with the infrastructure to implement enterprise-wide
software solutions more rapidly and effectively to address these needs.
Business Process Reengineering.
In the early 1990s, in an effort to improve their overall competitiveness,
many companies initiated business process reengineering ("BPR") efforts to
reinvent their corporate strategies. However, because the successful
implementation of these new high-level strategies often required the redesign
of business-critical operational processes, companies broadened their BPR
focus to include process automation. Examples of such processes include claims
processing and underwriting operations in the insurance industry and consumer
and mortgage loan processing in the financial services industry. As these BPR
efforts continue to gain momentum, companies worldwide increasingly seek
innovative software solutions to automate and improve these reengineered
business-critical processes.
Need to Integrate and Manage Structured and Unstructured Data.
The proliferation of relational database management systems and the growth
of client/server computing has fueled deployment of applications that process
and manage structured data. Structured data, such as financial or inventory
data, is typically stored in the rows and columns of databases. However, these
applications and their underlying technologies are not designed to manage the
increasing complexity and variety of the information content and transaction
requirements inherent in most business processes. According to some industry
reports, up to 80% of corporate data is unstructured data, consisting of
imaged documents, faxes, electronic documents, forms, mainframe generated
reports, digitized voice messages, EDI records and Web documents. For example,
loan officers processing loan applications need access to a variety of
structured data such as customer and product information and unstructured data
including images of applications, credit reports, credit analysis spreadsheets
and other documents. As such, the ability to access, manage and process all
relevant information content, including the seamless integration of structured
and unstructured data, has emerged as a key requirement for business process
automation solutions.
Evolution of Workflow and Document Management Software.
Initial efforts to automate document-intensive processes began with
electronic imaging technologies in the late 1980s. These early image-
processing products provided on-line equivalents to paper-based storage and
management of business information. These systems focused primarily on storage
and retrieval applications and were generally only available on dedicated,
expensive and proprietary platforms.
25
<PAGE>
Workflow technology emerged first with the development of rigid and highly
customized workflow software that addressed transaction-based applications
focused on automated routing of document images and related information.
Although this functionality demonstrated significant benefits both in improved
operations efficiency and cost reductions, implementations were costly,
limited in scope and difficult to change. At the same time, document
management emerged as a means for managing electronic documents and certain
other types of unstructured business information. While these solutions
provide significant benefits by allowing enterprise access to documents,
document management systems do not generally address the fundamental need to
automate and improve business processes. These limitations have resulted in
growing market demand for solutions which combine sophisticated workflow
functionality with the ability to seamlessly manage both structured and
unstructured business information, moving beyond basic document management and
simple workflow to deliver an integrated application framework to automate and
improve document-intensive business processes throughout the enterprise.
Market Requirements for Rapid Delivery of Enterprise Applications.
Business process automation software must address a number of critical
requirements to successfully automate business processes in today's computing
environments. In contrast to many enterprise applications that entail lengthy
and costly deployment cycles, successful new enterprise applications must
incorporate technologies that facilitate rapid development and deployment.
Furthermore, once an application is implemented, companies must be able to
quickly and easily alter the application to keep pace with changing business
requirements. Companies seek to implement business process automation
solutions that can leverage and extend the value of their legacy applications
and be cost-effectively deployed across the entire enterprise. Microsoft's
enterprise computing architecture, specifically Windows NT as the preferred
application server platform and OLE for application integration and delivery,
provide an integrated framework to leverage the existing corporate
infrastructure and deliver a new class of business process automation software
solutions.
New Opportunities Created by the Internet and World Wide Web Technologies.
With the adoption of the Internet and intranets, companies have recognized
the opportunity to effectively provide their employees, business partners and
customers with access to business information. By combinng workflow and
document management with Internet and intranet technologies, companies will be
able to significantly broaden access to automated business processes within
their enterprise. In addition, companies will be able to extend the reach and
value of business process automation to include document-based business
transactions with their partners and customers beyond the enterprise. As a
result, businesses seek next generation business process automation solutions
that include Internet and intranet capabilities.
THE VIEWSTAR SOLUTION
ViewStar provides client/server document workflow software that enables
customers to automate and improve document-intensive business processes across
their enterprise. The ViewStar Enterprise Document Workflow System (the
"ViewStar System") is a client/server application framework software built
around Windows NT utilizing Microsoft's enterprise computing architecture.
Customers can use ViewStar's object-oriented, application framework to rapidly
develop and deploy business-critical, process-intensive applications that
integrate structured and unstructured information.
The Company's products deliver the following benefits to its customers:
Increased Productivity. The ViewStar System allows customers to automate
document-intensive business processes to achieve shortened cycle times,
increased productivity, improved customer service and enhanced adaptability to
business change. The ViewStar System automates the delivery and flow of work-
related information, thereby reducing the time spent by users to locate,
access, gather and share information needed to complete their work. The
Company's software reduces or eliminates bottlenecks and identifies areas for
improvement by monitoring, tracking and reporting on the flow of work. By
capturing the information, business rules and workflow logic, the ViewStar
System enables companies to establish a "process memory"
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<PAGE>
and facilitates continuous modifications and improvements. The Company's
software permits coordination of and reliable access to relevant enterprise-
wide information, thereby ensuring the completeness and integrity of data used
by individuals, teams and geographically distributed organizations in the
performance of their work.
Rapid Application Development and Deployment. The ViewStar System
facilitates rapid development and deployment of customized business process
automation solutions. Utilizing Process Architect, ViewStar's visual business
process modeler, customers can interactively define the work content, workflow
tasks and processes, business rules, user roles and job functions. The product
includes an extensive library of re-usable tasks which can be easily
configured and included in the workflow process. Using Process Architect,
customers can also interactively monitor the process and adapt to changing
business needs. To further reduce implementation cycles, the Company intends
to offer, before the end of 1996, pre-built application templates
incorporating application-specific process models, information and business
rules for certain targeted industries.
Focus on Windows NT and Other Microsoft Technologies. The ViewStar System
extensively leverages Microsoft's enterprise computing architecture, including
the Windows NT platform, the Windows NT Server, the Microsoft SQL Server
database and related Back Office software. The ViewStar System supports Oracle
and Sybase databases on both the Windows NT Server, and on the leading UNIX
platforms. The Company believes that this approach allows organizations to
fully utilize their existing client/server infrastructure, thereby enabling
customers to cost effectively acquire and implement the ViewStar System while
preserving their investments in their existing computing resources, expertise
and trained personnel.
Enterprise-Wide Scalability. The ViewStar System is designed for enterprise-
wide scalability allowing organizations to deploy applications ranging from
small departmental applications to large complex systems distributed over
multiple locations. The Company's products are designed to scale to the entire
enterprise with the ability to support multiple clusters and thousands of
users worldwide.
Internet Leverage. The first of ViewStar's @Work family of Internet products
are expected to be available before the end of 1996. These products are
expected to include features that enable distributed organizations and remote
users such as vendors, customers, agents and partners to originate work and
track work-in-progress using Web browsers. In addition, the ViewStar System
enables users to utilize the Internet to move work between ViewStar Systems
either across departments via an intranet or between enterprises via the
Internet. Together, these products enable broad, secure user-participation in
automated business processes and facilitate document-based business
transactions within and between enterprises.
CUSTOMER CASE STUDIES
The following examples illustrate the ways in which organizations have used
the Company's products to automate and improve their document-intensive
business processes. The Company has not independently verified the information
in these case studies.
PPP Healthcare. PPP Healthcare is the second largest private healthcare
company in the United Kingdom and has more than 2.2 million customers. To
support the extension of its customer service, PPP Healthcare licensed a
ViewStar System to meet certain of its business process automation needs.
There are currently approximately 750 users of the ViewStar System. Today,
with quick access to customer documents through the ViewStar System, customer
response times have been reduced to between five and ten seconds from an
average of four hours. The claims department is now able to manage the same
workload with 110 fewer employees, allowing displaced staff to be reassigned
to assist other departments.
The Halifax Building Society. The Halifax Building Society is Britain's
largest mutual bank with more than 10 million customers. Halifax recently
implemented an 800-seat ViewStar System to support its call center
application. ViewStar was selected because of its unique ability to design,
develop and deploy workflow software faster than any other vendor. Today,
there are seven major automated processes that serve the postal and telephone
administration of millions of loans and commercial accounts at the Halifax.
The Call Centre system has reduced the expense and significantly enhanced the
quality of customer service.
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<PAGE>
Zurich-American. With assets of more than $5.0 billion, Zurich-American is
one of the top ten property casualty insurers in the United States. Zurich-
American purchased a 1,000-seat site license for the ViewStar System, which it
plans to implement to automate its claims processing application across 21
sites. ViewStar was selected after Zurich-American conducted an intensive two-
year reengineering study and assessment of competing technologies to determine
how best to employ technology across the enterprise. Zurich-American has
integrated ViewStar with its PC-based automation tools and mainframe
infrastructure to create a leading-edge system that it believes will represent
a key component of the Zurich-American reengineering program.
THE VIEWSTAR STRATEGY
The Company's objective is to be the leading worldwide supplier of
enterprise document workflow software solutions. To achieve this objective the
Company's strategy includes the following key elements:
Extend Technology Leadership. The Company intends to continue to extend its
current position as a technology leader in developing and marketing enterprise
document workflow software solutions. The Company expects to enhance its core
workflow product functionality and expand its application framework to enable
increasingly rapid application design, development and deployment. The Company
intends to further leverage the Microsoft Windows NT platform to facilitate
enterprise-wide system administration and management, enhance system
throughput and performance and enable integration with leading-edge component
technologies for document, data and voice capture and processing. In addition,
the Company plans to extend its existing support of key information delivery
platforms including Microsoft Exchange, Lotus Notes and the Internet.
Leverage Service Partnerships and Expand Worldwide Distribution
Channels. The Company seeks to promote broad adoption of ViewStar document
workflow technology by establishing strategic relationships with leading
system integrators, service and solution providers and distributors. In
addition to direct channels, the Company sells through indirect channels
consisting primarily of system integrators and distributors, including
Andersen Consulting, EDS and Doxsys, Inc., a subsidiary of Federal Data
Corporation, which act as prime contractors and resell and deliver ViewStar
software and related implementation and integration services. In addition,
through its service relationships with companies including Computer Services
Corporation and Price Waterhouse, the Company provides its customers with
ViewStar related professional services including configuration, installation,
project management and training. These relationships allow the Company to
focus on its core areas of expertise of developing and marketing document
workflow software while leveraging the strength and influence of complementary
information technology leaders in their respective markets.
Focus on Enterprise Deployments. The ViewStar System has been designed to
scale from departmental applications to enterprise-wide deployments involving
multiple sites and thousands of users. The Company believes that successful
initial implementation and customer experience are essential factors in the
customer's decision to deploy ViewStar's products throughout the enterprise.
The Company is focused on ensuring this early success through rapid
applications design and development facilitated through targeted consulting
and training programs provided by both the Company and its national and global
service partners. The Company's strategy of focusing on Microsoft's Windows NT
and its ability to leverage industry standard client-server technology
infrastructures, further enables enterprise-wide deployment by allowing
customers to leverage their in-house expertise and resources to develop,
deploy and manage document workflow solutions across their enterprise. The
Company believes that expanding its customers' initial application usage to
enterprise-wide deployments represents a significant growth opportunity.
Leverage the Internet. The Company believes that the increasing use of
intranets, the Internet and the World Wide Web present a significant
opportunity to extend the reach and value of its document workflow software
solutions. The Company intends to continue to enhance its product architecture
to encompass Internet technologies, as well as to add functionality to
specifically take advantage of the Internet
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<PAGE>
infrastructure and Web-based application platforms. With the introduction of
the Company's @Work Internet products the first of which are expected to be
generally available before the end of 1996, the Company intends to enable its
customers to initiate and track workflows and work-in-progress, provide self-
service functions to customers and undertake document-intensive transactions
with business partners.
Expand Presence in Targeted Markets. The Company intends to focus its
marketing programs and internal resources to further penetrate the financial
services and insurance industries, where document-intensive business processes
are vital to operational and business-critical functions. The Company intends
to pursue this strategy by leveraging its installed customer base and
applications expertise to develop and market a family of pre-configured,
vertical applications for specific use in these industries. In addition, the
Company intends to utilize its service and distribution relationships to expand
its presence in other industries, including energy, transportation,
communications and government.
Expand Relationships with Technology Providers. The Company intends to
accelerate the development, introduction and market acceptance of its products
through selected strategic technology and marketing relationships.
Specifically, the Company has worked closely with Microsoft's development and
marketing organizations on Windows NT, MAPI Workflow Framework, and Exchange
and Back Office. The Company has an established marketing alliance with Compaq
and was designated as a Compaq Enterprise Solution Partner in 1992. The Company
supports key relational database platforms and has active marketing
relationships with Oracle and Sybase. In addition, a number of companies,
including Cornerstone Imaging, Kofax Imaging Systems and Symantec's Delrina
Group provide complementary add-on product components for the ViewStar System.
The Company conducts a variety of joint marketing and sales activities with
these vendors, as well as other complementary hardware manufacturers and
distributors such as Fujitsu, Bell & Howell and Law Cypress.
PRODUCTS AND TECHNOLOGY
The ViewStar System is an enterprise-class, client-server application
framework that is built around Windows NT and utilizes Microsoft's enterprise
computing architecture. The ViewStar System is designed to automate and improve
document-intensive business processes requiring integration of structured and
unstructured data including imaged documents, faxes, electronic documents,
forms, mainframe generated reports, digitized voice messages, EDI records and
Web documents. The ViewStar System enables customers to quickly and easily
define the information and work content, work flows, business rules, and user
roles and job functions. The Company's @Work product extensions for the
Internet and its AppReady pre-configured application templates, the first of
which are expected to be generally available before the end of 1996, are add-on
software products which complement and extend the ViewStar family of products.
PRODUCTS
The ViewStar System is a family of integrated software modules that together
provide a complete framework for designing, developing and deploying enterprise
document workflow application solutions.
[FIGURE 1--Diagram depicting various components of the Company application
framework including Workflow Design, Modeling and Simulation, Application
Design and Development and Application Services.]
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<PAGE>
Process Architect is ViewStar's visual workflow and process modeling
application framework, enabling interactive definition, configuration and
deployment of complex workflow processes. Using Process Architect, business
analysts and application designers can define the work content, business
rules, workflow maps, and user roles and activities. Process Architect
provides a library of pre-defined business functions and re-usable tasks which
can be easily configured to create a workflow map representing the business
process. Through Process Architect's animated simulation feature, "what if"
analyses of the throughput can be undertaken and bottlenecks predicted.
Process Architect can also be used to dynamically change the business process
and automatically rebuild the workflow application.
Application Designer facilitates rapid application delivery by providing
pre-defined application frameworks that can be "snapped together" to meet
specific user, application and job function requirements. Components such as
workflow tasks, user activities and document operations are stored in object
libraries and made available for selection and reuse through a standard
Windows-based graphical interface. In addition, Application Designer provides
pre-configured application templates for most-requested users roles and job
functions such as document access and display, workpacket creation and
indexing, document workflow processing, exception case handling and legacy
system integration.
Business Process Interface ("BPI") is a set of OLE automation interfaces
that enables the creation of workflow tasks and user applications using any
OLE 2.0-compliant visual programming environment. BPI consists of high-level
automation objects and a set of OLE custom controls. Any third party
development tool that supports OLE 2.0, such as Visual Basic, Visual C++,
Delphi and PowerBuilder, can be used with BPI. In addition, the system's OLE-
based component architecture enables easy integration with third party
components including document and data capture sub-systems, 3270 emulation
packages for accessing mainframe data and productivity applications such as
Microsoft Word or Excel.
Application Services deliver core ViewStar system functionality for workflow
transaction processing, integrated document and information management, and
enterprise information exchange across the enterprise. ViewStar Application
Services can be consolidated on a single server or distributed across multiple
servers to deliver unmatched scalability in performance, throughput and
storage capacity.
Workflow services execute workflow transactions, procedures and tasks
including those actively generated in a workflow and those that are
scheduled to run periodically at pre-determined times or at specific
events. These services also handle custom task processing, work tracking
and monitoring, scheduled tasks and document and data import and export.
Document services provide system-wide access to ViewStar's document
workflow information repository which manages the structured data and
documents associated with ViewStar work objects. This includes document
references and attributes, work-in-progress and historical tracking
information, location and status of all workpackets in the system. All
objects and unstructured data associated with documents, folders and
workpackets, including images, electronic documents, and voice objects, are
referenced and stored in standard network file servers. In addition,
ViewStar's Storage Services provide access to high-capacity devices such as
optical disk and juke box libraries.
Enterprise Information Exchange services enable wide-area, multi-site
workflow processing and distribution utilizing either Microsoft's MAPI
messaging and replication services or the Internet. The ViewStar Enterprise
services utilize relational database engines for centralized resource
management and allow companies to distribute work geographically for local
processing, without sacrificing the tracking, monitoring and coordination
provided by the workflow management application.
ViewStar also provides generalized document and data import and export
functionality, including modules for integration with document capture
components such as scanners and OCR, as well as fax and electronic forms
integration and output. In addition, ViewStar's Task Architecture enables the
creation of customized import/export tasks for integration with other systems
such as telephony systems and document management systems.
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<PAGE>
SYSTEM ARCHITECTURE AND TECHNOLOGY
The ViewStar System features a three-tier, distributed client-server
architecture designed to deliver the essential criteria for enterprise
business process automation including flexibility, scalability and
extensibility enabled through key technology foundations.
Scalable Enterprise Architecture. The ViewStar System architecture provides
the ability to configure and dynamically distribute system data and resources
across multiple sites in a wide area network. Enterprise workflows can be
structured from independently evolving, autonomous subsystems via the use of
MAPI store-and-forward messaging, facilitating the building of enterprise
systems that are less monolithic and more able to respond to changes in
business requirements and technology infrastructure evolutions.
OLE-Based Component Architecture. The ViewStar System utilizes a run-time
object environment that can be extended and customized to meet application
requirements. The system's OLE-based component architecture enables
integration with third party components including document and data capture
sub-systems, mainframe legacy data and client/server applications using
relational databases. ViewStar's component architecture is based on the
Business Process Interface, a set of OLE automation interfaces. The OLE-based
component architecture also enables the use of standard third party tools for
building workflow applications and tasks such as Visual Basic, Visual C++,
Delphi or PowerBuilder.
Distributed Infrastructure Support. The ViewStar System utilizes Windows NT-
based automation and application servers and leverages industry-standard
client/server infrastructure, including support of Windows NT or Novell based
file systems, TCP/IP or SPX/IPX networking protocols and Microsoft SQL Server,
Oracle (Windows NT and UNIX) or Sybase (Windows NT or UNIX) databases. The
ViewStar System currently supports a complete 32-bit client for Microsoft
Windows, Windows 95 and Windows NT.
[FIGURE 2--Diagram depicting a typical implementation of the Company's
software in a customer's computing environment.]
Support for Industry Standards. To meet enterprise requirements, ViewStar is
committed to interoperability and support of key industry standards in the
areas of document formats and representations, workflow processing and
document management among others. ViewStar is a founding member of the
Document Management Alliance and an active funding member of the Workflow
Management Coalition, both of which are leading efforts to define standards
for interoperability and information exchange in this area.
FUTURE PRODUCTS
The Company intends to make a number of new products generally available
before the end of 1996. The new products will include the first of the @Work
product extensions for the Internet and the first of the AppReady family, a
series of pre-configured application templates for targeted industries.
The initial @Work product offerings include Process@Work and InfoStore@Work.
Process@Work leverages the Internet and intranet infrastructure to allow
workflow initiation and status tracking from a Web browser. Utilizing the
Process Architect and the Process@Work server, workflow import and tracking
functions can be added to a workflow map. Once configured, Process Architect
automatically generates the Web page that allows users to initiate workflows,
submit work and information and track the status of their work in progress.
ViewStar's InfoStore@Work enables integrated access to the information stored
in ViewStar System repositories across and beyond the enterprise.
ViewStar intends to deliver RetirementReady and PayablesReady, the first of
a series of AppReady products, before the end of 1996. ViewStar's
RetirementReady is a pre-configured application based on ViewStar's document
workflow software designed to meet the needs of the market for retirement
benefits processing. Retirement Ready handles documents that relate to
retirement servicing including beneficiary, allocation and address changes.
PayablesReady includes a set of processes common to accounts payable
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<PAGE>
applications and allows customization of these processes to the customer's
policies and requirements, leveraging ViewStar's experience in implementing
accounts payable systems. Built-in functionality of document capture, vendor
setup, host integration, indexing, processing, auditing, customer service and
archival storage are provided with the product.
PROFESSIONAL AND SUPPORT SERVICES
ViewStar's professional services and support organizations work in close
cooperation with service partners and independent, authorized affiliate
consultants to provide a wide range of consulting, educational and on-going
support services to ViewStar customers, enabling rapid and successful delivery
of ViewStar document workflow applications.
VIEWSTAR SERVICES & SUPPORT PROGRAMS
<TABLE>
<CAPTION>
CONSULTING SERVICES SUPPORT SERVICES EDUCATION SERVICES
------------------- ---------------- ------------------
<S> <C> <C>
Application Planning 24 Hour Hotline Services Process Automation Concepts
Workflow Design and
Review Remote Diagnostic Services Workflow Application Design
System Operational
Review Bulletin Board System Application Development
Technical Account
Management Web-Accessible Knowledge Base System Administration
Implementation Services Internet Case Logging Advanced Development
Migration & Upgrade
Service On-Site Assistance Enterprise Systems
</TABLE>
ViewStar's consulting group offers a core set of services and packaged
offerings designed to accelerate the development and deployment of ViewStar
document workflow applications across the enterprise. The Company also
utilizes its network of service providers and system integration partners to
provide its customers with a broad range of application development, systems
planning and configuration and system integration services.
The ViewStar support organization offers a broad range of services and
programs, including hotline technical support, remote dial-in services, Web-
accessible knowledge base and customer on-site assistance to support the
Company's installed customer base and ensure timely resolution of customer and
partner reported problems. The Company currently has support centers in its
headquarters in Alameda, California and in the U.K.
ViewStar Education Services offers a core curriculum of classroom and on-
site training courses focused on development and delivery of ViewStar document
workflow system for end-users, developers and system administrators. Training
courses are available at the Company's training centers in Alameda and in the
Company's international support center in the U.K.
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<PAGE>
CUSTOMERS
The Company has directly or indirectly licensed its products to more than
300 end user customer sites worldwide in a broad range of industries,
including banking, insurance, financial services, energy, telecommunications,
manufacturing and healthcare, as well as government agencies.
VIEWSTAR CUSTOMERS
<TABLE>
<CAPTION>
BANKING &
FINANCE INSURANCE & HEALTHCARE ENERGY & UTILITIES
--------- ---------------------- ------------------
<S> <C> <C>
American Express Bankers Insurance Group Central & Southwest Services
ARM Financial
Group Blue Cross/Blue Shield debitel Kommunikation
Colonial Savings CGA Enron
Directors
Mortgage Chicago Title Florida Power
Fleet Bank Commonwealth Title MCI Telecom
GE Capital CSAA Meridian Oil
Georgia Farm
Bureau Equitable Life Niagra Mohawk
Guaranty Federal
Bank General Reinsurance Pacific Telesis
Halifax Building
Society Guardian Life PSE&G
J.P. Morgan ICMA Retirement Texaco
Lehman Brothers Illinois Municipal Westinghouse
NatWest Bank ITT Hartford MANUFACTURING & CONSUMER
------------------------
Norwest Bank John Alden 3M Corporation
PNC Bank Ohio Worker's Comp. Amway
Peoples Bank Private Patients Plan Buick
SE Banken Providian Frito-Lay
Texas Commerce
Bank Raymond James General Motors
Wellcome Trust Zurich American Kraft General Foods
GOVERNMENT & EDUCATION Nissan Motor
----------------------
City of Detroit Texas Intruments
U.S. Patent & Trademark Office
U.S. State Department
U.S. Veterans Administration
Univ. of Central Florida
</TABLE>
SALES AND MARKETING
The Company sells directly through its field sales force and indirectly
through system integrators and distributors to medium and large-size
organizations worldwide. The Company's strategy is to leverage a targeted set
of industry and geographic distribution and service relationships
internationally to expand its multiple distribution channels to reach the
broadest customer base in its targeted markets. Currently, the Company markets
and sells its document workflow software and solutions through the direct
channel and an indirect channel primarily consisting of system integrators and
distributors. The Company has ten sales offices in the United States and two
in Europe, twenty distribution and system integration agreements in the United
States, Europe and Asia/Pacific, as well as relationships with several other
system integrators and service providers. The Company's sales and marketing
organization consisted of 46 employees as of June 30, 1996.
The Company targets large, global customers in key vertical markets. A
significant portion of the Company's direct sales force is focused primarily
on identifying and generating business through such customers. In these
efforts, the direct sales force frequently utilizes the resources of the
Company's system integrators, as well as a network of third-party application
developers, to develop and deploy ViewStar System solutions.
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<PAGE>
The sales cycle for the Company's products varies depending on the
application, deployment requirements and the customer, but typically ranges
from six to twelve months.
The Company's worldwide network of integrators and distributors sells,
customizes, deploys and supports its products and solutions across a wide
range of industries. For significant sales in targeted industries, the Company
supplements the efforts of its integrators with a team-based approach which
includes the Company's sales and technical personnel. A portion of the
Company's direct sales force is responsible for local partner support, joint
sales efforts, management and development of new regional and global
integrators and distributors. The Company intends to further expand its
indirect channel by recruiting industry and application-specific solution
partners and value-added application developers. In this effort, the Company
will market and sell its AppReady family of industry-specific products, two of
which are expected to be available before the end of 1996.
The Company believes that by leveraging its partners' skills and expertise,
it will be better equipped to respond to customer requirements and to provide
enterprise-wide solutions. The Company has formal agreements with the
following system integration and distribution partners:
SYSTEM INTEGRATION AND DISTRIBUTION PARTNERS
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL
------ -------------
<S> <C>
Andersen
Consulting Al Bawardi (Middle East)
EDS Avancer (Finland)
Concerto (Spain, Portugal)
REGIONAL debis Systemhaus (Germany)
--------
Doc Eye (Scandinavia)
Alphanumeric Edge Management (U.K.)
DRT EKAR (Italy)
Doxsys Opta (U.K.)
Genisys Kinesis (U.K.)
Gulf Computers Nissho Electronics (Japan)
Tandem Sunghwan (Korea)
WM-Data (Sweden)
</TABLE>
In addition, the Company has worked cooperatively with service providers
including CSC, Deloitte & Touche, Ernst & Young, IPL and Price Waterhouse.
To support its sales force and its partners, the Company conducts
comprehensive marketing programs, which include public relations, direct mail,
seminars, trade shows, telemarketing, education and user group conferences,
speaking engagements, white papers, as well as Web-marketing with both an
intranet Web site for the sales force and partners and a public Internet Web
site. The Company also undertakes joint marketing efforts for the ViewStar
System with industry leaders such as Compaq, Microsoft, Oracle and Sybase to
stimulate and educate the market, as well as to identify and generate customer
leads in target markets. In addition, the Company has entered into and is
expanding corporate and marketing relationships with other technology partners
whose products and component technologies leverage or integrate with the
ViewStar System to offer comprehensive document workflow solutions. These
partners include Cornerstone Imaging, Fujitsu, Kofax Image Products and
Symantec Corporation's Delrina Group, among others.
The Company has committed and continues to commit significant time and
financial resources to expanding international sales and support channels and
marketing efforts. International license fee revenue accounted for 8%, 25% and
20% of the Company's license fee revenue in fiscal 1994 and 1995 and for the
six months ended June 30, 1996, respectively. The Company believes that in
order to increase sales opportunities and profitability, it will be required
to expand its international operations. There can be no assurance, however,
that the Company will be able to maintain or increase international market
demand for the
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<PAGE>
Company's products. To the extent that the Company is unable to do so in a
timely manner, the Company's international sales will be limited, and the
Company's business, operating results and financial condition would be
materially adversely affected. See "Risk Factors--International Sales" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RESEARCH AND DEVELOPMENT
The Company conducts its research and development activities at its
facilities in Alameda, California. As of June 30, 1996, the Company had 44
employees engaged in research and development. The Company's total research
and development spending was approximately $5.6 million for 1995 and $2.4
million for the six months ended June 30, 1996.
The Company has committed and expects to continue to commit substantial
resources to research and development. The Company's existing products were
designed after extensive work with potential customers to assess their needs.
The Company supplements its product development efforts by reviewing customer
feedback on existing products and working with customers and potential
customers to anticipate future functionality requirements. Product development
efforts are directed at increasing product functionality, improving product
performance, expanding product capabilities to shorten the application
development and deployment cycle and further leverage the Microsoft Windows NT
platform. The Company continues to identify and prioritize various
technologies for potential future product offerings.
COMPETITION
The market for the Company's products is intensely competitive and subject
to rapid change caused by new product introductions and other market
activities of industry participants. The Company's products are targeted for
document workflow software solutions, and the Company's competitors offer a
variety of products and services to address this market. The Company currently
encounters direct competition from a number of public and private companies or
divisions thereof including FileNet, IBM and Wang Software. In addition, the
Company may face competition from new competitors including client/server
application vendors such as Oracle, PeopleSoft and SAP; document management
vendors such as Documentum and PC DOCS Group; and vendors of workflow products
such as Action Technologies and Staffware. Certain of these companies have
announced, and others may announce, document workflow capabilities for their
existing or future products. Many of these companies have longer operating
histories; significantly greater financial, marketing, service, support,
technical and other resources and name recognition; and a larger installed
customer base than the Company. As a result, such competitors 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.
The Company also faces indirect competition from system integrators. The
Company relies on a number of system integration firms for implementation and
other services, as well as recommendations of its products during the
evaluation stage of the purchasing process. Although the Company seeks to
maintain close relationships with these service providers, many of these third
parties have similar, and often more established, relationships with the
Company's principal competitors. If the Company is unable to develop and
retain effective, long-term relationships with these third parties, the
Company's competitive position would be materially adversely affected.
Further, there can be no assurance that these third parties, many of which
have significantly greater financial, marketing, service, support, technical
and other resources than the Company, will not market software products in
competition with the Company in the future or otherwise reduce or discontinue
their relationships with or support of the Company and its products. See "Risk
Factors--System Integrators and Distribution Partners."
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<PAGE>
It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. In addition, the Company
expects competition to increase as a result of software industry
consolidation. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which may could materially
adversely affect the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, results of operations and financial condition.
The Company believes that the principal competitive factors affecting its
market include product features such as adaptability, scalability, ability to
integrate with third party products, functionality, ease of use, product
reputation, quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts and company reputation. 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 than the Company.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success depends in part upon protecting its proprietary
technology. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. The Company presently has no patents or patent
applications pending. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and since 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 as great an extent as do the laws of the
United States. 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 technology. Although the
Company has received communications asserting that its products infringe the
proprietary rights of third parties or seeking indemnification against such
infringement, the Company is not aware that any of its products infringe the
proprietary rights of third parties. There can be no assurance, however, that
other third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that software product
developers will be increasingly subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming, result in costly
litigation, 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. In addition, the Company also relies on
certain software that it licenses from third parties, including software that
is integrated with internally developed software and used in the Company's
products to perform key functions. There can be no assurance that such firms
will remain in business, that they will continue to support their products or
that their products will otherwise continue to be available to the Company on
commercially reasonable terms. The loss or inability to maintain any of these
software licenses could result in delays or reductions in product shipments
until equivalent software can be developed, identified, licensed and
integrated, which would materially adversely affect the Company's business,
results of operations and financial condition. See "Risk Factors--Dependence
on Proprietary Rights; Uncertainty of Obtaining Licenses."
EMPLOYEES
As of June 30, 1996, the Company had 147 full-time employees, including 46
in sales and marketing, 40 in consulting and customer support, 44 in research
and development and 17 in finance and administration. No employees are covered
by collective bargaining agreements and the Company believes that it maintains
36
<PAGE>
good relations with its employees. Competition for qualified personnel in the
industry in which the Company competes is intense. The Company believes that
its future success will depend in part upon its continued ability to attract,
hire and retain qualified personnel.
PROPERTY AND FACILITIES
The Company's administrative offices and manufacturing and warehousing
facility occupy approximately 55,000 square feet in Alameda, California,
pursuant to a lease which expires in May 1999. The Company also leases office
space in Boston, Charlotte, Chicago, Cleveland, Costa Mesa, Dallas, Houston,
New York and Vienna and in Bracknell, U.K. and Paris, France. Management
believes that its current facilities will be adequate to meet its needs
through at least the next twelve months.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kamran Kheirolomoom
(1).................... 41 President, Chief Executive Officer and Chairman of the Board
Robert I. Pender, Jr.... 38 Vice President of Finance and Chief Financial Officer
Gayle A. Crowell........ 45 Senior Vice President and General Manager, Worldwide Operations
Shirish S. Hardikar..... 41 Vice President of Marketing
J.E. Ardell, III (1)
(2).................... 56 Director
Grant Inman (2)......... 54 Director
F. Gibson Myers, Jr.
(1).................... 54 Director
Hon Wong................ 38 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Kheirolomoom is a founder of the Company and served as Chief Executive
Officer from February 1986 to May 1994. He served as Chairman of the Board
from May 1994 to July 1995, and he has served as President and Chief Executive
Officer since July 1995. He has served as a director of ViewStar since October
1986.
Mr. Pender joined ViewStar as Controller in April 1993. In August 1995, he
became Vice President of Finance and Chief Financial Officer. From January
1992 to April 1993, he served as Controller of Versant Object Technology
Corporation, an object-oriented database software development company. From
October 1989 to January 1992, he was International Finance Manager of Silvar-
Lisco Corporation (renamed Silicon Valley Research, Inc.), an engineering
software development company. Prior to that, Mr. Pender held various
positions, most recently as tax manager with Arthur Andersen & Co., an
accounting firm.
Ms. Crowell joined ViewStar as Senior Vice President and General Manager,
Worldwide Operations in July 1994. Prior to joining ViewStar, she was Vice
President of Worldwide Sales of Recognition International, a document
management company, from November 1991 to July 1994. From May 1989 to November
1991, she was Group Director of Channels of Oracle Corporation, a database
software company.
Mr. Hardikar joined ViewStar as Vice President of Marketing in March 1995.
Prior to joining ViewStar, he was a Vice President of Action Technologies,
Inc., a workflow automation company, from September 1993 to March 1995. From
January 1992 to September 1993, he was a Vice President and a director of
Renaissance Software, Inc., an object-oriented UNIX software development
company. He was a founder of Vistron, Inc., a network printing and imaging
systems manufacturer, and served as a Vice President from January 1990 to
December 1991.
Mr. Ardell joined ViewStar as a director in February 1996. Since January
1994, he has been a general partner of Technology Venture Partners, a venture
capital firm. From January 1990 to January 1994, he was a special limited
partner of Technology Venture Partners. Mr. Ardell is a director of Vectra
Technology, Inc., a nuclear engineering company.
Mr. Inman joined ViewStar as a director in March 1996. He has been a general
partner of Inman & Bowman, a venture capital firm, since June 1985. He is
currently a director of InSite Visions, Inc., Lam Research Corporation and
Paychex, Inc.
Mr. Myers has served as a director of ViewStar since May 1988. Mr. Myers
joined Mayfield Fund, a venture capital firm, in 1970 and has been a general
partner of several venture capital funds associated with Mayfield Fund since
that time. He is currently a director of Spectralink Corporation, a
manufacturer of wireless telephone systems.
38
<PAGE>
Mr. Wong has served as a director of ViewStar since October 1986. Mr. Wong
has been a partner of Wongfratris Co., a venture capital firm, since January
1990.
CLASSIFIED BOARD
The Company has authorized five directors and currently has five directors
on the Board. Effective upon the closing of this offering, the terms of office
of the members of the Board of Directors will be divided into three classes:
Class I, for which the term will expire at the annual meeting of stockholders
to be held in 1997; Class II, for which the term will expire at the annual
meeting of stockholders to be held in 1998; and Class III, for which the term
will expire at the annual meeting of stockholders to be held in 1999. The only
Class I director is Mr. Wong, the Class II directors are Mr. Ardell and Mr.
Inman and the Class III directors are Mr. Kheirolomoom and Mr. Myers. At each
annual meeting of stockholders, the successors to directors whose term will
then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. The
authorized number of directors may be changed only by the affirmative vote of
a majority of the outstanding shares, provided, however, that no amendment may
change the maximum number of authorized directors to more than two times the
minimum number of directors and provided further that the minimum number of
directors cannot be reduced to less than five if the votes cast against such
amendment represent 16 2/3% of the outstanding shares entitled to vote. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of one-third of the directors. This classification of
the Board of Directors may have the effect of delaying or preventing changes
in control or management of the Company.
DIRECTOR COMPENSATION
Directors of the Company currently receive no compensation for services
provided in that capacity but are reimbursed for out-of-pocket expenses they
incur in connection with their attendance at meetings of the Board of
Directors. Under the Company's 1994 Stock Plan, as amended, directors may be
granted nonstatutory stock options to purchase shares of the Company's Common
Stock. In January 1995, the Company granted an option to purchase 10,000
shares of Common Stock at an exercise price of $0.35 per share to Steven
Brooks, a former director of the Company. In May 1995, Mr. Brooks exercised
his option and purchased 3,500 shares, the vested amount as of the exercise
date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of Mr. Ardell, Mr.
Kheirolomoom and Mr. Myers. Mr. Kheirolomoom, President, Chief Executive
Officer and Chairman of the Board of Directors of the Company, participates in
discussions and decisions of the Compensation Committee excluding discussions
regarding his own salary and incentive compensation. See "Certain
Transactions" for a description of transactions between the Company and
entities affiliated with members of the Compensation Committee.
39
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the year ended December 31, 1995
compensation earned by (i) the Chief Executive Officer, (ii) the Company's
three other executive officers whose salary plus bonus exceeded $100,000 and
(iii) an executive officer whose employment terminated during the year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
1995 ANNUAL
COMPENSATION SECURITIES
----------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Kamran Kheirolomoom................ $171,000 $ 37,022 -- $51,000 (1)
President, Chief Executive Officer
and Chairman of the Board
Gayle A. Crowell................... 170,000 147,525 7,143 --
Senior Vice President and General
Manager, Worldwide Operations
Shirish S. Hardikar................ 130,625 74,750 28,571 --
Vice President of Marketing 14,286 --
Robert I. Pender, Jr............... 113,333 28,708 7,143 --
Vice President of Finance and 7,143 --
Chief Financial Officer
Mark W. Perry (2).................. 200,000 15,000 -- --
</TABLE>
- ---------------------
(1) Consists of a payment pursuant to an employment agreement dated July 26,
1995 and amended on July 2, 1996. See "Employment Agreements."
(2) Mr. Perry served as President and Chief Executive Officer from May 1994
through July 1995.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1995
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
NUMBER OF APPRECIATION
SECURITIES PERCENT OF FOR OPTION
UNDERLYING TOTAL OPTIONS EXERCISE TERM (3)
OPTIONS GRANTED IN PRICE EXPIRATION --------------
NAME GRANTED FISCAL 1995 (1) PER SHARE (2) DATE 5% 10%
- ---- ---------- --------------- ------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Kamran Kheirolomoom..... -- -- -- -- -- --
Gayle A. Crowell........ 7,143 (4) 2.0% $0.35 5/31/05 $1,572 $ 3,984
Shirish S. Hardikar..... 28,571 (5) 8.2 0.35 3/31/05 6,289 15,937
14,286 (4) 4.1 0.35 5/31/05 3,145 7,969
Robert I. Pender, Jr.... 7,143 (4) 2.0 0.35 5/31/05 1,572 3,984
7,143 (6) 2.0 0.35 7/26/05 1,572 3,984
Mark W. Perry........... -- -- -- -- -- --
</TABLE>
40
<PAGE>
- ---------------------
(1) Based on an aggregate of 348,907 options granted by the Company in the
year ended December 31, 1995 to employees of and consultants to the
Company, including the Named Executive Officers, under the Company's
incentive stock plans.
(2) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors. All of the options had an exercise price of $2.10 per share,
but were repriced in February 1996.
(3) The potential realizable value is calculated based on the term of the
option on the date of grant (ten years), assuming that the fair market
value of the Company's Common Stock on the date of grant appreciates at
the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its
term for the appreciated stock price.
(4) The options became exercisable as to 25% of the shares on September 30,
1995, and vests as to an additional 25% every six months thereafter, based
upon such person's continued relationship with the Company.
(5) The option became exercisable as to 12% of the shares on September 1,
1995, and vests as to an additional 2% each month thereafter, based upon
Mr. Hardikar's continued relationship with the Company.
(6) The option became exercisable as to 2% of the shares on July 1, 1995, and
vests as to an additional 2% each month thereafter, based upon Mr.
Pender's continued relationship with the Company.
AGGREGATE OPTION VALUES AT DECEMBER 31, 1995
The following table sets forth information with respect to the number and
value of securities underlying unexercised options held by the Named Executive
Officers at December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 (#) DECEMBER 31, 1995 (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kamran Kheirolomoom........ 62,286 23,429
Gayle A. Crowell........... 14,929 27,928
Shirish S. Hardikar........ 9,285 26,428
Robert I. Pender, Jr. ..... 7,643 16,643
Mark W. Perry.............. 60,000 111,429
</TABLE>
- ---------------------
(1) The per share value of the Common Stock at December 31, 1995 cannot be
readily ascertained. Accordingly, the value of unexercised in-the-money
options on that date is based on a value of $ per share, the assumed
initial public offering price, minus the per share exercise price,
multiplied by the number of shares underlying the option.
STOCK PLANS
1994 Stock Plan. The Company's 1994 Stock Plan was adopted by the Board of
Directors and approved by the stockholders in May 1994. In July 1996, the
Board amended the plan to increase the number of shares reserved for issuance
thereunder to 1,100,000. The purpose of the 1994 Stock Plan is to attract and
retain highly qualified personnel for positions of substantial responsibility,
to provide additional incentive to employees, officers, directors and
consultants of the Company and its subsidiaries and to promote the success of
the Company's business. Incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), may be
granted to employees under this Plan. Non-statutory stock options and stock
purchase rights may be granted to employees, officers, directors and
consultants. A total of 194,270 shares were subject to outstanding options at
a weighted average exercise price of $0.43 per share at June 30, 1996, and
874,029 shares were available for future grant at July 25, 1996.
The 1994 Stock Plan is administered by the Compensation Committee of the
Board of Directors, which has the authority to determine the terms of the
options and stock purchase rights granted. Terms include, but are not limited
to, the exercise price, the number of shares subject to an option and the
exercisability thereof. Each option has a term specified in its option
agreement, however, no term can exceed ten years from the date of grant. The
exercise price of all incentive stock options granted under the 1994 Stock
Plan must be no less than 100% of the fair market value per share on the date
of grant. In the case of non-statutory stock
41
<PAGE>
options, the per share exercise price may be no less than 85% of the fair
market value per share on the date of grant. The 1994 Stock Plan will expire
in May 2004 unless terminated at an earlier date by action of the Board of
Directors.
Amended 1986 Incentive Stock Plan. The Company's Amended 1986 Incentive
Stock Plan (the "1986 Plan") was adopted by the Board of Directors in May 1986
and approved by the stockholders in June 1987. The 1986 Plan expired in May
1996, and no further options have been or will be granted under the 1986 Plan.
A total of 662,749 shares were subject to outstanding options at a weighted
average exercise price of $0.35 per share at June 30, 1996. Options granted
under the 1986 Plan generally become exercisable at the rate of 12% of the
shares six months from the vesting commencement date and as to 2% of the
shares at the end of each month thereafter such that the option is fully
exercisable 50 months from the date of grant. However, the vesting schedule is
subject to modification by the Board of Directors. The maximum term for
options granted under the 1986 Plan is ten years.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Company's Board of Directors in July
1996. It is anticipated that the Purchase Plan will be approved by the
stockholders prior to the closing of this offering. The Purchase Plan is
intended to qualify under Section 423 of the Code. The Company has reserved
400,000 shares of Common Stock for issuance under the Purchase Plan. Under the
Purchase Plan, an eligible employee may purchase shares of Common Stock from
the Company through payroll deductions of up to 10% of his or her
compensation, at a price per share equal to 85% of the lower of (i) the fair
market value of the Company's Common Stock on the first day of an offering
period under the Purchase Plan or (ii) the fair market value of the Common
Stock on the last day of the offering period. Except for the first offering
period, each offering period will last for six months and will commence the
first day on which The Nasdaq Stock Market is open for trading on or after May
1 and November 1 of each year. The first offering period will begin upon the
effective date of this offering and will end on April 30, 1997. Any employee
who is customarily employed for at least 20 hours per week and more than five
months per calendar year who has been so employed for at least three
consecutive months on or before the commencement date of an offering period is
eligible to participate in the Purchase Plan.
MANAGEMENT INCENTIVE PLAN
Senior management personnel, including the four executive officers of the
Company, participate in the Company's Management Incentive Plan (the
"Management Plan"). The amount of bonus received by a participant under the
Management Plan is calculated based on a percentage of the participant's base
salary. This percentage is set for each participant at the beginning of the
calendar year. Payment of the bonus is based on the revenues and operating
profits of the Company.
EMPLOYMENT AGREEMENTS
Under the terms of the Employment Agreement between Kamran Kheirolomoom and
the Company dated July 26, 1995 and amended on July 2, 1996 (the "Kheirolomoom
Agreement"), the Company has agreed to provide Mr. Kheirolomoom with an annual
salary and bonus, medical insurance and vacation time, together with the
following: (i) a loan in the principal amount of $153,000, bearing interest at
the minimum rate to avoid the imputation of interest, due and payable in three
equal installments on each of January 15, 1997, 1998 and 1999, provided,
however, that all principal and interest outstanding will become due and
payable immediately upon Mr. Kheirolomoom's voluntary resignation from the
Company and its Board of Directors; (ii) a full recourse loan for the exercise
price of Mr. Kheirolomoom's outstanding options to purchase the Company's
Common Stock, bearing interest at the minimum rate to avoid the imputation of
interest, to be secured by the shares purchased by Mr. Kheirolomoom, and due
and payable eighteen months after the closing of this offering; (iii) the
forgiveness of Mr. Kheirolomoom's promissory note to the Company, executed on
December 8, 1993, in the principal amount of $59,000 together with all accrued
and unpaid interest from December 8, 1993 through July 2, 1996 and (iv) three
bonus payments of $60,000 on each of January 1, 1997,
42
<PAGE>
1998 and 1999. The Company will reimburse Mr. Kheirolomoom a "grossed up"
amount equal to any tax liability incurred in connection with the promissory
note and such reimbursement. The Kheirolomoom Agreement also provides that if
Mr. Kheirolomoom's employment with the Company is terminated without cause
prior to July 1, 1997, all of his options will continue to vest through such
date and he will continue to participate in the Company's benefit plans for
twelve months following his termination. Under Mr. Kheirolomoom's prior
agreement, $51,000 was paid in 1995 as severance prior to his reappointment as
Chief Executive Officer and President.
Under the terms of a letter dated May 31, 1994 setting forth the terms of
Gayle A. Crowell's employment with the Company, the Company has agreed to
provide Ms. Crowell with an annual salary and bonus, medical insurance,
vacation time and an option to purchase 28,571 shares of the Company's Common
Stock. Upon an involuntary termination of her employment, the Company will
provide Ms. Crowell twelve monthly payments of $18,750 and continued vesting of
her option for twelve months.
Under the terms of a letter dated March 10, 1995 setting forth the terms of
Shirish S. Hardikar's employment with the Company, the Company has agreed to
provide Mr. Hardikar with an annual salary and bonus, medical insurance,
vacation time and an option to purchase 28,571 shares of the Company's Common
Stock. Upon a change of control of the Company that results in the termination
of his employment or a significant reduction in responsibility, the Company
with provide Mr. Hardikar twelve monthly payments of $13,750 and continued
vesting of his option for twelve months.
Under the terms of the Employment Agreement between Mark W. Perry and the
Company dated May 18, 1994 (the "Perry Agreement"), the Company has agreed to
provide Mr. Perry with an annual salary and bonus, medical insurance, vacation
time and options to purchase 200,000 shares of Common Stock. The Perry
Agreement provides that in the event Mr. Perry's employment is involuntarily
terminated, the Company would provide Mr. Perry base salary and bonus, medical
insurance and vesting of his stock options for a twelve month period. Mr.
Perry's employment as Chief Executive Officer with the Company terminated in
July 1995, and his benefit continuation arrangement ended in July 1996.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions or (iv) any
transaction from which the director derived an improper personal benefit. Such
limitation of liability does not apply to liabilities arising under the federal
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. The Company's Bylaws also permit
it to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless of whether the Bylaws permit such indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the
Company's Bylaws. These agreements, among other things, indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action
43
<PAGE>
by or in the right of the Company arising out of such person's services as a
director or executive officer of the Company, any subsidiary of the Company or
any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
44
<PAGE>
CERTAIN TRANSACTIONS
In August 1993 and September 1994, the Company sold shares of Series E
Preferred Stock convertible into Common Stock at a price of $13.65 per share
to a group of investors including the following entities affiliated with
directors and entities known to the Company to beneficially own five percent
or more of the Company's outstanding capital stock:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
-----------
<S> <C>
The Inman & Bowman entities (Grant Inman) (1).................... 62,916
The Institutional Venture Partners entities (2).................. 55,796
The J.P. Morgan Investment Corporation entities (3).............. 69,251
The Mayfield entities (F. Gibson Myers, Jr.) (4)................. 206,916
The Technology Partners entities (J.E. Ardell, III) (5).......... 42,446
The Wongfratris Company (Hon Wong)............................... 44,249
</TABLE>
- ---------------------
(1) The Inman & Bowman entities are Inman & Bowman and Inman & Bowman
Entrepreneurs.
(2) The Institutional Venture Partners entities are Institutional Venture
Management IV and Institutional Venture Partners IV.
(3) The J.P. Morgan Investment Corporation entities are J.P. Morgan Investment
Corporation and Sixty Wall Street SBIC Fund.
(4) The Mayfield entities are Mayfield Associates, Mayfield Associates Fund
II, Mayfield VI and Mayfield VII.
(5) The Technology Partners entities are Technology Partners West Fund II,
Technology Partners West Fund III, Technology Partners West Fund IV, L.P.
and TPW Venture Partners IX.
In May 1995, the Company issued notes and warrants to a group of investors
including the following entities affiliated with directors and entities known
to the Company to beneficially own five percent or more of the Company's
outstanding capital stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NOTE AMOUNT (1) UNDERLYING WARRANTS (2)
--------------- -----------------------
<S> <C> <C>
The Inman & Bowman entities (Grant
Inman) (3).......................... $407,683 14,560
The Institutional Venture Partners
entities (4)........................ $319,671 11,417
The J.P. Morgan Investment
Corporation entities ............... $331,000 11,821
The Mayfield entities (F. Gibson
Myers, Jr.) (5)..................... $660,446 23,588
The Technology Partners entities
(J.E. Ardell, III) (6).............. $100,000 3,572
The Wongfratris Company (Hon Wong)... $181,200 6,471
</TABLE>
- ---------------------
(1) Each of the notes was subordinated to senior indebtedness and secured by
the Company's property pursuant to the terms of a security agreement
between each noteholder and the Company. The notes bore interest at the
rate of 9% and were due in May 1996. In March 1996, all principal and
accrued interest on the notes was converted into Series F Preferred Stock
at the rate $2.45 per share.
(2) Each warrant had an exercise price of $2.10 and a net exercise feature.
Each warrant expires on the earlier of the closing of an initial public
offering of the Company's Common Stock or June 1, 2000.
(3) The Inman & Bowman entities are Inman & Bowman and Inman & Bowman
Entrepreneurs.
(4) The Institutional Venture Partners entities are Institutional Venture
Partners IV and Institutional Venture Management IV.
(5) The Mayfield entities are Mayfield Associates, Mayfield Associates II,
Mayfield VI and Mayfield VII.
(6) The Technology Partners entities are Technology Partners West Fund II,
Technology Partners West Fund III and Technology Partners West Fund IV.
45
<PAGE>
In October 1995, the Company entered into an agreement with Stephen E.
Recht, the Company's former Chief Financial Officer, pursuant to which the
Company will pay Mr. Recht $25,000 subject to and upon the completion of an
initial public offering. Also in October 1995, Mr. Recht exercised an option
to purchase 21,143 shares of the Company's Common Stock at an exercise price
of $2.10 per share. The option exercise price was paid by Mr. Recht's full
recourse promissory note in the principal amount of $44,000 due 18 months
after the closing of this offering, bearing no interest and secured by the
shares issued upon the exercise of the option.
In October 1995, the Company entered into an agreement with Caere
Corporation ("Caere") pursuant to which the Company would merge with Caere and
the stockholders and optionees of the Company would receive shares of Common
Stock and options to purchase Common Stock of Caere (the "Merger Agreement").
Pending completion of the merger, the Merger Agreement precluded the Company
from raising equity funds to strengthen its working capital, which had
decreased to $2.8 million at December 31, 1995. In January 1996, the Merger
Agreement was terminated. Following termination of the Merger Agreement, the
Company needed equity funds to strengthen its balance sheet and pay the notes
issued in May 1995. Accordingly, in March and June 1996, the Company sold
1,357,851 shares of Series F Preferred Stock for approximately $1.2 million in
cash and approximately $2.1 million in conversion of the notes issued by the
Company in May 1995. In connection with this financing, the Company effected a
recapitalization whereby the Company sold a total of 448,571 shares of Common
Stock at a purchase price of $0.35 per share, including an aggregate of
324,285 shares sold to the Company's executive officers. The Company has an
option to repurchase these shares at the original purchase price in the event
of the termination of employment of the particular executive officer. The
repurchase option lapses over a period of 50 months, subject to accelerated
vesting as to a portion of these shares upon the completion of this offering.
The Company also repriced all options outstanding under the Company's stock
option plans from $2.10 to $0.35.
The shares of Series F Preferred Stock, convertible into Common Stock at a
price of $2.45 per share, were sold to a group of investors including the
following entities affiliated with directors and entities known to the Company
to beneficially own five percent or more of the Company's outstanding capital
stock:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
-----------
<S> <C>
The Inman & Bowman entities (Grant Inman) (1).................... 252,117
The Institutional Venture Partners entities (2).................. 197,715
The J.P. Morgan Investment Corporation entities (3).............. 216,546
The Mayfield entities (4)........................................ 408,393
The Technology Partners entities (J.E. Ardell, III) (5).......... 91,336
The Wongfratris Company (Hon Wong)............................... 118,557
</TABLE>
- ---------------------
(1) The Inman & Bowman entities are Inman & Bowman and Inman & Bowman
Entrepreneurs.
(2) The Institutional Venture Partners entities are Institutional Venture
Management IV and Institutional Venture Partners IV.
(3) The J.P. Morgan Investment Corporation entities are J.P. Morgan Investment
Corporation and Sixty Wall Street SBIC Fund.
(4) The Mayfield entities are Mayfield Associates, Mayfield Associates Fund
II, Mayfield VI and Mayfield VII.
(5) The Technology Partners entities are Technology Partners West Fund II,
Technology Partners West Fund III, Technology Partners West Fund IV, L.P.
and TPW Venture Partners IX.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996 and as adjusted
to reflect the sale by the Company of the shares of Common Stock offered
hereby by (i) each person (or group of affiliated persons) known by the
Company to be the beneficial owner of 5% or more of the Company's outstanding
shares of Common Stock, (ii) each director, (iii) each of the Named Executive
Officers and (iv) all directors and executive officers as a group. Except as
otherwise noted, the stockholders named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to applicable community property laws.
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL (1)
-----------------
NUMBER OF
SHARES
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ -------- --------
<S> <C> <C> <C>
Entities associated with The Mayfield Fund
(2)....................................... 1,137,001 21.4% 15.6%
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Entities associated with Inman & Bowman
(3)....................................... 702,009 13.2% 9.6%
4 Orinda Way
Building D, Suite 150
Orinda, CA 94563
Entities associated with J.P. Morgan
Investment Corporation (4)................ 652,504 12.3% 8.9%
60 Wall Street
New York, NY 10260-0060
Entities associated with Institutional
Venture Partners (5)...................... 550,633 10.4% 7.5%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Entities associated with Technology
Partners (6).............................. 377,843 7.1% 5.2%
1550 Tiburon Blvd., Suite A
Belvedere, CA 94920
Wongfratris Company (7).................... 357,290 6.7% 4.9%
51 Jordan Place
Palo Alto, CA 94501
Kamran Kheirolomoom (8).................... 319,427 6.0% 4.3%
ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL (1)
-----------------
NUMBER OF
SHARES
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
Gayle A. Crowell (9)........................ 108,141 2.0% 1.5%
Shirish S. Hardikar (10).................... 60,285 1.1% *
Robert I. Pender, Jr. (11).................. 57,883 1.1% *
J.E. Ardell, III (6)........................ 392,321 7.4% 5.4%
Grant Inman (3)............................. 702,009 13.2% 9.6%
F. Gibson Myers, Jr. (2).................... 1,137,001 21.4% 15.6%
Hon Wong (7)................................ 357,290 6.7% 4.9%
Mark W. Perry (12).......................... 100,285 1.9% 1.4%
All current directors and executive officers
as a group (7 persons) (13)................ 3,134,357 58.9% 42.9%
</TABLE>
- ---------------------
*Less than one percent.
(1) Applicable percentage ownership is based on 5,296,472 shares of Common
Stock outstanding as of June 30, 1996 together with applicable options
for such stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to shares. Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
on or prior to August 29, 1996 are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants, but
are not deemed outstanding for computing the percentage of any other
person.
(2) Consists of 33,405 shares of Common Stock held by Mayfield Associates,
13,576 shares of Common Stock held by Mayfield Associates Fund II,
801,735 shares of Common Stock held by Mayfield VI and 288,285 shares of
Common Stock held by Mayfield VII, including 500 shares of Common Stock
issuable pursuant to stock purchase warrants held by Mayfield Associates,
296 shares of Common Stock issuable pursuant to stock purchase warrants
held by Mayfield Associates Fund II, 12,000 shares of Common Stock
issuable pursuant to stock purchase warrants held by Mayfield VI and
6,288 shares of Common Stock issuable pursuant to stock purchase warrants
held by Mayfield VII. F. Gibson Myers, Jr., a director of the Company, is
a general partner of Mayfield Associates, Mayfield Associates Fund II,
Mayfield VI and Mayfield VII and has voting and investment power with
respect to such shares. Mr. Myers disclaims beneficial ownership of such
shares except to the extent of his proportionate partnership interest
therein.
(3) Consists of 690,822 shares of Common Stock held by Inman & Bowman and
11,187 shares of Common Stock held by Inman & Bowman Entrepreneurs,
including 11,662 shares of Common Stock issuable pursuant to stock
purchase warrants held by Inman & Bowman and 118 shares of Common Stock
issuable pursuant to stock purchase warrants held by Inman & Bowman
Entrepreneurs. Grant Inman, a director of the Company, is a general
partner of Inman & Bowman and Inman & Bowman Entrepreneurs and has voting
and investment power with respect to such shares. Mr. Inman disclaims
beneficial ownership of such shares except to the extent of his
proportionate partnership interest therein.
(4) Consists of 641,303 shares of Common Stock held by J.P. Morgan Investment
Corporation and 11,201 shares of Common Stock held by Sixty Wall Street
SBIC Fund, including 9,564 shares of Common Stock issuable pursuant to
stock purchase warrants held by J.P. Morgan Investment Corporation.
(5) Consists of 542,373 shares of Common Stock held by Institutional Venture
Partners IV and 8,260 shares of Common Stock held by Institutional
Venture Management IV, including 9,099 shares of Common Stock issuable
pursuant to stock purchase warrants held by Institutional Venture
Partners IV and 138 shares of Common Stock issuable pursuant to stock
purchase warrants held by Institutional Venture Management IV.
(6) Consists of 92,439 shares of Common Stock held by Technology Partners
West Fund II, 92,438 shares of Common Stock held by Technology Partners
West Fund III, 182,858 shares of Common Stock held by Technology Partners
West Fund IV and 10,108 shares of Common Stock held by TPW Venture
Partners IX, including 723 shares of Common Stock issuable pursuant to
stock purchase warrants held by Technology Partners West Fund II, 723
shares of Common Stock issuable pursuant to stock purchase warrants held
by Technology Partners West Fund III and 1,445 shares of Common Stock
issuable pursuant to stock purchase warrants held by Technology Partners
West Fund IV. J.E. Ardell, III, a director of the Company, is a general
partner of Technology Partners West Fund II, Technology Partners West
Fund III, Technology Partners West Fund IV and TPW Venture Partners IX
and has voting and investment power with respect to such shares. Mr.
Ardell disclaims beneficial ownership of such shares except to the extent
of his proportionate partnership interest therein. Mr. Ardell is also the
beneficial owner of 14,478 shares of Common Stock.
(7) Consists of 352,054 shares of Common Stock held by Wongfratris Company,
including 5,236 shares of Common Stock issuable pursuant to stock
purchase warrants held by Wongfratris Company. Hon Wong, a director of
the Company, is a general partner of
48
<PAGE>
Wongfratris and has voting and investment power with respect to such
shares. Mr. Wong disclaims beneficial ownership of such shares except to
the extent of his proportionate partnership interest therein.
(8) Includes 56,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(9) Includes 22,429 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(10) Includes 17,429 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(11) Includes 12,170 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(12) Includes 71,714 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996. Mr. Perry is no longer a
director or executive officer of the Company.
(13) See footnotes (2), (3) and (6) through (11).
--------------------
The following Selling Stockholders have agreed to sell to the Underwriters
up to an aggregate of shares of Common Stock owned by them in the event
the Underwriters exercise their over-allotment option.
<TABLE>
<CAPTION>
NUMBER OF SHARES MAXIMUM NUMBER OF
BENEFICIAL OWNER BENEFICIALLY OWNED SHARES TO BE SOLD
- ---------------- ------------------ -----------------
<S> <C> <C>
</TABLE>
None of the Selling Stockholders beneficially owns as much as 1% of the
shares of Common Stock outstanding before the offering.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, the authorized capital stock of the Company
will consist of 25,000,000 shares of Common Stock, $0.001 par value, and
2,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of June 30, 1996, there were 5,296,472 shares of Common Stock outstanding
which were held of record by 299 stockholders on a pro forma basis to reflect
the conversion of all outstanding shares of Preferred Stock which will occur
on the closing of this offering.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Except as otherwise provided by law, the
holders of shares of Common Stock vote as one class, together with any other
class or series of stock conferred with general class voting rights by the
Company's Articles of Incorporation. Holders of Common Stock may not cumulate
their votes in the election of directors, which means that the holders of
Common Stock entitled to exercise more than 50% of the voting rights are able
to elect all of the directors to be elected at each annual meeting and to cast
a sufficient number of votes to control the affairs of the Company subject to
a vote of stockholders. Subject to preferences that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. Such
restrictions could limit the ability of the Company to pay dividends to its
stockholders. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. The holders of an aggregate of 4,120,334
shares of Common Stock (including holders of warrants to purchase 21,071
shares of Common Stock) or their transferees are entitled to certain rights
with respect to the registration of such shares under the Securities Act. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be outstanding upon completion of the offering
contemplated by this Prospectus will be fully paid and non-assessable.
PREFERRED STOCK
As of the date of the sale of shares offered by this Prospectus, 2,000,000
shares of Preferred Stock will be authorized and no shares will be
outstanding. The Board of Directors has the authority to issue the shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued shares of
Preferred Stock and to fix the number of shares constituting any series and
the designations of such series, without any further vote or action by the
stockholders. Although it presently has no intention to do so, the Board of
Directors, without stockholder approval, can issue Preferred Stock with voting
and conversion rights which could materially adversely affect the voting power
of the holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any of the Preferred Stock.
WARRANTS
As of June 30, 1996, the Company had outstanding warrants to purchase 40,459
shares of Common Stock with exercise prices ranging from $8.40 to $14.00 per
share that will terminate if not exercised at various times on or before June
1, 2000. 21,071 shares underlying these warrants are entitled to registration
rights. See "--Registration Rights of Certain Holders."
50
<PAGE>
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Pursuant to agreements with persons holding approximately 4,120,334 shares
of Common Stock (including shares issuable upon exercise of warrants to
purchase 21,071 shares of Common Stock) (the "Holders"), the Holders are
entitled to certain rights with respect to the registration of their shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"). If the Company proposes to register any of its securities under the
Securities Act, the Holders are entitled to notice of the registration and are
entitled to include such shares of Common Stock therein, provided, among other
conditions, that the underwriters of any offering have the right to limit the
number of shares included in such registration. In addition, the holders of
sufficient shares with registration rights may require the Company any time
after the earlier of (i) September 1, 1995 or (ii) six months from the closing
of this offering, on not more than two occasions to file a registration
statement under the Securities Act at its expense with respect to their shares
of Common Stock, and the Company is required to use its best efforts to effect
such registration, subject to certain conditions and limitations. Further,
holders may require the Company to register all or a portion of their shares
with registration rights on Form S-3 when such form becomes available to the
Company, subject to certain conditions and limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A. Its telephone number is (800) 468-9716.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could materially and adversely affect market prices prevailing from
time to time. Sales of substantial amounts of Common Stock of the Company in
the public market after the restrictions lapse could materially and adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon the completion of this offering, the Company will have 7,296,472 shares
of Common Stock outstanding, assuming no exercise of options after June 30,
1996. Of these shares, the 2,000,000 shares sold in this offering will be
freely tradeable without restriction under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 5,296,472 shares of Common Stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration such as Rule 144, 144(k) or 701 under the
Securities Act. Such restricted shares will be available for sale in the
public market as follows: (i) approximately 95,167 shares will be eligible for
immediate sale on the date of this Prospectus, (ii) approximately 3,903,225
additional shares (including approximately 548,990 shares subject to
outstanding vested options) will be available for sale 180 days after the date
of this Prospectus upon expiration of lock-up agreements and (iii)
approximately 1,887,529 additional shares (including 40,459 shares issuable
upon exercise of outstanding warrants) will be eligible for sale at various
times thereafter. The Company's directors, executive officers and certain of
its stockholders, who in the aggregate hold approximately 98% of the shares of
Common Stock of the Company outstanding immediately prior to the completion of
this offering, have entered into lock-up agreements under which they have
agreed not to offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of, or agree to dispose of, directly or indirectly, any
shares of Common Stock or options to acquire shares of Common Stock owned by
them for a period of 180 days after the date of this Prospectus, without the
prior written consent of Hambrecht & Quist LLC. Hambrecht & Quist LLC may, in
its sole discretion, and at any time without notice, release all or any
portion of the shares subject to such lock-up agreements. The Company has
entered into a similar agreement, except that the Company may grant options
and issue stock under its current stock option and stock purchase plans and
pursuant to other currently outstanding options.
As of June 30, 1996, 857,019 shares were subject to outstanding options. All
of these shares are subject to the lock-up agreements described above.
4,120,334 of the shares outstanding immediately following the completion of
this offering (including 21,071 shares of Common Stock subject to outstanding
warrants, if exercised before the expiration of the warrants) will be entitled
to registration rights with respect to such shares upon the release of lock-up
agreements. The number of shares sold in the public market could increase if
such rights are exercised.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner, except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding
(approximately 73,000 shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the required filing of a Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior
owner, except an affiliate), is entitled to sell such shares without having to
comply with the manner of sale, public
52
<PAGE>
information, volume limitation or notice provisions of Rule 144. Under Rule
701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to the effective date of this offering are entitled to
sell such shares 90 days after the effective date of this offering in reliance
on Rule 144, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule
changes will be enacted. If enacted, such modifications will have a material
effect on the times when shares of the Company's Common Stock become eligible
for resale.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist
LLC, Cowen & Company and SoundView Financial Group, Inc., have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC..............................................
Cowen & Company....................................................
SoundView Financial Group, Inc.....................................
----
Total............................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may re-
allow a concession not in excess of $ per share to certain other dealers.
The Underwriters have informed the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority. After
the initial public of the shares, the offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus,
to purchase up to 300,000 additional shares of Common Stock at the initial
public offering price, less the underwriting discount, set forth on the cover
page of this Prospectus. To the extent the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the table above bears to the total number of shares
of Common Stock offered hereby. The Company and the Selling Stockholders will
be obligated, pursuant to the option, to sell shares to the Underwriters to
the extent the option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company and certain other stockholders of the Company, including the
officers and directors, holding in aggregate more than 95% of the shares of
Common Stock of the Company outstanding immediately
54
<PAGE>
prior to the completion of this offering, have agreed that it will not,
without the Representatives' prior written consent, offer, sell or otherwise
dispose of any shares of Common Stock, options, rights or warrants to acquire
shares of Common Stock, or securities exchangeable for or convertible into
shares of Common Stock during the 180-day period commencing on the date of
this Prospectus, except that the Company may grant additional options under
its stock option plans.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiation among the Company, Hambrecht & Quist LLC, Cowen &
Company and SoundView Financial Group, Inc. Among the factors to be considered
in determining the initial public offering price are prevailing market
conditions, revenues and earnings of the Company, market valuations of other
companies engaged in activities similar to the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors
deemed relevant. The estimated initial public offering price range set forth
on the cover of this Prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Cooley Godward Castro Huddleson & Tatum, Palo Alto,
California. Members of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, beneficially own 187,206 shares of Common Stock of the Company,
and Mario M. Rosati, a member of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, is Secretary of the Company.
EXPERTS
The consolidated financial statements and schedule of ViewStar Corporation
and subsidiaries as of December 31, 1994 and 1995, and for each of the years
in the three-year period ended December 31, 1995, have been included herein
and in the Registration Statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent auditors, appearing elsewhere herein and in the
Registration Statement and upon the authority of said firm as experts in
accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
Ernst & Young LLP was previously the principal accountants for the Company.
On October 9, 1995, Ernst & Young LLP's appointment as principal accountants
was terminated and KPMG Peat Marwick LLP was engaged to audit the Company's
and its subsidiaries' consolidated financial statements. The Board of
Directors have approved the appointment of KPMG Peat Marwick LLP as principal
accountants for the Company.
In connection with the audits for the two fiscal years ended December 31,
1994, and the subsequent interim period through October 9, 1995, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement.
The audit reports of Ernst & Young LLP on the consolidated financial
statements of the Company and subsidiaries as of and for the years ended
December 31, 1993 and 1994, did not contain any adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit
scope, or accounting principles.
55
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit. A copy of the Registration
Statement, and the exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission.
56
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Form of Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996..................................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996.. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1993, 1994 and 1995 and for the six months ended June
30, 1996................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996.. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the reincorporation and reverse stock split described in Note 7 of the
Notes to Consolidated Financial Statements have been consummated, we will be
in a position to render the following report.
KPMG Peat Marwick LLP
The Board of Directors
ViewStar Corporation:
We have audited the accompanying consolidated balance sheets of ViewStar
Corporation and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ViewStar
Corporation and subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
San Jose, California
July 3, 1996, except for Note 7
which is as of July 25, 1996
F-2
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------ -------------------
1994 1995 ACTUAL PRO FORMA
-------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 1)
Current assets:
Cash and cash equivalents............ $ 4,094 $ 1,832 $ 2,276 $ 2,276
Accounts receivable, net of
allowances of $532, $644 and $680 in
1994, 1995 and 1996, respectively... 9,787 7,211 6,097 6,097
Prepaid expenses and other current
assets.............................. 485 587 531 531
-------- -------- -------- --------
Total current assets............... 14,366 9,630 8,904 8,904
Property and equipment, net............ 3,135 2,493 2,182 2,182
Other assets........................... 355 257 212 212
-------- -------- -------- --------
$ 17,856 $ 12,380 $ 11,298 $ 11,298
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued
expenses............................ $ 5,666 $ 6,535 $ 5,958 $ 5,958
Borrowings under bank line of
credit.............................. 1,500 -- -- --
Subordinated notes payable to
stockholders........................ -- 2,000 -- --
Deferred revenue..................... 9,767 10,625 8,718 8,718
Current portion of capital lease
obligations and notes payable....... 946 1,055 946 946
-------- -------- -------- --------
Total current liabilities.......... 17,879 20,215 15,622 15,622
Noncurrent portion of capital lease
obligations and notes payable......... 955 994 747 747
Commitments
Stockholders' deficit:
Preferred stock, $.001 par value;
actual--9,395,146, 9,395,146 and
5,950,000 shares authorized in 1994,
1995 and 1996, respectively;
2,665,853, 2,665,853 and 1,357,851
shares issued and outstanding in
1994, 1995 and 1996, respectively
(aggregate liquidation preference of
$3,327 in 1996); proforma--2,000,000
shares authorized; no shares issued
and outstanding...................... 3 3 1 --
Common stock, $.001 par value;
actual--15,000,000, 20,000,000, and
40,000,000 shares authorized in 1994,
1995, and 1996, respectively;
585,091, 744,923, and 3,880,829
shares issued and outstanding in
1994, 1995, and 1996, respectively;
pro forma--25,000,000 shares
authorized; 5,296,472 shares issued
and outstanding...................... 1 1 4 5
Additional paid-in capital............ 23,650 23,935 27,440 27,440
Notes receivable from stockholders.... (119) (299) (450) (450)
Accumulated deficit................... (24,513) (32,469) (32,066) (32,066)
-------- -------- -------- --------
Total stockholders' deficit........ (978) (8,829) (5,071) (5,071)
-------- -------- -------- --------
$ 17,856 $ 12,380 $ 11,298 $ 11,298
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ---------------
1993 1994 1995 1995 1996
------- -------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees................... $15,847 $ 10,436 $13,031 $ 4,062 $7,457
Services....................... 10,205 11,857 12,137 5,510 7,284
Hardware....................... 2,044 519 70 72 --
------- -------- ------- ------- ------
Total revenues............... 28,096 22,812 25,238 9,644 14,741
------- -------- ------- ------- ------
Cost of revenues:
License fees................... 606 720 536 277 553
Services....................... 6,695 7,995 7,959 4,075 4,033
Hardware....................... 1,348 42 -- -- --
------- -------- ------- ------- ------
Total cost of revenues....... 8,649 8,757 8,495 4,352 4,586
------- -------- ------- ------- ------
Gross profit................. 19,447 14,055 16,743 5,292 10,155
------- -------- ------- ------- ------
Operating expenses:
Sales and marketing............ 12,894 15,568 14,912 7,635 6,284
Research and development....... 5,814 6,617 5,572 3,015 2,436
General and administrative..... 2,615 2,914 1,970 1,153 944
Nonrecurring charges........... -- 78 1,740 367 --
------- -------- ------- ------- ------
Total operating expenses..... 21,323 25,177 24,194 12,170 9,664
------- -------- ------- ------- ------
Operating income (loss)...... (1,876) (11,122) (7,451) (6,878) 491
Interest expense................. (378) (284) (579) (250) (207)
Other income..................... 58 199 123 89 130
------- -------- ------- ------- ------
Income (loss) before income
taxes....................... (2,196) (11,207) (7,907) (7,039) 414
Income taxes..................... 119 55 49 32 11
------- -------- ------- ------- ------
Net income (loss)............ $(2,315) $(11,262) $(7,956) $(7,071) $ 403
======= ======== ======= ======= ======
Pro forma net income (loss) per
share........................... $ (1.37) $ (1.22) $ 0.06
======= ======= ======
Shares used in per share
computations.................... 5,810 5,789 6,857
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE STOCKHOLDERS'
------------------ ------------- PAID-IN FROM ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT (DEFICIT)
--------- ------- ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1992............... 2,160 $ 2 442 $-- $16,480 $ -- $(10,936) $ 5,546
Issuance of common
stock.................. -- -- 55 1 105 (59) -- 47
Issuance of Series E
preferred stock........ 286 -- -- -- 3,897 -- -- 3,897
Net loss................ -- -- -- -- -- -- (2,315) (2,315)
--------- ------ ----- ---- ------- ----- -------- --------
Balances as of December
31, 1993............... 2,446 2 497 1 20,482 (59) (13,251) 7,175
Issuance of common
stock.................. -- -- 88 -- 218 (60) -- 158
Issuance of Series E
preferred stock........ 220 1 -- -- 2,950 -- -- 2,951
Net loss................ -- -- -- -- -- -- (11,262) (11,262)
--------- ------ ----- ---- ------- ----- -------- --------
Balances as of December
31, 1994............... 2,666 3 585 1 23,650 (119) (24,513) (978)
Issuance of common
stock.................. -- -- 160 -- 285 (180) -- 105
Net loss................ -- -- -- -- -- -- (7,956) (7,956)
--------- ------ ----- ---- ------- ----- -------- --------
Balances as of December
31, 1995............... 2,666 3 745 1 23,935 (299) (32,469) (8,829)
Conversion of preferred
stock to common stock
(unaudited)............ (2,666) (3) 2,666 3 -- -- -- --
Issuance of Series F
preferred stock
(unaudited)............ 1,358 1 -- -- 3,326 -- -- 3,327
Issuance of common stock
(unaudited)............ -- -- 470 -- 179 (151) -- 28
Net income (unaudited).. -- -- -- -- -- -- 403 403
--------- ------ ----- ---- ------- ----- -------- --------
Balances as of June 30,
1996 (unaudited)....... 1,358 $ 1 3,881 $ 4 $27,440 $(450) $(32,066) $ (5,071)
========= ====== ===== ==== ======= ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1993 1994 1995 1995 1996
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................ $(2,315) $(11,262) $(7,956) $(7,071) $ 403
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 1,030 1,239 1,644 826 750
Issuance of promissory note to
customer....................... -- -- 300 -- --
Changes in operating assets and
liabilities:
Accounts receivable, net....... (979) 311 2,576 4,616 1,114
Prepaid expenses and other
current assets................ 207 (148) (102) (83) 56
Accounts payable and accrued
expenses...................... (278) 1,939 869 (1,110) (430)
Deferred revenue............... 4,361 3,646 858 (799) (1,907)
------- -------- ------- ------- -------
Net cash provided by (used in)
operating activities......... 2,026 (4,275) (1,811) (3,621) (14)
------- -------- ------- ------- -------
Cash flows from investing
activities:
Purchases of property and
equipment....................... (439) (1,230) (332) (307) (191)
Proceeds from sale of property
and equipment................... -- -- 388 353 --
Other assets..................... (116) (19) 98 (62) 45
------- -------- ------- ------- -------
Net cash (used in) provided by
investing activities......... (555) (1,249) 154 (16) (146)
------- -------- ------- ------- -------
Cash flows from financing
activities:
Proceeds from borrowings under
bank line of credit............. 4,350 2,900 -- -- --
Payments of borrowings under bank
line of credit.................. (7,100) (1,400) (1,500) (1,500) --
Proceeds from subordinated notes
issued to stockholders.......... -- -- 2,000 2,000 --
Principal payments on capital
lease obligations............... (781) (905) (1,180) (584) (558)
Payments on promissory note to
customer........................ -- -- (30) -- (45)
Proceeds from issuance of
preferred stock................. 3,897 2,951 -- -- 1,179
Proceeds from issuance of common
stock........................... 47 158 105 55 28
------- -------- ------- ------- -------
Net cash provided by (used in)
financing activities......... 413 3,704 (605) (29) 604
------- -------- ------- ------- -------
Change in cash and cash
equivalents...................... 1,884 (1,820) (2,262) (3,666) 444
Cash and cash equivalents,
beginning of period.............. 4,030 5,914 4,094 4,094 1,832
------- -------- ------- ------- -------
Cash and cash equivalents, end of
period........................... $ 5,914 $ 4,094 $ 1,832 $ 428 $ 2,276
======= ======== ======= ======= =======
Cash paid:
Interest......................... $ 377 $ 299 $ 491 $ 249 $ 127
======= ======== ======= ======= =======
Income taxes..................... $ 57 $ 30 $ 10 $ -- $ --
======= ======== ======= ======= =======
Noncash financing and investing
activities:
Capital lease obligations
incurred........................ $ 1,199 $ 1,248 $ 1,058 $ 900 $ 247
======= ======== ======= ======= =======
Issuance of common stock in
exchange for note receivable.... $ 59 $ 60 $ 180 $ 145 $ 151
======= ======== ======= ======= =======
Issuance of preferred stock in
exchange for subordinated notes
and related accrued interest.... $ -- $ -- $ -- $ -- $ 2,147
======= ======== ======= ======= =======
Conversion of preferred stock to
common stock.................... $ -- $ -- $ -- $ -- $ 94
======= ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ViewStar Corporation (the Company) provides client/server document workflow
software that enables customers to automate and improve document-intensive
business processes across the enterprise.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenues
Revenues from the sale of software licenses and hardware are recognized when
(i) a signed contract exists, (ii) delivery has occurred, (iii) the fee is
fixed and collectibility is probable, and (iv) remaining vendor obligations
are insignificant. Generally, revenues from the sale of software licenses
through distributors are recognized after contract signing and shipment and
upon the earlier of sale to an end user or upon receipt of nonrefundable cash
payments from the distributors. Revenues from third-party hardware referral
fees are recognized after contract signing and shipment from the hardware
distributor to the customer. Revenues from software installation and
consulting contracts are recognized as the services are performed. Revenues
from software maintenance agreements are recognized ratably over the service
period.
The Company licenses its products to customers in a variety of industries
throughout North America, Europe, Japan and Australia. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses.
Revenues related to customers outside the United States were $3,091,000,
$1,844,000 and $6,405,000 during the years ended December 31, 1993, 1994 and
1995, respectively.
Income Taxes
The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Cash, Cash Equivalents and Financial Instruments
Cash equivalents, consisting of liquid investments with original maturities
of three months or less, are stated at cost, which approximates fair value.
Unrealized gains and losses as of December 31, 1994 and 1995, and realized
gains and losses for the periods then ended were not material. Cash
equivalents are composed of
F-7
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
certificates of deposit with major banks, government securities, and money
market securities of companies from a variety of industries. The Company
classified all of its debt securities as "held-to-maturity" as of December 31,
1994 and 1995.
The carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair values due to the
short maturity of those instruments.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-
line basis over the three- to five-year estimated useful lives of the assets.
Leasehold improvements and assets recorded under capital leases are amortized
over the shorter of the estimated useful lives or the related lease terms.
Computer Software Development Costs
Costs to develop computer software products are expensed as incurred until
technological feasibility is achieved. Once technological feasibility of a
software product to be marketed has been established, development and
enhancement costs are capitalized. Generally, the establishment of
technological feasibility of the Company's products and general release
coincide. As a result, the Company has not capitalized any software
development costs to date.
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed using the weighted average
number of shares of common stock and preferred stock, on an as-if converted
basis, outstanding and common equivalent shares from options and warrants to
purchase common stock using the treasury stock method, when dilutive. In
accordance with certain Securities and Exchange Commission Staff Accounting
Bulletins, such computations include all common and common equivalent share
issued within the twelve months preceding the initial public offering ("IPO")
as if they were outstanding for all periods presented using the treasury stock
method and the estimated IPO price.
Pro Forma Consolidated Balance Sheet
Upon the closing of the Company's proposed IPO, all outstanding shares of
preferred stock will be converted into 1,357,851 shares of common stock and
warrants to purchase 71,429 shares of common stock will be exercised (see
Notes 4 and 7). The pro forma consolidated balance sheet gives effect to the
conversion and exercise as if they had occurred on June 30, 1996.
Interim Financial Information
The accompanying consolidated balance sheet as of June 30, 1996, the
consolidated statements of operations and cash flows for the six months ended
June 30, 1995 and 1996, and the consolidated statement of stockholders' equity
(deficit) for the six months ended June 30, 1996 are unaudited but, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the periods presented. The
consolidated results of operations for the six months ended June 30, 1996 are
not necessarily indicative of the results for any future period.
Reclassifications
Certain amounts in the accompanying 1993 and 1994 consolidated financial
statements were reclassified in order to conform to the 1995 consolidated
financial statement presentation.
F-8
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Furniture and equipment...................................... $2,161 $2,151
Leasehold improvements....................................... 530 518
Equipment recorded under capital lease....................... 4,966 5,990
------ ------
7,657 8,659
Less accumulated depreciation and amortization, including
$3,242 and $4,415 applicable to equipment recorded under
capital leases in 1994
and 1995, respectively...................................... 4,522 6,166
------ ------
$3,135 $2,493
====== ======
</TABLE>
(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Accrued commissions............................................ $1,495 $1,654
Other.......................................................... 4,171 4,881
------ ------
$5,666 $6,535
====== ======
</TABLE>
(4) BANK LINE OF CREDIT, SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS AND NOTES
PAYABLE
The Company has a financing agreement with a bank providing for borrowings
of up to $4 million under a line of credit bearing interest at the bank's
prime rate plus 2.75%. The agreement limits borrowings to 80% of eligible
accounts receivable, as defined. In April 1996, the Company extended the line
of credit through December 31, 1996. The borrowings are secured by
substantially all of the Company's assets. The agreement does not include any
financial covenants.
Also in May 1995, the Company obtained $2 million in cash from certain of
its existing stockholders in exchange for subordinated notes. The notes bore
interest at 9% per annum. The principal amount of the notes and accrued
interest were due upon demand at any time after April 15, 1996. The notes were
subordinated to the Company's line of credit with the bank and were secured by
all of the Company's assets. In March 1996, the subordinated notes were
exchanged for shares of preferred stock (see Note 7).
Included in capital lease obligations and notes payable in the accompanying
consolidated balance sheet as of December 31, 1995 is $270,000 related to a
noninterest bearing note payable to a customer. The note is unsecured and
$90,000 is payable in each of the years 1996, 1997 and 1998.
F-9
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LEASE OBLIGATIONS
The Company leases certain computers and other equipment under capital
leases. In addition, the Company leases its facilities and certain equipment
under operating leases. Future minimum lease payments as of December 31, 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996........................................................ $1,109 1,205
1997........................................................ 659 1,146
1998........................................................ 179 1,213
1999........................................................ 21 513
2000........................................................ -- 126
------ ------
1,968 $4,203
======
Less amounts representing interest.......................... 189
------
Present value of minimum lease payments..................... 1,779
Less current portion........................................ 965
------
Noncurrent portion of capital lease obligations........... $ 814
======
</TABLE>
Rent expense was $1,108,000, $1,246,000, and $1,422,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
(6) INCOME TAXES
The components of the provision for income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1993 1994 1995
---------------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 14 $ -- $ --
State............................................ 55 20 32
Foreign.......................................... 50 35 17
------- -------- --------
$ 119 $ 55 $ 49
======= ======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expenses........................................ $ 305 $ 339
Allowances.............................................. 230 279
Accrued compensation.................................... 373 262
Net operating losses.................................... 6,413 8,573
Research and development credits........................ 1,186 1,524
Deferred revenue........................................ -- 1,147
Other................................................... 624 186
------- --------
Total deferred tax assets............................. 9,131 12,310
Valuation allowance....................................... (9,131) (12,310)
------- --------
Net deferred tax assets............................... $ -- $ --
======= ========
</TABLE>
F-10
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes differed from the amount computed by applying the statutory
federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
---------------- --------
<S> <C> <C> <C>
Income taxes computed using statutory federal
income tax rate.............................. $ (747) $ (3,810) $ (2,688)
State taxes, net of federal benefit........... 55 20 32
Net operating losses not utilized............. 747 3,810 2,688
Foreign taxes................................. 50 35 17
Other......................................... 14 -- --
------ -------- --------
$ 119 $ 55 $ 49
====== ======== ========
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $22,697,000, expiring in the
years 2003 through 2010, and net operating loss carryforwards for state income
tax purposes of approximately $9,200,000 expiring in the years 1996 through
2000. The Company also had federal and state research and development credit
carryforwards of approximately $920,000 and $605,000, respectively, which
expire in the years 2001 through 2010.
Due to change of ownership provisions of the Tax Reform Act of 1986,
utilization of the Company's net operating loss carryforwards and research and
development credit carryforwards may be subject to limitation if it should be
determined that a greater than 50% ownership change were to occur in the
future.
(7) STOCKHOLDERS' EQUITY (DEFICIT)
Reincorporation and Reverse Stock Split.
In July 1996, the Board of Directors approved the reincorporation of the
Company in Delaware and a 1-for-3.5 reverse stock split of the Company's
common stock. All share data in the accompanying consolidated financial
statements and notes has been retroactively restated to give effect to the
reverse stock split.
Preferred Stock
Preferred stock as of December 31, 1995, consisted of the following series:
<TABLE>
<CAPTION>
NONCUMULATIVE
DIVIDEND
LIQUIDATION PER
SERIES AUTHORIZED OUTSTANDING PREFERENCE SHARE
------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
A-1......................... 316,667 90,476 $ 992,751 $0.53
A-2......................... 210,000 60,000 655,200 0.53
B........................... 415,142 118,612 1,376,818 0.60
C........................... 2,660,081 754,308 9,328,726 0.67
D-1......................... 1,795,974 513,097 7,542,536 0.84
D-2......................... 2,197,282 623,886 7,808,554 0.84
E-1......................... 1,000,000 285,714 4,992,000 1.37
E-2......................... 800,000 219,760 3,449,660 1.37
-----------
$36,146,245
===========
</TABLE>
F-11
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each share of Series A, B, C, D and E preferred stock was convertible into
one share of common stock. The shares could have been converted at any time,
at the option of the stockholder, except that conversion was to automatically
occur upon a public offering of the Company's common stock under certain
conditions. The preferred stock had noncumulative dividend and voting rights
equal to the number of shares of common stock into which it was convertible.
In March and June 1996, the Company completed the Series F preferred stock
financing transaction, in which a total of 1,357,851 shares were issued at
$2.45 per share. The Company issued 876,530 shares in repayment of the
$2,000,000 subordinated notes outstanding plus the related accrued interest of
$147,000 and 481,321 shares for $1,179,000 in cash. The Series F preferred
stock has a liquidation preference of $2.45 per share, a noncumulative
dividend of $0.25 per share, and has similar conversion and other privileges
as the other series of preferred stock. Subsequent to December 31, 1995, the
Company issued warrants to purchase 18,664 shares of Series F preferred stock
to its bank and a leasing company at exercise prices ranging from $2.45 to
$13.65 per share.
In June 1996, by consent of the holders of a majority of the outstanding
shares of such series, all shares of Series A, B and C preferred stock
automatically converted to common stock. Additionally, by consent of the
holders of 75% of the outstanding shares of Series D and E preferred stock,
all such shares also converted to common stock. As a result, 2,665,853 shares
of common stock were issued in exchange for all shares of Series A, B, C, D
and E preferred stock.
Due to the conversion of preferred stock to common stock noted above, there
were no shares of Series A, B, C, D or E preferred stock outstanding as of
June 1996. The Company amended its Articles of Incorporation such that each
outstanding share of Series F preferred stock was reclassified as a share of
Series A preferred stock.
Amended 1986 Incentive Stock Plan
The Company has an Amended 1986 Incentive Stock Plan (the 1986 Plan)
allowing the Board of Directors to grant nonstatutory stock options, incentive
stock options, and stock purchase rights to officers and employees at amounts
not less than 85%, 100%, and 85% (110% for key stockholders), respectively, of
the fair market value of common stock, as determined by the Company's Board of
Directors, based on factors described in the 1986 Plan. The term of options
and rights may not exceed 10 years. No nonstatutory stock options were
outstanding as of December 31, 1995.
F-12
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity under the 1986 Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
SHARES
AVAILABLE NUMBER OF EXERCISE
FOR GRANT SHARES PRICE
--------- --------- ----------
<S> <C> <C> <C>
Outstanding as of December 31, 1993........... 395,301 499,611 $2.10-5.25
Granted..................................... (220,381) 220,381 2.10-7.00
Exercised................................... -- (61,847) 2.10-5.25
Canceled.................................... 85,079 (85,079) 2.10-5.25
-------- --------
Outstanding as of December 31, 1994........... 259,999 573,066 2.10-7.00
Granted..................................... (339,786) 339,786 2.10-5.25
Exercised................................... -- (156,831) 2.10-5.25
Canceled.................................... 172,007 (172,007) 2.10-5.25
-------- --------
Outstanding as of December 31, 1995........... 92,220 584,014 2.10-7.00
Reserved (unaudited)........................ 181,571 --
Granted (unaudited)......................... (157,143) 157,143 0.35
Exercised (unaudited)....................... -- (35,624) 0.35-2.10
Canceled.................................... 42,784 (42,784) 0.35-2.10
-------- --------
Outstanding as of June 30, 1996 (unaudited)... 159,432 662,749 $ 0.35
======== ========
Exercisable as of December 31, 1995........... 259,415 $ 0.35
========
</TABLE>
In 1994, the Company's Board of Directors amended all outstanding stock
options to purchase common stock with exercise prices in excess of $2.10 per
share to reduce their exercise price to $2.10 per share. In February 1996, the
Company amended all outstanding options to purchase common stock of the
Company such that all options with exercise prices in excess of $0.35 per
share were reduced to $0.35 per share.
1994 Stock Plan
In January 1994, the Company adopted the 1994 Stock Plan (the 1994 Plan)
under which incentive and nonstatutory options to purchase shares of common
stock may be granted to certain employees and consultants of the Company. A
total of 227,143 shares of common stock have been reserved for issuance under
the 1994 Plan and, as of December 31, 1995, options to purchase 195,714 shares
at $2.10 per share are outstanding; 14,286 of which are nonstatutory stock
options. Options to purchase 28,571 shares at $2.10 per share were exercised
during 1994, and options to purchase 143 shares at $2.10 per share were
exercised during 1995. The exercise price of each incentive and nonqualified
stock option may not be less than 100% and 85%, respectively, of the fair
market value of the stock on the date of grant (110% of the fair market value
for key stockholders). Options vest based upon criteria determined by the
Board of Directors, generally ratably over a 50-month period. Options expire
after 10 years from the date of grant. As of December 31, 1995, options to
purchase 48,114 shares were exercisable and 2,714 shares remained available
for grant. In February 1996, the Board increased the number of shares of
common stock reserved for issuance under the 1994 Plan by 121,429 shares and
amended all outstanding options to lower their exercise price to $0.35 per
share. During the six months ended June 30, 1996, options to purchase 122,543
shares at exercise prices ranging from $0.35 to $2.63 were granted, options to
purchase 3,000 shares at $0.35 were exercised and options to purchase 120,987
shares of common stock at $0.35 were canceled.
Restricted Stock
In February 1996, the Company approved the issuance of up to an aggregate
maximum of 471,429 shares of common stock under restricted stock purchase
agreements. The agreements specify a purchase price of
F-13
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$0.35 per share to be paid in the form of full-recourse promissory notes. A
total of 431,428 shares were issued. Under the terms of the agreements, the
foregoing shares will be subject to the right of repurchase by the Company
upon the purchaser's termination of employment with or services to the
Company. The shares are released from the right of repurchase at the rate of
2% of the total number of shares per month. However, upon the closing of an
initial public offering, or a merger, 50% of any unreleased shares shall be
released.
Employee Stock Purchase Plan
In July 1996 the Board of Directors adopted the Employee Stock Purchase Plan
(the "Purchase Plan") and reserved 400,000 shares of common stock for issuance
under the Purchase Plan. Under the Purchase Plan, eligible employees may
purchase shares of common stock from the Company through payroll deductions of
up to 10% of his or her compensation, at a price per share equal to 85% of the
lower of (i) the fair market value of the Company's common stock on the first
day of an offering period under the Purchase Plan or (ii) the fair market
value of the common stock on the last day of the offering period. Offering
periods will last for six months, except for the first offering period which
will commence upon the closing of the IPO and end on April 30, 1997.
Common Stock Warrants
In connection with the sale of subordinated notes described in Note 4, the
Company also issued warrants expiring in June 2000 to purchase 71,429 shares
of common stock at $2.10 per share.
As of December 31, 1995, warrants to purchase approximately 14,652 shares of
common stock had been issued in connection with the line of credit agreement
with the bank. These warrants expire in March 1997, September 1999, and May
2000, or, under certain conditions, at various dates upon the closing of a
public offering or merger. The exercise prices of the warrants range from
$6.48 to $13.65 per share.
In connection with the signing of a distributor agreement, the Company
issued a warrant to purchase 7,143 shares of common stock at an exercise price
per share of $14.00.
(8) NONRECURRING CHARGES
During the fiscal year ended December 31, 1995, the Company incurred
approximately $1,740,000 of nonrecurring charges consisting of legal fees and
settlement costs associated with the termination of a proposed merger and
expenses such as severance pay, educational programs and job search fees
resulting from a reduction in headcount.
F-14
<PAGE>
Illustration that depicts screen representatives of the Company's Process
Architect product showing a complex workflow and the Company's Application
Designer product.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
The Company.............................................................. 13
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 25
Management............................................................... 38
Certain Transactions..................................................... 45
Principal Stockholders................................................... 47
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Additional Information................................................... 56
Index to Financial Statements............................................ F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO OF VIEWSTAR(TM)]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
COWEN & COMPANY
SOUNDVIEW FINANCIAL
GROUP, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
BY COMPANY
----------
<S> <C>
SEC registration fee........................................... $ 9,518
NASD filing fee................................................ 3,260
Nasdaq National Market application and listing fee............. 35,800
Printing and engraving......................................... *
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Blue sky fees and expenses..................................... *
Transfer agent and registrar fees and expenses................. *
Directors & Officers Insurance Coverage........................ *
Miscellaneous expenses......................................... *
--------
Total........................................................ $850,000
========
</TABLE>
---------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IV of the registrant's Articles of Incorporation and Article VI of
the registrant's Bylaws provide for indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by the
California Law. In addition, the Registrant has entered into Indemnification
Agreements with its officers and directors. Reference is also made to the
Underwriting Agreement contained in Exhibit 1.1 hereto, which provides for the
indemnification of officers, directors and controlling persons of the
Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1993, the Registrant has sold or issued the following
unregistered securities:
(1) From June 1993 to June 1996, the Registrant issued and sold 297,024
shares of Common Stock to a total of 212 employees and consultants at
purchase prices ranging from $0.35 to $5.25 per share upon the exercise of
stock options, pursuant to the Registrant's Amended 1986 Incentive Stock
Plan.
(2) From June 1993 to June 1996, the Registrant issued and sold 31,714
shares of Common Stock to a total of 2 employees and 1 consultant at
purchase prices ranging from $0.35 to $2.10 per share upon the exercise of
stock options, pursuant to the Registrant's 1994 Senior Executive Stock
Plan.
(3) In August 1993 and September 1994, the Registrant issued and sold
505,474 shares of Series E Preferred Stock at a purchase price of $13.65
per share to a total of 20 investors.
(4) In July 1994, the Registrant issued a warrant to purchase 7,143
shares of Common Stock at a purchase price of $14.00 to Electronic Data
Systems Corporation ("EDSC") pursuant to the terms of a Software and
Services Agreement between EDSC and the Company, dated March 28, 1994.
(5) In September 1994, the Company issued a warrant to purchase 1,429
shares of Series E Preferred Stock at a purchase price of $13.65 per share
to Silicon Valley Bank ("SVB") pursuant to the terms of a Loan Agreement
between SVB and the Company, dated September 26, 1994.
II-1
<PAGE>
(6) In June 1995, the Company issued notes in exchange for loans to the
Company in the amount of $2 million and issued warrants to purchase an
aggregate of 71,429 shares of Common Stock at a purchase price of $2.10 per
share to a total of 13 investors, and issued a warrant to purchase 6,419
shares of Series E Preferred Stock at a purchase price of $13.65 per share
to SVB pursuant to the terms of a Note and Warrant Purchase Agreement
between the Company, each of the 13 investors and SVB, dated May 18, 1995.
(7) In March 1996, the Company issued and sold 448,571 shares of Common
Stock at a purchase price of $0.35 per share to a total of 8 management-
level employees pursuant to Restricted Stock Purchase Agreements date March
15, 1996.
(8) In March and June 1996, the Company issued and sold 1,357,851 shares
of Series F Preferred Stock at a purchase price of $2.45 per share to a
total of 22 investors.
(9) In May 1995, the Company issued a warrant to purchase 12,244 shares
of Series F Preferred Stock at an exercise price of $2.45 per share to
Comdisco, Inc.
(10) In May 1996, the Company issued a warrant to purchase 6,419 shares
of Series F Preferred Stock at an exercise price of $13.65 per share to
SVB.
There were no underwriters, brokers or finders employed in connection with
any of the transactions set forth above. The sales of the above securities
were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act, or Regulation D promulgated
thereunder, or Rule 701 thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to the compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
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
attached to the share certificates issued in such transactions. All recipients
had adequate access to information about the registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant, as currently in
effect.
3.2 Form of Restated Certificate of Incorporation of Registrant to be filed
after the closing of the offering made under this Registration
Statement.
3.3* Bylaws of Registrant and amendments thereto, as currently in effect.
4.1* Specimen Common Stock Certificate.
4.2* Warrant to purchase 2,857 shares of Registrant's Common Stock issued to
Silicon Valley Bank, dated September 26, 1989, and amendment thereto.
4.3* Warrant to purchase 3,947 shares of Registrant's Common Stock issued to
Silicon Valley Bank, dated October 31, 1991.
4.4* Warrant to purchase 7,143 shares of Registrant's Common Stock issued to
Electronic Data Systems Corporation, dated July 27, 1994.
4.5* Warrant to purchase 1,429 shares of Registrant's Common Stock issued to
Silicon Valley Bank, dated September 26, 1994.
4.6* Warrant to purchase 6,419 shares of Registrant's Common Stock issued to
Silicon Valley Bank, dated June 1, 1995.
4.7* Warrant to purchase 6,419 shares of Registrant's Common Stock issued to
Silicon Valley Bank, dated May 1, 1996.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.8* Warrant to purchase 12,245 shares of Registrant's Common Stock issued
to Comdisco, Inc., dated May 31, 1996.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between Registrant and each of its
directors and officers.
10.2 Amended 1986 Incentive Stock Plan and form of agreement thereunder.
10.3 1994 Stock Plan, as amended, and form of agreement thereunder.
10.4 Employee Stock Purchase Plan and form of agreement thereunder.
10.5 Management Incentive Plan Summary of Registrant.
10.6 Amended registration rights held by certain security holders of
Registrant as set forth in the various preferred stock purchase
agreements among Registrant and such security holders.
10.7 Sublease Agreement between The ASK Group, Inc. and Registrant, dated
October 8, 1993, for Registrant's facility located at 1101 Marina
Village Parkway, Alameda, California.
10.8 Employment Agreement between Mark W. Perry and Registrant, dated May
18, 1994, and amendment thereto.
10.9 Employment Letter Agreement between Gayle Crowell and Registrant,
dated May 31, 1994.
10.10 Employment Letter Agreement between Shirish S. Hardikar and
Registrant, dated March 10, 1995.
10.11 Full Recourse Promissory Note issued by Stephen E. Recht and Corlyne
Recht to Registrant and Security Agreement between Stephen E. Recht
and Registrant each dated October 30, 1995.
10.12 Separation Agreement and Mutual Release between Stephen E. Recht and
Registrant, dated October 31, 1995.
10.13 Employment Agreement Between Kamran Kheirolomoom and Registrant dated
July 2, 1996.
10.14 Promissory Note issued by Kamran Kheirolomoom to Registrant in the
principal amount of $153,000 dated July 2, 1996.
11.1 Statement Re Computation of Pro Forma Net Income (Loss) Per Share.
16.1 Letter regarding change in certifying accountant.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors (see
page S-1).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in
Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1* Financial Data Schedule.
</TABLE>
---------------------
*To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts (see page S-2)
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ALAMEDA,
STATE OF CALIFORNIA, ON THE 5TH DAY OF AUGUST, 1996.
Viewstar Corporation, a California
corporation
/s/ Kamran Kheirolomoom
By___________________________________
Kamran Kheirolomoom, President
and Chief Executive Officer
POWER OF ATTORNEY
Know all these men by these presents, that each of the undersigned does
hereby constitute and appoint Kamran Kheirolomoom and Robert I. Pender, Jr.,
or any of them (with full power to each of them to act alone), his or her true
and lawful attorney-in-fact and agent, with full power of substitution, for
him or her and on his or her behalf to sign, execute and file this
Registration Statement and any or all amendments (including, without
limitation, post-effective amendments and any amendment or amendments or
abbreviated registration statement increasing the amount of securities for
which registration is being sought) to this Registration Statement, with all
exhibits and any and all documents required to be filed with respect thereto,
with the Securities and Exchange Commission or any regulatory authority,
granting unto such attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he or she might or could do if
personally present, hereby ratifying and confirming all that such attorneys-
in-fact and agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Kamran Kheirolomoom President, Chief August 5, 1996
- ------------------------------------- Executive Officer
(KAMRAN KHEIROLOMOOM) and Chairman of the
Board of Directors
(Principal
Executive Officer)
/s/ Robert I. Pender, Jr. Vice President of August 5, 1996
- ------------------------------------- Finance and Chief
(ROBERT I. PENDER, JR.) Financial Officer
(Principal
Financial and
Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J.E. Ardell, III Director August 5, 1996
- -------------------------------------
(J.E. ARDELL, III)
/s/ Grant Inman Director August 5, 1996
- -------------------------------------
(GRANT INMAN)
/s/ F. Gibson Myers, Jr. Director August 5, 1996
- -------------------------------------
(F. GIBSON MYERS, JR.)
/s/ Hon Wong Director August 5, 1996
- -------------------------------------
(HON WONG)
II-6
<PAGE>
CONSENT AND FORM OF INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
ViewStar Corporation:
When the reincorporation and reverse stock split described in Note 7 of the
Notes to Consolidated Financial Statements have been consummated, we will be in
a position to render the following report:
The audits referred to in our report dated July 3, 1996,
included the related financial statement schedule as of
December 31, 1995, and for each of the years in the three-year
period ended December 31, 1995, included in the registration
statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the consolidated
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our forms of report included herein and to the
reference to our firm under the headings "Selected Consolidated Financial
Information," "Experts" and "Change in Independent Auditors" in the prospectus.
KPMG Peat Marwick LLP
San Jose, California
August 1, 1996
S-1
<PAGE>
VIEWSTAR CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER DEDUCTIONS- BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS WRITEOFFS END OF YEAR
- ----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993:
Allowance for doubtful
accounts............. $ 58 684 -- 635 $ 107
Year ended December 31,
1994:
Allowance for doubtful
accounts............. $107 595 -- 170 $ 532
Year ended December 31,
1995:
Allowance for doubtful
accounts............. $532 325 -- 213 $ 644
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant, as
currently in effect.
3.2 Form of Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering
made under this Registration Statement.
3.3* Bylaws of Registrant and amendments thereto, as currently
in effect.
4.1* Specimen Common Stock Certificate.
4.2* Warrant to purchase 2,857 shares of Registrant's Common
Stock issued to Silicon Valley Bank, dated September 26,
1989, and amendment thereto.
4.3* Warrant to purchase 3,947 shares of Registrant's Common
Stock issued to Silicon Valley Bank, dated October 31,
1991.
4.4* Warrant to purchase 7,143 shares of Registrant's Common
Stock issued to Electronic Data Systems Corporation,
dated July 27, 1994.
4.5* Warrant to purchase 1,429 shares of Registrant's Common
Stock issued to Silicon Valley Bank, dated September 26,
1994.
4.6* Warrant to purchase 6,419 shares of Registrant's Common
Stock issued to Silicon Valley Bank, dated June 1, 1995.
4.7* Warrant to purchase 6,419 shares of Registrant's Common
Stock issued to Silicon Valley Bank, dated May 1, 1996.
4.8* Warrant to purchase 12,245 shares of Registrant's Common
Stock issued to Comdisco, Inc., dated May 31, 1996.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between Registrant and
each of its directors and officers.
10.2 Amended 1986 Incentive Stock Plan and form of agreement
thereunder.
10.3 1994 Stock Plan, as amended, and form of agreement
thereunder.
10.4 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5 Management Incentive Plan Summary of Registrant.
10.6 Amended registration rights held by certain security
holders of Registrant as set forth in the various
preferred stock purchase agreements among Registrant and
such security holders.
10.7 Sublease Agreement between The ASK Group, Inc. and
Registrant, dated
October 8, 1993, for Registrant's facility located at
1101 Marina Village Parkway, Alameda, California.
10.8 Employment Agreement between Mark W. Perry and
Registrant, dated May 18, 1994, and amendment thereto.
10.9 Employment Letter Agreement between Gayle Crowell and
Registrant, dated
May 31, 1994.
10.10 Employment Letter Agreement between Shirish S. Hardikar
and Registrant, dated March 10, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.11 Full Recourse Promissory Note issued by Stephen E. Recht
and Corlyne Recht to Registrant and Security Agreement
between Stephen E. Recht and Registrant, each dated
October 30, 1995.
10.12 Separation Agreement and Mutual Release between Stephen
E. Recht and Registrant, dated October 31, 1995.
10.13 Employment Agreement Between Kamran Kheirolomoom and
Registrant, dated July 2, 1996.
10.14 Promissory Note issued by Kamran Kheirolomoom to
Registrant in the principal amount of $153,000, dated
July 2, 1996.
11.1 Statement Re Computation of Pro Forma Net Income (Loss)
Per Share.
16.1 Letter regarding change in certifying accountant.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
(see page S-1).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C.
(included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1* Financial Data Schedule.
</TABLE>
- ---------------------
*To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VIEWSTAR CORPORATION
Kamran Kheirolomoom and Robert Pender certify that:
1. They are the duly elected and acting President and Chief Financial
Officer, respectively, of Viewstar Corporation, a California corporation (the
"Corporation").
2. The Articles of Incorporation of the Corporation are hereby amended
and restated to read in their entirety as set forth on Exhibit A attached
---------
hereto.
3. The attached Amended and Restated Articles of Incorporation have been
duly approved by the Board of Directors of the Corporation.
4. The attached Amended and Restated Articles of Incorporation have been
duly approved by the required vote of the outstanding shares of Common Stock
entitled to vote in accordance with the Articles of Incorporation of this
Corporation and Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares entitled to vote with respect to the attached
amendment and restatement was 13,642,909 shares of Common Stock and 4,674,998
shares of Preferred Stock. There are no shares of Series A, Series B, Series C,
Series D or Series E Preferred Stock outstanding. The number of shares of
Common Stock and Preferred Stock voting in favor of the amendment equaled or
exceeded the vote required. The vote required was a majority of the outstanding
shares of Common Stock and a majority of the oustanding shares of Preferred
Stock, each voting separately as a class.
<PAGE>
The undersigned further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of their own knowledge.
Executed at Alameda, California on June 18, 1996.
/s/ Kamran Kheirolomoom
------------------------------------------
Kamran Kheirolomoom, President
/s/ Robert Pender
------------------------------------------
Robert Pender, Chief Financial Officer
-2-
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VIEWSTAR CORPORATION
ARTICLE I
The name of the corporation is Viewstar Corporation.
ARTICLE II
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. The corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
corporation is authorized to issue is forty-five million nine hundred fifty
thousand (45,950,000). The total number of shares of Preferred Stock the
corporation shall have authority to issue is five million nine hundred fifty
thousand (5,950,000). The total number of shares of Common Stock the
corporation shall have authority to issue is forty million (40,000,000). Both
the Preferred Stock and the Common Stock shall have a par value of $.01 per
share.
B. Five million nine hundred fifty thousand (5,950,000) shares of the
Preferred Stock are designated "Series A Preferred Stock." The remaining shares
of Preferred Stock may be issued from time to time in one or more series. The
Board of Directors of the corporation (the "Board of Directors") is expressly
authorized to provide for the issue of all or any of the remaining shares of the
Preferred Stock in one or more series, and to fix the number of shares and to
determine or alter for each such series, such voting powers, full or limited, or
no voting powers, and such designations, preferences, and relative,
participating, optional, or other rights and such qualifications, limitations,
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
shares (a "Preferred Stock Designation") and as may be permitted by the General
Corporation
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Law of California. The Board of Directors is also expressly authorized to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series other than the Series A
Preferred Stock subsequent to the issue of shares of that series. In case the
number of shares of any such series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
C. The powers, preferences, rights, restrictions, and other matters
relating to the Series A Preferred Stock are as follows:
1. Dividends.
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(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends at the rate of $0.07 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) per annum,
respectively, payable out of funds legally available therefor. Such dividends
shall be payable only when, as, and if declared by the Board of Directors and
shall be noncumulative.
(b) No dividends (other than those payable solely in the Common Stock of
the corporation) shall be paid on any Common Stock of the corporation during any
fiscal year of the corporation until dividends in the total amount of $0.07 per
share (as adjusted for any stock dividends, combinations or splits with respect
to such shares) on the Series A Preferred Stock, shall have been paid or
declared and set apart during that fiscal year and no dividends shall be paid on
any share of Common Stock unless a dividend (including the amount of any
dividends paid pursuant to the above provisions of this Section 1) is paid with
respect to all outstanding shares of Series A Preferred Stock in an amount for
each such share of Series A Preferred Stock equal to or greater than the
aggregate amount of such dividends for all shares of Common Stock into which
each such share of Series A Preferred Stock could then be converted.
(c) In the event of a conversion of the Series A Preferred Stock
pursuant to Section 3, any accrued and unpaid dividends shall be paid at the
election of the holder in cash or Common Stock at its then fair market value, as
determined by the Board of Directors.
2. Liquidation Preference.
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(a) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the corporation to the holders of Common Stock or other
junior equity security by reason of their ownership thereof, an amount per share
equal to the sum of (i) $0.70 for each outstanding share of Series A Preferred
Stock (the "Original Series A Issue Price") (as adjusted for any stock
dividends, combinations or splits with respect to such shares), and (ii) an
amount equal to all declared but unpaid dividends on each such share. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the corporation legally available for distribution
shall be distributed ratably
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among the holders of the Series A Preferred Stock in proportion to the product
of the liquidation preference of each such share and the number of such shares
owned by each such holder.
(b) After the distribution described in subsection (a) above has been
paid, the remaining assets of the corporation available for distribution to
shareholders shall be distributed, among the holders of Series A Preferred Stock
and Common Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all such Series A Preferred Stock); provided,
however, that at such time as the liquidation assets distributed to the holders
of Series A Preferred Stock shall equal $1.05 per share (which amounts includes
the liquidation preference described in Section 2(a) (the "Series F Liquidation
Preference"), any remaining liquidation assets shall be distributed pro rata
solely to the holders of the Common Stock.
(c) For purposes of this Section 2, (i) any acquisition of the
corporation by means of merger or other form of corporate reorganization in
which the shareholders of the corporation do not own a majority of the
outstanding Shares of the surviving corporation or (ii) a sale of all or
substantially all of the assets of the corporation shall be treated as a
liquidation, dissolution or winding up of the corporation and shall entitle the
holders of Series A Preferred Stock and Common Stock to receive at the closing
cash, securities or other property as specified in Sections 2(a) and 2(b) above.
(d) Any securities to be delivered to the holders of Series A Preferred
Stock and Common Stock pursuant to Section 2(c) above shall be valued as
follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on
such exchange over the thirty (30) day period ending three (3) days
prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid and asked prices over
the thirty (30) day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the
corporation and the holders of not less than a majority of the then
outstanding shares of Series A Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in clauses
(i)(A), (B) or (C) to reflect the approximate fair market value thereof, as
mutually determined by the
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corporation and the holders of a majority of the then outstanding shares of
Series A Preferred Stock.
(e) The corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
earlier than twenty (20) days after the corporation has given the first notice
provided for herein or earlier than ten days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of a majority
of the shares of Series A Preferred Stock then outstanding.
(f) The provisions of this Section 2 are in addition to the protective
provisions of Section 5 hereof.
3. Conversion. The holders of Series A Preferred Stock shall have
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conversion rights as follows (the "Conversion Rights"):
(a) Right To Convert. Subject to subsection (d), each share of Series A
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Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price by the Conversion Price in effect at the time that
the certificate is surrendered for conversion for the Series A Preferred Stock
(the "Conversion Price"). The initial Conversion Price per share for shares of
Series A Preferred Stock shall be the Original Series A Issue Price, subject to
adjustment as set forth in subsection (d).
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Price
then in effect for the Series A Preferred Stock upon the earlier of (i) the date
specified by vote or written consent or agreement of holders of seventy-five
percent (75%) of the outstanding shares of Series A Preferred Stock, or (ii)
immediately upon the closing of the sale of the corporation's Common Stock in a
firm commitment, underwritten public offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), other than a registration
relating solely to a transaction under Rule 145 under such Act or to an employee
benefit plan of the corporation, the aggregate proceeds to the corporation
and/or any selling shareholders (before deduction for underwriters' discounts
and expenses) of which exceed $10,000,000.
(c) Mechanics of Conversion.
-----------------------
(i) Before any holder of Series A Preferred Stock shall be entitled
voluntarily to convert the same into shares of Common Stock, he shall surrender
the certificate or certificates
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therefor, duly endorsed, at the office of the corporation or of any transfer
agent for such stock, and shall give written notice to the corporation at such
office that he elects to convert the same and shall state therein the number of
shares to be converted and the name or names in which he wishes the certificate
or certificates for shares of Common Stock to be issued. The corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Series A Preferred Stock, a certificate or certificates for the number
of shares of Common Stock to which he shall be entitled. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(ii) If the conversion is in connection with an underwritten offering of
securities pursuant to the Securities Act, the conversion may, at the option of
any holder tendering shares of Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Adjustments to Series A Conversion Price.
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(i) Special Definitions. For purposes of this Section 3(d), the
-------------------
following definitions apply:
(A) "Options" shall mean rights, options, or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities (defined below).
(B) "Original Issue Date" shall mean the date on which a share of
Series A Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series A Preferred Stock)
or other securities convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be
issued) by the corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(1) Upon conversion of shares of Series A Preferred Stock;
(2) To employees, directors, consultants or advisors under
stock option, stock bonus or stock purchase plans or agreements or
similar plans or agreements approved by the Board of Directors or an
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authorized committee thereof; provided, however, that this Section
3(d)(i)(D)(2) shall only apply to 1,060,500 shares (as adjusted for
any stock dividends, combinations or splits and net of any repurchases
of shares or cancellations or expirations of options) issued (or
deemed to be issued) to such employees, directors, consultants or
advisors;
(3) As a dividend or distribution on Series A Preferred Stock;
or
(4) For which adjustment of the Series A Conversion Price is
made pursuant to Section 3(e).
(ii) No Adjustment of Conversion Price. Any provision herein to the
---------------------------------
contrary notwithstanding, no adjustment in the Conversion Price shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share (determined pursuant to Section 3(d)(v) hereof) for an
Additional Share of Common Stock issued or deemed to be issued by the
corporation is less than the Conversion Price in effect on the date of, and
immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of Common Stock. In the event the
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corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustments in the Conversion Price shall be made
upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities
(provided, however, that no such adjustment of the Conversion Price
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shall affect Common Stock previously issued upon conversion of the
Preferred Stock);
(C) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and
any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(1) In the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the corporation for the issue of
all such Options, whether or not exercised, plus the consideration
actually received by the corporation upon such exercise, or for the
issue of all such Convertible Securities, plus the additional
consideration, if any, actually received by the corporation upon such
conversion or exchange and
(2) In the case of Options for Convertible Securities only
the Additional Shares of Common Stock, if any, actually issued upon
the exercise thereof were issued at the time of issue of such Options,
and the consideration received by the corporation for the Additional
Shares of Common Stock deemed to have been then issued was the
consideration actually received by the corporation for the issue of
all such Options, whether or not exercised, plus the consideration
actually received by the corporation (determined pursuant to Section
3(d)) upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(D) No readjustment pursuant to clause (B) or (C) above shall have
the effect of increasing the Conversion Price to an amount which exceeds
the lower of (a) the Conversion Price on the original adjustment date, or
(b) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and
such readjustment date.
(E) In the case of any Options which expire by their terms not more
than thirty (30) days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner
provided in clause (C) above.
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(F) If any such record date shall have been fixed and such Options
or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective
on such record date shall be canceled as of the close of business on such
record date, and shall instead be made on the actual date of issuance, if
any.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of
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Common Stock. In the event the corporation, at any time after the Original
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Issue Date shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 3(d)(iii))
without consideration or for a consideration per share less than the Conversion
Price in effect on the date of and immediately prior to such issue, then the
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, the numerator of which shall be the number of shares of Series A
Preferred Stock outstanding immediately prior to such issue plus the number of
shares of Series A Preferred Stock which the aggregate consideration received by
the corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Conversion Price in effect immediately prior to
such issuance, and the denominator of which shall be the number of shares of
Series A Preferred Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this Section 3(d),
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the consideration received by the corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) Insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(2) Insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(3) In the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of
the corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided
in clauses (1) and (2) above, as determined in good faith by the
Board of Directors.
(B) Options and Convertible Securities. The consideration per
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share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3(d)(iii), relating to
Options and Convertible Securities shall be determined by dividing:
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(1) The total amount, if any, received or receivable by the
corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein designed to
protect against dilution) payable to the corporation upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities by
(2) The maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against the dilution)
issuable upon the exercise of such Options or conversion or exchange
of such Convertible Securities.
(e) Adjustments to Conversion Prices for Stock Dividends and for
------------------------------------------------------------
Combinations or Subdivisions of Common Stock. In the event that the corporation
- --------------------------------------------
at any time or from time to time after the Original Issue Date shall declare or
pay, without consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire Common
Stock), or in the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, then the Conversion Price in effect immediately prior to
such event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event that the
corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the corporation shall be deemed to have made a dividend payable in Common
Stock in an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.
(f) Adjustments for Reclassification and Reorganization. If the Common
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Stock issuable upon conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section 3(e) above
or a merger or other reorganization referred to in Section 2(c) above), the
Conversion Price then in effect shall, concurrently with the effectiveness of
such reorganization or reclassification, be proportionately adjusted so that the
Series A Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Series A Preferred Stock immediately
before that change.
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(g) No Impairment. The corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of any Conversion Price pursuant to this Section 3,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate executed by the corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of the Series A Preferred
Stock.
(i) Notices of Record Date. In the event that the corporation shall
----------------------
propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation, or sell, lease or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; then, in connection with each such event, the corporation shall send to the
holders of Series A Preferred Stock:
(A) At least twenty (20) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above; and
(B) In the case of the matters referred to in (iii) and (iv) above,
at least twenty (20) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
(j) Issue Taxes. The corporation shall pay any and all issue and other
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taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of
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Series A Preferred Stock pursuant hereto; provided, however, that the
corporation shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(k) Reservation of Stock Issuable Upon Conversion. The corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to this Certificate.
(l) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
(m) Notices. Any notice required by this Section 3 to be given to the
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holders of shares of Series A Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at his address on the books of the corporation.
4. Voting Rights.
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(a) The holder of each share of Series A Preferred Stock shall have the
right to one vote for each share of Common Stock into which such share of Series
A Preferred Stock could be converted on the record date for the vote or written
consent of shareholders. In all cases any fractional share, determined on an
aggregate conversion basis, shall be rounded to the nearest whole share. With
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock (except as
otherwise provided herein or as required by law, voting together with the Common
Stock as a single class), and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the bylaws of
the corporation. Each holder of Common Stock shall be entitled to one (1) vote
for each share of Common Stock held.
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(b) Designation of Directors.
------------------------
(i) The holders of the Series A Preferred Stock shall be entitled, as a
group voting as a separate class (the "Preferred Class"), to elect one (1)
member of the Board of Directors of the corporation. All members of the Board of
Directors not required to be elected by the holders of the Series A Preferred
Stock shall be elected by the holders of the Common Stock and Series A Preferred
Stock (voting on an as-if-converted basis), voting together as a single class.
(ii) The right of the holders of the Series A Preferred Stock to elect
directors separately pursuant to this Section 4(b) shall terminate whenever the
Common Stock issued upon the conversion of shares of the Series A Preferred
Stock pursuant to Section 4 hereof constitutes a majority of the Common Stock
issued and outstanding.
(iii) In the case of any vacancy in the office of a director occurring
among the directors elected by the Series A Preferred Stock or Common Stock
pursuant to subparagraph (i) of paragraph (b) of Section 4 hereof, the remaining
director or directors so elected by the Series A Preferred Stock or Common
Stock, by affirmative vote of a majority of the remaining directors of that
class, or the holders of a majority of the shares of that class, may elect a
successor or successors to hold the office for the unexpired term of the
director or directors whose place or places shall be vacant. Any director who
shall have been elected by the Series A Preferred Stock or Common Stock or any
director so elected as provided in the preceding sentence hereof, may be removed
during the aforesaid term of office, whether with or without cause, only by the
affirmative vote of the holders of a majority of the outstanding shares of the
Series A Preferred Stock or Common Stock, as the case may be.
5. Restrictions and Limitations.
----------------------------
(a) So long as any shares of Series A Preferred Stock remain outstanding,
the corporation shall not, without the vote or written consent by the holders of
a majority of the then outstanding shares of the Series A Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Preferred
Stock otherwise than by conversion in accordance with Section 3 hereof;
(ii) Redeem, purchase or otherwise acquire (or pay into or set aside for
a sinking fund for such purpose) any of the Common Stock; provided, however,
that this restriction shall not apply to the repurchase of shares of Common
Stock from employees, officers, directors, consultants or other persons
performing services for the corporation or any subsidiary pursuant to agreements
under which the corporation has the option to repurchase such shares at cost or
at cost plus interest upon the occurrence of certain events, such as the
termination of employment;
(iii) Authorize or issue, or obligate itself to issue, any other equity
security (including any security convertible into or exercisable for any equity
security) senior or equal to the Series
-12-
<PAGE>
A Preferred Stock as to any rights, preferences or privileges, including without
limitation, dividend rights, redemption rights and liquidation preferences;
(iv) Amend its Articles of Incorporation or Bylaws; or
(v) Effect any sale, lease, assignment, transfer or other conveyance of
all or substantially all of the assets of the corporation, or any consolidation
or merger involving the corporation, or any reclassification or other change of
any stock, or any recapitalization of the corporation.
(b) So long as any shares of Series A Preferred Stock remain outstanding,
the corporation shall not, without the vote on written consent by the holders of
at least seventy five percent (75%) of the then outstanding shares of Series A
Preferred Stock:
(i) Increase the number of authorized shares of Series A Preferred
Stock; or
(ii) Take any action which materially or adversely alters or changes the
rights, preferences or privileges of the Series A Preferred Stock.
6. Status of Converted Stock. In the event any shares of Series A
-------------------------
Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so
converted shall be canceled and shall not be issuable by the corporation, and
the Articles of Incorporation of the corporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock. Such amendment may be approved by the Board of Directors of the
Corporation acting alone (pursuant to Section 203.5 (b) of the California
Corporations Code).
ARTICLE IV
A. The liability of directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, to the fullest extent permissible under California law.
C. Any amendment, repeal or modification of any provision of the
Article IV shall not adversely affect any right or protection of an agent of
this corporation existing at the time of such amendment, repeal or modification.
-13-
<PAGE>
EXHIBIT 3.2
THIS RESTATED CERTIFICATE OF INCORPORATION WILL BE FILED AFTER CLOSING
THE VIEWSTAR CORPORATION INITIAL PUBLIC OFFERING]
RESTATED CERTIFICATE OF INCORPORATION
OF
VIEWSTAR CORPORATION
The following Restated Certificate of Incorporation of ViewStar Corporation
(i) restates the provisions of the Certificate of Incorporation of ViewStar
Corporation filed with the Secretary of State of the State of Delaware on August
__, 1996, and (ii) supersedes the original Certificate of Incorporation and all
prior restatements thereof and amendments thereto in their entirety.
ARTICLE I
The name of the corporation is ViewStar Corporation (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the Corporation is authorized
to issue is 27,000,000 shares. The number of shares of Common Stock authorized
is 25,000,000. The number of shares of Preferred Stock authorized is 2,000,000.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
board). The Board of Directors is further authorized to
<PAGE>
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares in any such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
The authority of the Board of Directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the
corporation, acting in accordance with this Restated
-2-
<PAGE>
Certificate of Incorporation, may deem advisable and are not inconsistent with
law and the provisions of this Restated Certificate of Incorporation.
ARTICLE V
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The Corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the Corporation.
-3-
<PAGE>
ARTICLE IX
Holders of stock of any class or series of this corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to Sections 2115 and/or 301.5 of the California Corporations
Code, in which event each such holder shall be entitled to as many votes as
shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and the holder may cast all of such votes for a
single director or may distribute them among the number of directors to be voted
for, or for any two or more of them as such holder may see fit, so long as the
name of the candidate for director shall have been placed in nomination prior to
the voting and the stockholder, or any other holder of the same class or series
of stock, has given notice at the meeting prior to the voting of the intention
to cumulate votes.
ARTICLE X
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the Bylaws of
the corporation. The directors shall be divided into three classes with the
term of office of the first class (Class I) to expire at the annual meeting of
stockholders held in 1997; the term of office of the second class (Class II) to
expire at the annual meeting of stockholders held in 1998; the term of office of
the third class (Class III) to expire at the annual meeting of stockholders held
in 1999; and thereafter for each such term to expire at each third succeeding
annual meeting of stockholders after such election.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Bylaws of the corporation shall so provide.
ARTICLE XI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE XII
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent. The
affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then
outstanding voting securities of the corporation, voting together as a single
class, shall be required for the amendment, repeal or modification of the
provisions of Article IX, Article X or Article
-4-
<PAGE>
XII of this Restated Certificate of Incorporation or Sections 2.4, 2.5, 2.10 or
3.2 of the Corporation's Bylaws.
ARTICLE XIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
This Restated Certificate of Incorporation has been duly adopted by the
Board of Directors of the Corporation in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware, as
amended.
The Restated Certificate of Incorporation only restates and integrates and
does not further amend the provisions of the Corporation's Certificate of
Incorporation, as amended and corrected, and there is no discrepancy between
those provisions and the provisions of this Restated Certificate of
Incorporation.
IN WITNESS WHEREOF, ViewStar Corporation has caused this certificate to be
signed by Robert I. Pender, Jr., its Vice President of Finance and Chief
Financial Officer, this ____ day of August, 1996.
------------------------------------------------
Robert I. Pender, Jr., Vice President of Finance
and Chief Financial Officer
-5-
<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
August 5, 1996
ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by you
with the Securities and Exchange Commission on August 5, 1996 (the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended, of the offering and sale of 2,300,000 shares of Common Stock
(the "Shares") of ViewStar Corporation. As your counsel in connection with this
transaction, we have examined the proceedings proposed to be taken in connection
with this transaction.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us to be taken prior to the issuance of the Shares, the Shares
when issued and sold in the manner referred to in the Registration Statement
will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part hereof and
any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 10.1
VIEWSTAR CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_______________, 1996 by and between ViewStar Corporation, a Delaware
corporation (the "Company"), and __________________________________,
("Indemnitee").
WHEREAS, effective as of the date hereof, ViewStar Corporation, a
California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement to provide indemnification and
advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) or group acting in concert, other than a trustee
<PAGE>
or other fiduciary holding securities under an employee benefit plan of the
Company acting in such capacity or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing more than 50% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation
other than a merger or consolidation which would result in the Voting Securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
LocalMed, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which LocalMed, Inc. (or
any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other
-2-
<PAGE>
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
-3-
<PAGE>
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of
---------------------------
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
--------------------------------------------------------------
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has
-----------------------------------------------
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change
-4-
<PAGE>
in Control), any Reviewing Party with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnification of Expenses under this
Agreement or any other agreement or under the Company's Certificate of
Incorporation or Bylaws as now or hereafter in effect, or under any other
applicable law, if desired by Indemnitee, shall be Independent Legal Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be entitled to be indemnified hereunder under applicable law
and the Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other provision
of this Agreement, the Company shall not be required to pay Expenses of more
than one Independent Legal Counsel in connection with all matters concerning a
single Indemnitee, and such Independent Legal Counsel shall be the Independent
Legal Counsel for any or all other Indemnitees unless (i) the employment of
separate counsel by one or more Indemnitees has been previously authorized by
the Company in writing, or (ii) an Indemnitee shall have provided to the Company
a written statement that such Indemnitee has reasonably concluded that there may
be a conflict of interest between such Indemnitee and the other Indemnitees with
respect to the matters arising under this Agreement.
(e) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense
-------------------
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
-5-
<PAGE>
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
-6-
<PAGE>
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
-7-
<PAGE>
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense
----------------------------
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the
-8-
<PAGE>
case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for Expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
---------------------------------------------------------------------
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this
-9-
<PAGE>
Agreement, Indemnitee shall be entitled to be indemnified for all Expenses
incurred by Indemnitee in defense of such action (including without limitation
costs and expenses incurred with respect to Indemnitee's counterclaims and
cross-claims made in such action), unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material defenses asserted by Indemnitee in such action was made in bad
faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to receive
payment of Expense Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
-10-
<PAGE>
18. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
in the State of Delaware without regard to principles of conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
VIEWSTAR CORPORATION
By: ____________________________ AGREED TO AND ACCEPTED
Print Name: ____________________________ INDEMNITEE:
Title: ____________________________
_________________________
Address: 1101 Marina Village Parkway (signature)
Alameda, California 94501
Print Name:______________
Address:_________________
-11-
<PAGE>
EXHIBIT 10.2
VIEWSTAR CORPORATION
AMENDED 1986 INCENTIVE STOCK PLAN
1. Purposes of the Plan. The purposes of this Incentive Stock Plan are to
--------------------
attract and retain the best available personnel, to provide additional
incentive to the Employees of Viewstar Corporation (the "Company") and to
promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agree ment. The Board also has the discretion
to grant Stock Purchase Rights.
2. Definitions. As used herein, the following definitions shall apply:
-----------
a. "Board" shall mean the Committee, if one has been appointed, or
-----
the Board of Directors of the Company, if no Committee is appointed.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
c. "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
d. "Common Stock" shall mean the Common Stock of the Company.
------------
e. "Company" shall mean Viewstar Corporation, a California
-------
corporation.
f. "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the
Company whether compensated for such services or not; provided that if
and in the event the Company registers any class of any equity
security pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the term Consultant shall
thereafter not include directors who are not compensated for their
services or are paid only a director's fee by the Company.
g. "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination
<PAGE>
of service as an Employee or Consultant, as applicable. Continuous
Status as an Employee or Consultant shall not be considered
interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is
for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
h. "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
i. "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422A of the
Code.
j. "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
k. "Option" shall mean a stock option granted pursuant to the Plan.
------
l. "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
m. "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
n. "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 425(e) of the Code.
o. "Plan" shall mean this Amended 1986 Incentive Stock Plan.
----
p. "Purchaser" shall mean an Employee or Consultant who exercises a
---------
Stock Purchase Right.
q. "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
r. "Stock Purchase Right" shall mean a right to pur chase Common
--------------------
Stock pursuant to the Plan or the right to receive a bonus of Common
Stock for past services.
s. "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 425(f) of the Code.
<PAGE>
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares under the Plan is
1,190,143 shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, then the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant or sale under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future grant
or sale under the Plan.
4. Administration of the Plan.
--------------------------
a. Procedure. The Plan shall be administered by the Board of
---------
Directors of the Company.
i. Subject to subparagraph (ii), the Board of
Directors may appoint a Committee consisting of not
less than two members of the Board of Directors to
administer the Plan on behalf of the Board of
Directors, subject to such terms and conditions as the
Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise
directed by the Board of Directors. Members of the
Board who are either eligible for Options and/or Stock
Purchase Rights or have been granted Options and/or
Stock Purchase Rights may vote on any matters
affecting the administration of the Plan or the grant
of any Options and/or Stock Purchase Rights pursuant
to the Plan, except that no such member shall act upon
the granting of an Option and/or Stock Purchase Right
to such member, but any such member may be counted in
determining the existence of a quorum at any meeting
of the Board during which action is taken with respect
to the granting of Options and/or Stock Purchase
Rights to the member.
ii. Notwithstanding the foregoing subparagraph (i), if
and in any event the Company registers any class of
any equity security pursuant to Section 12 of the
Exchange Act, from the effective date of such
registration until six months after
<PAGE>
the termination of such registration, any grants of
Options and/or Stock Purchase Rights to officers or
directors shall only be made by the Board of
Directors; provided, however, that if a majority of
the Board of Directors is eligible to participate in
this Plan or any other stock option or other stock
plan of the Company or any of its affiliates, or has
been eligible at any time during the prior one-year
period (or, if shorter, the period following the
initial registration of the Company's equity
securities under Section 12 of the Exchange Act) any
grants of Options and/or Stock Purchase Rights to
directors must be made by, or only in accordance with
the recommendation of, a Committee consisting of three
or more persons, who may but need not be directors or
employees of the Company, appointed by the Board of
Directors and having full authority to act in the
matter, none of whom is eligible to participate in
this Plan or any other stock option or other stock
plan of the Company or any of its affiliates, or has
been eligible at any time during the prior one-year
period (or, if shorter, the period following the
initial registration of the Company's equity
securities under Section 12 of the Exchange Act). Any
Committee administering the Plan with respect to
grants to officers who are not also directors shall
conform to the require ments of the preceding
sentence. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board of
Directors.
iii. Subject to the foregoing subparagraphs (i) and
(ii), from time to time the Board of Directors may
increase the size of the Committee and appoint
additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly
administer the Plan.
b. Powers of the Board. Subject to the provisions of the Plan, the
-------------------
Board shall have the authority, in its
<PAGE>
discretion: (i) to grant Incentive Stock Options, Nonstatutory Stock
Options or Stock Purchase Rights; (ii) to determine, upon review of
relevant information and in accordance with Section 7 of the Plan, the
fair market value of the Common Stock; (iii) to determine the exercise
price per share of Options or Stock Purchase Rights, to be granted,
which exercise price shall be determined in accordance with Section 7
of the Plan; (iv) to determine the Employees or Consultants to whom,
and the time or times at which, Options or Stock Purchase Rights shall
be granted and the number of shares to be represented by each Option
or Stock Purchase Right; (v) to interpret the Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vii) to
determine the terms and provisions of each Option and Stock Purchase
Right granted (which need not be identical) and, with the consent of
the holder thereof, modify or amend any provisions (including
provisions relating to exercise price) of any Option or Stock Purchase
Right; (viii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
or Stock Purchase Right previously granted by the Board; and (ix) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
c. Effect of Board's Decision. All decisions, deter minations and
--------------------------
interpretations of the Board shall be final and binding on all
Optionees, Purchasers and any other holders of any Options or Stock
Purchase Rights granted under the Plan.
5. Eligibility.
-----------
a. Options and Stock Purchase Rights may be granted to Employees and
Consultants, provided that Incentive Stock Options may only be granted
to Employees. An Employee or Consultant who has been granted an Option
or Stock Purchase Right may, if such Employee or Consultant is
otherwise eligible, be granted additional Option(s) or Stock Purchase
Right(s).
b. Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the
aggregate fair market value of the Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans
of the Company) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options.
<PAGE>
c. For purposes of Section 5(b), Options shall be taken into account
in the order in which they were granted, and the fair market value of
the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
d. The Plan shall not confer upon any Optionee or holder of a Stock
Purchase Right any right with respect to continuation of employment by
or the rendition of consulting services to the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or services at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by vote of
the holders of a majority of the outstanding shares of the Company entitled
to vote on the adoption of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Exercise Price and Consideration.
--------------------------------
a. The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option or Stock Purchase Right shall be such price
as is determined by the Board, but shall be subject to the following:
i. In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant.
(2) granted to any Employee, the per Share exercise price
shall be no less than 100% of the fair market value per
Share on the date of grant.
ii. In the case of a Nonstatutory Stock Option
(1) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the
<PAGE>
Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the fair market value
per Share on the date of the grant.
(2) granted to any person, the per Share exercise price
shall be no less than 85% of the fair market value per Share
on the date of grant.
iii. In the case of a Stock Purchase Right
(1) granted to a person who, at the time of the grant of
such Purchase Right, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of
the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the fair market
value per Share on the date of the grant.
(2) granted to any person, the per Share exercise price
shall be no less than 85% of the fair market value per Share
on the date of grant.
For purposes of this Section 7(a), in the event that an Option or
Stock Purchase Right is amended to reduce the exercise price, the date of grant
of such Option or Stock Purchase Right shall thereafter be considered to be the
date of such amendment.
b. The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for
the Common Stock, the fair market value per Share shall be the mean of
the bid and asked prices (or the closing price per share if the Common
Stock is listed on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market System of the Common
Stock for the date of grant, as reported in the Wall Street Journal
(or, if not so reported, as otherwise reported by the NASDAQ System)
or, in the event the Common Stock is listed on a stock exchange, the
fair market value per Share shall be the closing price on such
exchange on the date of grant of the Option or Stock Purchase Right,
as reported in the Wall Street Journal.
c. The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of
payment, shall be determined by the Board and may consist entirely of
cash, check, promissory note, other Shares of Common Stock
<PAGE>
which (i) either have been owned by the Optionee for more than six (6)
months on the date of surrender or were not acquired directly or
indirectly, from the Company, and (ii) 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, or any combination of such
methods of payment, or such other consideration and method of payment
for the issuance of Shares to the extent permitted under Sections 408
and 409 of the California General Corporation Law. In making its
determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company (Section 315(b) of the California
General Corporation Law).
8. Options.
-------
a. Term of Option. The term of each Incentive Stock Option shall be
--------------
ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Incentive Stock Option Agreement. The term of
each Option that is not an Incentive Stock Option shall be ten (10)
years and one (1) day from the date of grant thereof or such shorter
term as may be provided in the Stock Option Agreement. However, in the
case of an Option granted to an Optionee who, at the time the Option
is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, (i) if the Option is an Incentive Stock Option, the term
of the Option shall be five (5) years from the date of grant thereof
or such shorter time as may be provided in the Stock Option Agreement,
or (ii) if the Option is a Nonstatutory Stock Option, the term of the
Option shall be five (5) years and one (1) day from the date of grant
thereof or such other term as may be provided in the Stock Option
Agreement.
b. Exercise of Option.
------------------
i. Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
<PAGE>
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7 of the Plan. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. In the
event that the exercise of an Option is treated in part as the exercise of an
Incentive Stock Option and in part as the exercise of a Nonstatutory Stock
Option pursuant to Section 5(b), the Company shall issue a separate stock
certificate evidencing the Shares treated as acquired upon exercise of an
Incentive Stock Option and a separate stock certificate evidencing the Shares
treated as acquired upon exercise of a Nonstatutory Stock Option and shall
identify each such certificate accordingly in its stock transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
ii. Termination of Status as an Employee or
---------------------------------------
Consultant. In the event of termination of an
----------
Optionee's Continuous Status as an Employee or
Consultant (as the case may be), such Optionee may, but
only within thirty (30) days (or such other period of
time not exceeding three (3) months in the case of an
Incentive Stock Option or six (6) months in the case of
a Nonstatutory Stock Option, as is determined by the
Board, with such determination in the case of an
Incentive Stock Option being made at the time of grant
of the Option) after the date of
<PAGE>
such termination (but in no event later than the date
of expiration of the term of such Option as set forth
in the Option Agreement, exercise the Option to the
extent that such Employee or Consultant was entitled to
exercise it at the date of such termination. To the
extent that such Employee or Consultant was not
entitled to exercise the Option at the date of such
termination, or if such Employee or Consultant does not
exercise such Option (which such Employee or Consultant
was entitled to exercise) within the time specified
herein, the Option shall terminate.
iii. Disability of Optionee. Notwithstanding the
----------------------
provisions of Section 8(b)(ii) above, in the event of
termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of such Employee's
or Consultant's disability, such Employee or Consultant
may, but only within six (6) months (or such other
period of time not exceeding twelve (12) months as is
determined by the Board, with such determination in the
case of an Incentive Stock Option being made at the
time of grant of the Option) from the date of such
termination (but in no event later than the date of
expiration of the term of such Option as set forth in
the Option Agreement), exercise the Option to the
extent such Employee or Consultant was entitled to
exercise it at the date of such termination; provided,
however that if such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the
Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically convert to a
Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that
such Employee or Consultant was not entitled to
exercise the Option at the date of termination, or if
such Employee or Consultant does not exercise such
Option (which such Employee or Consultant was entitled
to exercise) within the time specified herein, the
Option shall terminate.
iv. Death of Optionee. In the event of the death of
-----------------
an Optionee:
(i) during the term of the Option who is at the time of his
or her death an Employee or Con-
<PAGE>
sultant of the Company and who shall have been in Continuous
Status as an Employee or Consultant since the date of grant of
the Option, the Option may be exercised, at any time within six
(6) months (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), by
Optionees estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as an
Employee or Consultant six (6) months (or such other period of
time as is determined by the Board at the time of grant of the
Option) after the date of death; or
(ii) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board,
with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) after the
termination of Continuous Status as an Employee or Consultant,
the Option may be exercised, at any time within six (6) months
(or such other period of time as is determined by the Board at
the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
9. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. After the Board of Directors determines that
------------------
it will offer an Employee or Consultant a Stock Purchase Right, it shall deliver
to the offeree a stock purchase agreement or stock bonus agreement, as the case
may be, setting forth the terms, conditions and restrictions relating to the
offer, including the number of Shares which such person shall be entitled to
purchase, and the time within which such person must accept such offer, which
shall in no event exceed six (6) months from the date upon which the Board of
Directors or its Committee made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a stock purchase agreement
or stock bonus agreement in the form determined by the Board of Directors.
(b) Issuance of Shares. Forthwith after payment therefor, the Shares
------------------
purchased shall be duly issued; provided, however, that the Board may require
that the Purchaser make adequate provi-
<PAGE>
sion for any Federal and State withholding obligations of the Company as a
condition to the Purchaser purchasing such Shares.
(c) Repurchase Option. Unless the Board determines otherwise, the
-----------------
stock purchase agreement or stock bonus agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the Purchaser's employment with the Company for any reason (including death or
disability). If the Board so determines, the purchase price for shares
repurchased may be paid by cancellation of any indebtedness of the Purchaser to
the Company. The repurchase option shall lapse at such rate as the Board may
determine.
(d) Other Provisions. The stock purchase agreement or stock bonus
----------------
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
10. Non-Transferability of Options and Stock Purchase Rights. The Options
--------------------------------------------------------
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee or Purchaser, only by the Optionee or Purchaser.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
-----------------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase Right, and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, or repurchase of Shares from a Purchaser
upon termination of employment, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock of the Company or
the payment of a stock dividend with respect to the Common Stock or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
<PAGE>
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of (i) a merger of the Company with or into another
corporation, (ii) a sale of substantially all of the assets of the Company or
(iii) a change in control of the Company, where any person as beneficial owner,
as defined under Section 13 of the Securities Exchange Act of 1934, as amended,
directly or indirectly acquires securities of the Company representing a
majority of the voting power represented by the Company's then outstanding
voting securities, the Option must be assumed or an equivalent option must be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. With respect to any Option granted prior to January 4,
1992, in the event that such successor corporation refuses to assume such Option
or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise such Option as to all of the Optioned Stock, including Shares as to
which such Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option or Stock
------------------------
Purchase Right shall, for all purposes, be the date on which the Board makes the
determination granting such Option or Stock Purchase Right. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 17 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options and Stock Purchase Rights; or
<PAGE>
(iii) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, any material increase in the benefits accruing to
participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
--------------------
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such share holder approval shall be solicited as described
in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser (as the case may be)
and the Board, which agreement must be in writing and signed by the Optionee or
Purchaser (as the case may be) and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Rights,
the Company may require the person exercising such Option or Stock Purchase
Rights to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
<PAGE>
16. Option, Stock Purchase and Stock Bonus Agreements. Options shall be
-------------------------------------------------
evidenced by written option agreements in such form as the Board shall approve.
Upon the exercise of Stock Purchase Rights, the Purchaser shall sign a stock
purchase agreement or stock bonus agreement in such form as the Board shall
approve.
17. Shareholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval, if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 422A of the Code.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 17(b) hereof, then the Company shall, at or prior to
the first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information
<PAGE>
referred to in subsection (i) hereof not later than the date on which such
information is first sent or given to shareholders.
18. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and Purchaser, during the period for which such Optionee or
Purchaser has one or more Options or Stock Purchase Rights outstanding, a
balance sheet and an income statement at least annually. The Company shall not
be required to provide such information if the issuance of Options or Stock
Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information.
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
STOCK OPTION AGREEMENT
Viewstar Corporation, a California corporation (the "Company"), hereby
grants to (the "Optionee") an Option to purchase a total of shares
---- ------
of Common Stock (the "Shares"), at the price determined as provided herein, and
in all respects subject to the terms, definitions and provisions of the Amended
1986 Incentive Stock Plan (the "Plan") adopted by the Company, which is
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings herein.
1. Nature of the Option. If Optionee is an Employee of the Company, this
--------------------
Option is intended to qualify as an Incentive Stock Option. If Optionee is a
Consultant of the Company, this Option is a Nonstatutory Stock Option and is not
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_____ for each share of Common
--------------
Stock, which price is not less than the fair market value per share of Common
Stock on the date of grant, as determined by the Board; provided, however, in
the event Optionee is an Employee and owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of its Parent or Subsidiary corporations immediately before this
Option is granted, said exercise price is not less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant
as determined by the Board.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
<PAGE>
(i) Right to Exercise
-----------------
(a) Subject to Subsections 3(i)(b), (c), (d) and (e) below, two
percent (2%) of the total number of shares subject to this Option shall become
exercisable one month following Vest. Start Date and two percent (2%) of the
total number of shares subject to this option shall become exercisable at the
end of each full month thereafter until all of such shares are exercisable. In
no event shall this Option provide for vesting at a rate of less than 20% per
year over five years from the date of grant of this Option.
(b) This Option may not be exercised for a fraction of a Share.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitations contained in subsections
3(i)(d) and (e).
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(e) If this Option is intended to qualify as an Incentive Stock
Option, in no event may this Option become exercisable at a time or times
which, when this Option is aggregated with all other incentive stock options
granted to Optionee by the Company or any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the option covering such share) in excess of $100,000
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the President, Secretary or
Chief Financial Officer of the Company. The written notice shall be accompanied
by payment of the exercise price. This Option shall be deemed to be exercised
upon receipt by the Company of such written notice accompanied by the exercise
price.
<PAGE>
No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to the Optionee on the date
on which the Option is exercised with respect to such Shares.
4. Investment Representations; Restrictions on Transfer.
----------------------------------------------------
(i) By receipt of this Option, by its execution and by its exercise
in whole or in part, Optionee represents to the Company the following:
(a) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which requires
compliance with federal and state securities laws.
(b) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. Optionee
is acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(c) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Optionee further acknowledges
and understands that the Company is under no obligation to register the
securities. Optionee understands that the certificate evidencing the securities
will be imprinted with a legend which prohibits the transfer of the securities
unless they are registered or such registration is not required in the opinion
of counsel satisfactory to the Company, a legend prohibiting their transfer
without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
(d) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer
<PAGE>
thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at
the time of exercise of the Option by the Optionee, such exercise will be exempt
from registration under the Securities Act. In the event the Company later
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter the securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including among other things: (1) the
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable. Notwithstanding this
paragraph 4(i)(d), the Optionee acknowledges and agrees to the restrictions set
forth in paragraph 4(ii).
In the event that the Company does not qualify under Rule 701 at the
time of exercise of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about
the Company; (2) the resale occurring not less than two years after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and (3) in the case of an affiliate, or of a non-
affiliate who has held the securities less than three years, the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(ii) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for one hundred eighty (180) days from the effective
date of such registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering.
<PAGE>
(iii) Optionee understands that the certificate(s) representing the
Shares will bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
5. Method of Payment. Payment of the purchase price shall be made by
-----------------
cash or check.
6. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations (Regulation G) as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
7. Termination of Status as an Employee or Consultant. In the event of
--------------------------------------------------
termination of Optionee's Continuous Status as an Employee or Consultant,
Optionee may, but only within thirty (30) days after the date of such
termination (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.
<PAGE>
8. Disability of Optionee. Notwithstanding the provisions of Section 7
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of Optionee's permanent and total disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within
six (6) months from the date of termination of employment or consulting
relationship (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), exercise this Option to the
extent Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise this Option at the date of
termination, or if Optionee does not exercise such Option (which Optionee was
entitled to exercise) within the time specified herein, this Option shall
terminate.
9. Death of Optionee. In the event of the death of Optionee:
-----------------
(i) during the term of this Option while an Employee or Consultant of
the Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of this Option, this Option may be exercised, at any
time within six (6) months following the date of death (but in no event later
than the date of expiration of the term of this Option as set forth in Section
11 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had Optionee continued living and
remained in Continuous Status as an Employee or Consultant six (6) months after
the date of death, subject to the limitations contained in Section 3(i)(e)
above; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, this Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), by Optionee's estate or by a person who acquired the right to
exercise this Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
10. 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 Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
<PAGE>
11. Term of Option. Notwithstanding Section 9, this Option may not be
--------------
exercised more than five (5) years from the date of grant of this Option, and
may be exercised during such term only in accordance with the Plan and the terms
of this Option.
<PAGE>
12. Right of First Refusal.
----------------------
(i) In the event, at any time following the date of this Agreement
and after exercise of this Option, the Optionee or his transferee desires (or is
required) to sell or transfer in any manner the Shares subject to this Option,
subject to the provisions of Section 12(vi) hereof, he shall first offer such
Shares for sale to the Company at the same price, and upon the same terms (or
terms as similar as reasonably possible) upon which he is proposing or is to
dispose of such Shares. If the transfer involves property other than cash, is to
be made without consideration or does not involve a price freely set by the
Optionee, the price shall be determined as set forth in Section 12(iii) below.
Such right of first refusal shall be provided to the Company for a period of
fifteen (15) days following receipt by the Company of written notice by the
Optionee of the terms and conditions of said proposed sale or transfer, or
fifteen (15) days following the setting of a price under Section 12(iii) (when
the price is determined under Section 12(iii)). In the event the Shares are not
disposed of within ninety (90) days following lapse of the period of the right
of first refusal pro vided to the Company, they shall once again be subject to
the right of first refusal herein provided.
(ii) Subject to the provisions of Section 12(vi) hereof, in the event,
at any time following the date of this Agreement, of any transfer by operation
of law or other involuntary transfer (including a transfer pursuant to death or
dissolution of marriage) of all or a portion of the Shares, the Company shall
have an option to purchase all of the Shares transferred. Upon such a transfer,
the person acquiring the Shares shall promptly notify the Secretary of the
Company of such transfer. The right to purchase such Shares shall be provided
to the Company for a period of fifteen (15) days following receipt by the
Company of written notice by the person acquiring the Shares.
(iii) With respect to any stock to be transferred pursuant to Sections
12(i) or 12(ii) and as to which a price has not been set by the Optionee under
Section 12(i), the price per Share shall be a price set by the Board of
Directors of the Company which will reflect the current value of the Shares in
terms of present earnings and future prospects of the Company. The Company
shall notify the Optionee or his executor of the price so determined within
thirty (30) days after receipt by it of written notice of the transfer or
proposed transfer of the Shares. If the Optionee or his executor disputes the
price as set by the Board of Directors by giving notice to the Company within
ten (10) days after being informed of the price, the price of the Shares shall
be determined by an independent financial analyst selected by the Board of
Directors of the Company, with the cost of such determination to be
<PAGE>
divided equally between the Company and the Optionee. The Board of Directors
shall select such analyst within thirty (30) days after receipt of notice that
the Optionee is disputing the price set by the Board of Directors. If the Board
is not notified of any such dispute within such ten (10) day period, the
decision of the Board of Directors as to the purchase price shall be final. Any
time required to determine a purchase price or to resolve a dispute shall be
added to the fifteen (15) day period in which the Company may exercise its right
to purchase.
(iv) The right of the Company to purchase any part of the Shares may
be assigned in whole or in part to one or more employees, officers, directors or
shareholders of the Company or other persons or organizations, so long as the
assignee pays the Company the difference, if any, between the purchase price and
the fair market value of the Shares so purchased.
(v) The right of first refusal granted the Company by this Section 12
shall terminate at such time as a public market exists for the Company's Common
Stock (or any other stock issued to Optionee in exchange for the Shares
purchased under this Agreement). Upon termination of the right of first
refusal, at the Optionee's request the Company shall issue a new certificate
representing the Shares without a legend referring to such refusal right. For
the purpose of this Agreement, a "public market" shall be deemed to exist if (i)
such stock is listed on a national securities exchange (as that term is used in
the Securities Exchange Act of 1934) or (ii) such stock is traded on the over-
the-counter market and prices are published daily on business days in a
recognized financial journal.
(vi) The right of first refusal contained in this Section 12 shall not
pertain to or apply to (i) any bona fide pledge of shares of stock made by the
Optionee which creates a mere security interest, (ii) any transfer to the
Optionee's ancestors or descendents or spouse or to a trustee for his or their
benefit, (iii) any transfer to a former spouse pursuant to a property settlement
agreement, or (iv) a bona fide gift; provided that the Optionee shall inform the
Company of such pledge, transfer or gift prior to effecting it and the pledgee,
transferee or donee shall furnish the Company with a written agreement to be
bound by and comply with all provisions of this Agreement applicable to the
Optionee.
13. Early Disposition of Stock. If Optionee is an Employee, Optionee
--------------------------
understands that, if Optionee disposes of any Shares received under this Option
within two (2) years after the date of this Agreement or within one (1) year
after such Shares were transferred to Optionee, Optionee will be treated for
federal
<PAGE>
income tax purposes as having received ordinary income at the time of such
disposition in an amount generally measured as the difference between the price
paid for the Shares and the lower of the fair market value of the Shares at the
date of exercise or the fair market value of the Shares at the date of
disposition. The amount of such ordinary income may be measured differently if
Optionee is an officer, director or 10% shareholder of the Company, or if the
Shares were subject to a substantial risk of forfeiture at the time they were
transferred. Any gain recognized on such a premature sale of the Shares in
excess of the amount treated as ordinary income will be characterized as capital
gain. Optionee hereby agrees to notify the Company in writing within thirty
---------------------------------------------------------------------
(30) days after the date of any such disposition. Optionee understands that if
- ------------------------------------------------
Optionee disposes of such Shares at any time after the expiration of such two-
year and one-year holding periods, any gain on such sale will be treated as
long-term capital gain.
14. Taxation Upon Exercise of Option. If Optionee is a Consultant,
--------------------------------
Optionee understands that, upon exercise of this Option, Optionee will recognize
income for tax purposes in an amount equal to the excess of the then fair market
value of the Shares over the exercise price. Upon a resale of such shares by
the Optionee, any difference between the sale price and the fair market value of
the shares on the date of exercise of the Option will be treated as capital gain
or loss.
15. Tax Consequences. The Optionee understands that any of the foregoing
----------------
references to taxation are based on federal income tax laws and regulations now
in effect. The Optionee has reviewed with the Optionee's own tax advisors the
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. The Optionee is relying solely on such advisors
and not on any statements or representations of the Company or any of its
agents. The Optionee understands that the Optionee (and not the Company) shall
be responsible for the Optionee's own tax liability that may arise as a result
of the transactions contemplated by this Agreement.
DATE OF GRANT: __________
VIEWSTAR CORPORATION
By:_____________________________
Title:__________________________
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, 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 OR CONSULTANT 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 EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board or of the Committee upon any questions arising
under the Plan. Optionee further agrees to notify the Company upon any change
in the residence address indicated below.
Dated: ____________________
________________________________
Name, Optionee
Residence Address:
________________________________
________________________________
<PAGE>
EXHIBIT 10.3
VIEWSTAR CORPORATION
1994 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means ViewStar Corporation, a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render and who is compensated for such
services.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1994 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 below.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
-3-
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,100,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the Plan shall be
administered by the Board or a Committee of two or more "non-employee directors"
within the meaning of Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
-4-
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be
-5-
<PAGE>
withheld. The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined. All
elections by an Optionee to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 1,100,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,100,000 Shares
which shall not count against the limit set forth in subsection (i) above.
-6-
<PAGE>
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
-7-
<PAGE>
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions 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. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(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 formal
cashless exercise program adopted by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
-8-
<PAGE>
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that he or she is
entitled to exercise it on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option at any time within twelve (12) months from the date of
termination, but only to the extent that the Optionee is entitled to exercise it
on the date of termination (and in no event later than the expiration of the
term of the Option as set forth in the Option Agreement). If, on the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's
-9-
<PAGE>
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee would have been
entitled to exercise the Option on the date of death. If, at the time of death,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert to
the Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee's will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
-10-
<PAGE>
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding
-11-
<PAGE>
Option and Stock Purchase Right shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option or Stock Purchase Right, the Optionee shall
fully vest in and have the right to exercise the Option or Stock Purchase Right
as to all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee in
writing or electronically that the Option or Stock Purchase Right shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
-12-
<PAGE>
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE>
1994 STOCK 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's Name and Address]
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: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates].
<PAGE>
Termination Period:
------------------
This Option may be exercised for _____ [days/months] after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for such longer period as provided in the Plan. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
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 15(c) 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.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
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.
(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 provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Chief Financial Officer 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.
-2-
<PAGE>
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; or
(b) check[; or
(c) consideration received by the Company under a formal cashless
exercise program adopted 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][; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement].
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.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular
--------------------------
federal income tax liability upon exercise of a 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
-3-
<PAGE>
the Optionee is an 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.
(ii) Incentive Stock Option. If this Option qualifies as an
----------------------
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. 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.
(ii) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan 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
-4-
<PAGE>
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 Delaware.
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 A SERVICE PROVIDER 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 A
SERVICE PROVIDER 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 A SERVICE PROVIDER 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 and this Option Agreement. Optionee has
reviewed the Plan 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 and 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.
-5-
<PAGE>
OPTIONEE: VIEWSTAR CORPORATION
_____________________________________ __________________________________
Signature By
_____________________________________ __________________________________
Print Name Title
_____________________________________
Residence Address
____________________________________
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
-7-
<PAGE>
EXHIBIT A
---------
1994 STOCK PLAN
EXERCISE NOTICE
ViewStar Corporation
1101 Marina Village Parkway
Alameda, CA 94501
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ________________, 199__,
-------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of ViewStar Corporation (the "Company") under
and pursuant to the 1994 Stock Plan (the "Plan") and the Stock Option Agreement
dated _____________, 19___ (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 Shareholder. 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 shareholder 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 13] 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 and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan 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 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
<PAGE>
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of Delaware.
Submitted by: Accepted by:
PURCHASER: VIEWSTAR CORPORATION
________________________________ ______________________________________
Signature By
________________________________ ______________________________________
Print Name Its
Address: Address:
- ------- -------
_________________________________ 1101 Marina Village Parkway
_________________________________ Alameda, CA 94501
______________________________________
Date Received
-2-
<PAGE>
EXHIBIT 10.4
VIEWSTAR CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of ViewStar Corporation (the "Company").
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean ViewStar Corporation and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all compensation reportable on Form
------------
W-2, including without limitation base straight time gross earnings, sales
commissions, payments for overtime, shift premiums, incentive compensation,
incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sale
price for the Common Stock (or the mean of the closing bid and asked prices, if
no sales were reported), as quoted on such exchange (or the exchange with the
greatest volume of trading in Common Stock) or system on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ system (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock.
(k) "Offering Period" shall mean a period of approximately six (6)
---------------
months, commencing on the first Trading Day on or after May 1 and terminating on
the last Trading Day in the period ending the following October 31 or commencing
on the first Trading Day on or after November 1 and terminating on the last
Trading Day in the period ending the following April 30 during which an option
granted pursuant to the Plan may be exercised. The first Offering Period shall
begin on the effective date of the Company's initial public offering of its
Common Stock that is registered with the Securities and Exchange Commission and
shall end on the last Trading Day on or before April 30, 1997. The duration of
Offering Periods may be changed pursuant to Section 4 of this Plan. The initial
Offering Period shall be determined by the Board of Directors.
(l) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
----
-2-
<PAGE>
(n) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 1 and November 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The first Offering Period shall begin on the effective date
of the Company's initial public offering of its Common Stock that is registered
with the Securities and Exchange Commission. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date. An eligible Officer may become a participant
in the Plan by completing a subscription agreement authorizing payroll
deductions and an irrevocable election in the form of Exhibit B to this Plan and
filing it with the Company's payroll office prior to the applicable Enrollment
Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant other than Officers may discontinue his or her
participation in the Plan as provided in Section 10 hereof, or may increase or
decrease the rate of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription agreement authorizing a
change in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change in
rate shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year (the "Current
Offering Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant' s subscription
agreement at the beginning of the first Offering Period which is
-4-
<PAGE>
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant' s account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant who requests in writing, as reasonable and appropriate, of a
certificate representing the shares purchased upon exercise of his or her
option.
10. Withdrawal; Termination of Employment.
-------------------------------------
-5-
<PAGE>
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit C to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period. If a
participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof ), for any reason, he or she will be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
(c) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 400,000 shares, subject
to adjustment upon changes in capitalization of the Company as provided in
Section 18 hereof. If on a given Exercise Date the number of shares with respect
to which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
issued in the name of the participant or in the name of the participant and his
or her spouse.
-6-
<PAGE>
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the Board
-------------------
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such parti cipant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the
-7-
<PAGE>
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date") or to cancel each outstanding right to
purchase and refund all sums collected from participants during the Offering
Period then in progress. If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date
-8-
<PAGE>
and that his option will be exercised automatically on the New Exercise Date,
unless prior to such date he has withdrawn from the Offering Period as provided
in Section 10 hereof. For purposes of this paragraph, an option granted under
the Plan shall be deemed to be assumed if, following the sale of assets or
merger, the option confers the right to purchase, for each share of option stock
subject to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received in
the sale of assets or merger by holders of Common Stock for each share of Common
Stock held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each out standing option, in the event the Company
effects one or more reorganizations, recapitalization, rights offerings or other
increases or reductions of shares of its outstanding Common Stock, and in the
event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods
-9-
<PAGE>
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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 pur chased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
-10-
<PAGE>
EXHIBIT A
---------
VIEWSTAR CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
ViewStar Corporation Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company' s Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (not to exceed 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that the grant
of the option by the Company under this Subscription Agreement is subject
to obtaining shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only):
__________________________________________
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I
<PAGE>
purchased such shares), I will be treated for federal income tax purposes
as having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within 30 days
--------------------------------------------------------------
after the date of any disposition of shares and I will make adequate
--------------------------------------------------------------------
provision for Federal, state or other tax withholding obligations, if any,
-------------------------------------------------------------------------
which arise upon the disposition of the Common Stock. The Company may, but
----------------------------------------------------
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _____________________________________________
(First) (Middle) (Last)
______________________ _______________________________
Relationship
_______________________________
(Address)
EMPLOYEE NAME: (Please print) ___________________________________________
(First) (Middle) (Last)
-2-
<PAGE>
_____________________________________
_____________________________________
(Address)
Employee's Social
Security Number: _____________________________
Employee's Address: _____________________________
_____________________________
_____________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:________________________ ______________________________
Signature of Employee
___________________________________
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
VIEWSTAR CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SECTION 16 INSIDER IRREVOCABLE ELECTION AND WAIVER
To: Plan Administrator
With respect to the purchase period ending _________________________, 19______
(the "Next Period") under the Company's Employee Stock Purchase Plan (the
"Plan") and for all future periods, I hereby irrevocably elect:
(i) to have amounts withheld from each of my paychecks during such period
at the rate of
________% of my compensation (as defined in the Plan) per pay period
(minimum _______% and maximum ________%); AND
(ii) to purchase shares at the end of the period designated above with all
amounts deducted from my pay and held in my account under the Plan at
the end of such period.
I hereby waive any rights that I would otherwise have under the Plan to withdraw
from, or to change my rate or amount of payroll deductions, during such period.
I understand that this election and waiver must be made prior to the
-----
commencement of the Next Period. I further understand that this irrevocable
election may only be terminated by an irrevocable notice of termination which
takes effect at least six months after it has been made.
Signed:_______________________________
Name:_________________________________
Date:_________________________________
<PAGE>
EXHIBIT C
---------
VIEWSTAR CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the ViewStar
Corporation Employee Stock Purchase Plan which began on ___________ 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
_________________________________
_________________________________
_________________________________
Signature:
_________________________________
Date: ___________________________
<PAGE>
EXHIBIT 10.5
VIEWSTAR CORPORATION
MANAGEMENT INCENTIVE PLAN SUMMARY
($ in thousands)
OPERATING TOTAL 1996
PLAN ACHIEVEMENT REVENUE PROFIT* MIP
PERCENTAGE FUNDING FUNDING FUNDING
------------------------------------------------------------------
70% $ - $126 $ 126
80% $ - $144 $ 144
90% $ 198 $162 $ 360
100% $ 220 $181 $ 400
110% $ 242 $199 $ 440
120% $ 264 $217 $ 480
* Before MIP accrual, interest, taxes, and severance.
No payments on the revenue component are made below 90% achievement. Payments
scale above 120% on a straight line basis.
<PAGE>
EXHIBIT 10.6
REGISTRATION RIGHTS AND
RESTRICTIONS ON TRANSFER
7.1 Restrictions on Transferability. The Company's Common and
-------------------------------
Preferred Stock shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this paragraph 7, which conditions are intended to
ensure compliance with the provisions of the Act. Each Purchaser will cause any
proposed purchaser, assignee, transferee, or pledgee of the Company's Common and
Preferred Stock held by a Purchaser to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this paragraph 7.
7.2 Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
----------
or any other federal agency at the time administering the Securities Act.
"Holder" shall mean any Purchaser holding Registrable Securities
------
(including securities convertible into Registrable Securities) and any person
holding Registrable Securities to whom the rights under this paragraph 7 have
been transferred in accordance with paragraph 7.13 hereof.
"Initiating Holders" shall mean any Holders who in the aggregate
------------------
possess more than 20% of the Registrable Securities (including securities
convertible into Registrable Securities).
"Registrable Securities" means (a)(i) the 526,667 shares of
----------------------
Common Stock issued upon conversion of the Series A Preferred Stock issued
pursuant to the Series A Preferred Stock Purchase Agreement dated November 6,
1986, (ii) the 415,142 shares of Common Stock issued upon conversion of the
Series B Preferred Stock issued pursuant to the Series B Preferred Stock
Purchase Agreement dated July 7, 1987, (iii) the 2,640,081 shares of Common
Stock issued upon conversion of the Series C Preferred Stock issued pursuant to
the Series C Preferred Stock Purchase Agreement dated May 23, 1988 or the Common
Stock issued upon exercise of a Warrant to purchase 10,000 shares of Series C
Preferred Stock granted to Silicon Valley Bank, (iv) the 3,979,442 shares of
Common Stock issued upon conversion of the Series D Preferred Stock issued
pursuant to the Series D Preferred Stock Purchase Agreement dated October 31,
1991 or the Common Stock issued upon exercise of a Warrant to purchase 13,814
shares of Series D Preferred Stock granted to Silicon Valley Bank, (v) the
1,796,155 shares of Common Stock issued upon conversion of Series E Preferred
Stock issued pursuant to the Series E Preferred Stock Purchase Agreements dated
August 16, 1993 and September 13, 1994 or the Common Stock issued upon exercise
of a Warrant to purchase 27,468 shares of Series E Preferred Stock granted to
Silicon Valley Bank and (vi) the Common Stock issued or issuable upon conversion
of the 4,674,998 shares of Series F Preferred Stock issued pursuant to the
Series F Preferred Stock Purchase Agreement dated March 26, 1996 or the Common
Stock issued upon exercise of a Warrant to purchase 22,468 shares of Series F
Preferred Stock granted to Silicon Valley Bank (the Common Stock issued or
issuable upon conversion of the Preferred Stock described in clauses (i)-(vi) is
collectively referred to
<PAGE>
hereinafter as "Preferred Conversion Stock"), (b) all shares of Common Stock
owned by such persons as shall be identified in Exhibit A, to be attached to the
Agreement by the President of the Company, based upon the authorization given in
the Consent to Amend the Rights Agreement, dated as of July 26, 1996, and (c)
any Common Stock of the Company issued or issuable in respect of the Preferred
Conversion Stock upon any stock split, stock dividend, recapitalization, or
similar event; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Act so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses, except as
---------------------
otherwise stated below, incurred by the Company in complying with paragraphs
7.5, 7.6 and 7.7 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company and a single counsel representing the
Holders, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in paragraph 7.3 hereof.
"Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel, other than
a single counsel representing the Holders, for any Holder.
7.3 Restrictive Legend. Each certificate representing the Company's
------------------
Common or Preferred Stock or any other securities issued in respect of the
Company's Common or Preferred Stock or upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of paragraph 7.4 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS THE
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COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT. COPIES OF THE AGREEMENT
COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
Each Purchaser and Holder consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Company's Common or Preferred Stock in order to implement the restrictions on
transfer established in this paragraph 7.
7.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this paragraph 7.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership; (ii) in transactions
involving the distribution without consideration of Restricted Securities by any
Holder to any of its partners, or retired partners, or to the estate of any of
its partners or retired partners but only if such transferee agrees in writing
to be bound by all the terms of this Agreement or (iii) by J.P. Morgan
Investment Corporation ("JPMIC") to any entity directly or indirectly
controlling, controlled by or under common control with JPMIC ("JPMIC
Affiliate"), but only if such JPMIC Affiliate agrees in writing to be bound by
all the terms of this Agreement), unless there is in effect a registration
statement under the Act covering the proposed transfer, the holder thereof shall
give written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense, by either
(i) an unqualified written opinion of legal counsel who shall, and whose legal
opinion shall be, reasonably satisfactory to the Company addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Act, or (ii) a "no action" letter
from the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to Rule 144,
the appropriate restrictive legend set forth in paragraph 7.3 above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for such holder and the Company such legend is not required in order to
establish compliance with any provision of the Act.
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<PAGE>
7.5 Requested Registration.
----------------------
(a) In case the Company shall receive (x) from JPMIC a written
request that the Company effect any registration, qualification or compliance
with respect to JPMIC's or any JPMIC Affiliate's shares of Registrable
Securities if the expected aggregate offering price of such securities, net of
underwriting discounts or commissions, would equal at least $2,000,000, or (y)
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to 30% of such Initiating
Holders' shares of Registrable Securities (or such lesser percentage of such
Initiating Holders' Registrable Securities if the expected aggregate offering
price of such securities, net of underwriting discounts or commissions, would
equal at least $2,000,000), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 20 days after receipt of such written notice from the
Company;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
paragraph 7.5:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act;
(B) Prior to the earlier of (i) September 1, 1995,
or (ii) six months after the effective date of the Company's first registered
public offering of its stock;
(C) Prior to the effective date of the Company's
first registered public offering of its stock, unless the expected aggregate
offering price of the Registrable Securities for which such registration,
qualification or compliance has been requested pursuant to this paragraph 7.5,
net of underwriting discounts and commissions, would exceed $5,000,000;
(D) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on the
date (X) six (6) months immediately following the effective date of the
Company's initial registration statement pertaining to
-4-
<PAGE>
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), or (Y) ninety (90)
days immediately following the effective date of any subsequent registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(E) With respect to the right of Holders other than
JPMIC to a registration pursuant to this paragraph 7.5(a), after the Company has
effected two such registrations at the request of Initiating Holders and all
such registrations have been declared or ordered effective;
(F) With respect to JPMIC's right to a registration
pursuant to this paragraph 7.5(a) after the Company has effected one such
registration at the request of JPMIC and such registration has been declared or
ordered effective; or
(G) If the Company shall furnish to the persons
requesting such registration a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its shareholders for a
registration statement to be filed at such time, then the Company's obligation
to use its best efforts to register, qualify or comply under this paragraph 7.5
shall be deferred for a period not to exceed 90 days from the date of receipt of
written request from the Initiating Holders or JPMIC, as applicable; provided,
however, that the Company may not utilize this right more than once in any
twelve month period.
Subject to the foregoing clauses (A) through (G), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders or JPMIC, as applicable.
(b) In the event that a registration pursuant to paragraph 7.5
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the notice given pursuant to paragraph
7.5(a)(i). In such event, the right of any Holder to registration pursuant to
paragraph 7.5 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this paragraph 7.5, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, or JPMIC upon exercise of its
demand pursuant to paragraph 7.5(a), but subject to the Company's reasonable
approval. Notwithstanding any other provision of this paragraph 7.5, if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company shall so advise all holders of Registrable
-5-
<PAGE>
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement; provided that if the registration has been requested by
JPMIC pursuant to paragraph 7.5(a), then the number of shares of Registrable
Securities held by JPMIC or its Affiliates to be included in the registration
shall not be reduced until after all Registrable Securities held by other
Holders have been excluded from the registration. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. To facilitate the allocation
of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 90 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may require.
7.6 Company Registration.
--------------------
(a) If at any time or from time to time the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders, other than (i) a registration relating
solely to employee benefit plans, or (ii) a registration relating solely to a
Commission Rule 145 transaction, the Company will:
(1) promptly give to each Holder written notice thereof;
and
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 7 days after receipt of such written notice from the
Company, by any Holder.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to paragraph
7.6(a)(1). In such event the right of any Holder to registration pursuant to
paragraph 7.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this paragraph 7.6, if the managing underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities or other securities
-6-
<PAGE>
to be included in such registration. The Company shall so advise all Holders and
other holders distributing their securities through such underwriting and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among all
Holders and such other holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities held by such
Holders and such other holders at the time of filing the registration statement.
To facilitate the allocation of shares in accordance with the above provisions,
the Company may round the number of shares allocated to any Holder or holder to
the nearest 100 shares. If any Holder or holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
(c) The Company shall have the right to terminate or withdraw
any registration initiated by it under this paragraph 7.6 prior to the
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration.
(d) The rights granted pursuant to this paragraph 7.6 shall
terminate five years after the effective date of the Company's first registered
public offering of its stock.
7.7 Registration on Form S-3.
------------------------
(a) If any Holder or Holders holding Registrable Securities
request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities the reasonably anticipated aggregate price to the public of which,
net of underwriting discounts and commissions, would exceed $500,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form and
to cause such Registrable Securities to be qualified in such jurisdictions as
the Holder or Holders may reasonably request; provided, however, that the
Company shall not be required to effect more than one registration on Form S-3
or any successor form to Form S-3 in any twelve month period. The substantive
provisions of paragraph 7.5(b) shall be applicable to each registration
initiated under this paragraph 7.7.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this paragraph 7.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Act; (ii) if the Company,
within ten (10) days of the receipt of the request of the initiating Holders,
gives notice of its bona fide intention to effect the filing of a registration
statement with the Commission within ninety (90) days of receipt of such request
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable
-7-
<PAGE>
Securities); (iii) during the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date (x)
six (6) months immediately following the effective date of the Company's initial
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), or (y) ninety (90) days immediately following the
effective date of any subsequent registration statement pertaining to securities
of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (iv) if the Company shall furnish
to such Holder a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for registration statements to be
filed at such time, then the Company's obligation to use its best efforts to
file a registration statement shall be deferred for a period not to exceed 90
days from the receipt of the request to file such registration by such Holder;
provided, however, that the Company may not utilize the right provided by this
clause (iv) more than once in a twelve month period.
7.8 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with (i) two registrations requested by Initiating Holders pursuant
to paragraph 7.5(a)(y), (ii) one registration requested by JPMIC pursuant to
paragraph 7.5(a)(x) and (iii) three registrations pursuant to paragraph 7.6
shall be borne by the Company. All Selling Expenses relating to securities
registered on behalf of the Holders and all other Registration Expenses shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
7.9 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this paragraph
7, the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least ninety (90)
days or until the distribution described in the Registration Statement has been
completed;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
-8-
<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this paragraph 7, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this paragraph 7, (i) an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
to the Holders requesting registration of Registrable Securities and (ii) to the
extent permitted by the independent accountants of the Company a copy of a
letter dated such date, from the independent accountants of the Company, in form
and substance as is customarily given by independent accountants to underwriters
in an underwritten public offering, addressed to the underwriters.
7.10 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this paragraph 7, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Act, against all expenses, claims, losses,
damages or liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in
connection with any
-9-
<PAGE>
such registration, qualification or compliance, and the Company will reimburse
each such Holder, each of its officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the net proceeds received
by such Holder from the shares sold by such Holder, unless such liability arises
out of or is based on willful conduct by such Holder. A Holder will not be
required to enter into any agreement or undertaking in connection with any
registration under this paragraph 7 providing for any indemnification or
contribution on the part of such Holder greater than the Holder's obligations
under this paragraph 7.10(b).
(c) Each party entitled to indemnification under this paragraph
7.10 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this paragraph 7 unless the failure
to give such notice is materially prejudicial to an
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<PAGE>
Indemnifying Party's ability to defend such action and provided further, that
the Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
7.11 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this paragraph 7.
7.12 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Act, at all times after the
effective date that the Company becomes subject to the reporting requirements of
the Act or the Securities Exchange Act of 1934, as amended.
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Act and the Securities Exchange Act of 1934, as amended (at any time after it
has become subject to such reporting requirements);
(c) So long as a Holder owns any Restricted Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Act and the Securities Exchange Act of 1934 (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
7.13 Transfer of Registration Rights. The rights to cause the
--------------------------------
Company to register securities granted to Holders hereunder may be assigned in
connection with any transfer or assignment of Registrable Securities by a Holder
provided that: (i) such transfer may otherwise be effected in accordance with
applicable securities laws, and (ii) such assignee or transferee acquires at
least 20,000 shares of Preferred Stock or Registrable Securities.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner or
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<PAGE>
or affiliate of a Holder, without compliance with item (ii) above, provided
written notice thereof is promptly given to the Company.
7.14 Standoff Agreement. Each Holder agrees, so long as such Holder
------------------
holds at least one percent (1%) of the Company's outstanding voting equity
securities, in connection with the Company's initial public offering of the
Company's securities that, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Common Stock of the Company (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the underwriters; provided, that the officers and directors of
the Company who own stock of the Company also agree to such restrictions.
7.15 Amendment of Registration Rights. Without the written consent
--------------------------------
of the holders of more than 51% of the then outstanding Registrable Securities,
the Company shall not (i) amend this paragraph 7; provided, however, that
provisions of this paragraph 7 which bind or benefit only JPMIC and its
Affiliates may be amended only with the consent of JPMIC, or (ii) enter into any
agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder to include such securities
as Registrable Securities under this Agreement.
7.16 Grant of Certain Superior Registration Rights. Without the
---------------------------------------------
written consent of the holders of at least 51% of the then outstanding
Registrable Securities, the Company shall not enter into any agreement with any
holder or prospective holder of any securities of the Company which would grant
to such holder or prospective holder a right to include securities of the
Company held or to be held by such holder of securities in a registration of any
of the Company's securities (other than a registration of securities in
subparagraph (a)(i) or (ii) of paragraph 7.6) superior to the rights granted in
paragraph 7.6.
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EXHIBIT 10.7
SUBLEASE
--------
This sublease (this "Sublease"), dated October 8, 1993, for reference
purposes only, is entered into by and between The ASK Group, Inc., a Delaware
corporation, formerly named ASK Computer Systems, Inc. ("Sublandlord") and
Viewstar Corporation, a California corporation ("Subtenant") as a Sublease under
that certain Lease dated as of June 25, 1992 by and between Sublandlord, as
tenant and Alameda Real Estate Investments, a California limited partnership
("Master Landlord"), as landlord, as amended by Amendment No. 1 dated March 30,
1993, by and between Sublandlord and Master Landlord (as amended, the "Master
Lease").
Recitals
--------
This Sublease is made with reference to the following facts and with the
following intentions:
A. Pursuant to the Master Lease, Master Landlord leases to Sublandlord a
building presently under construction, the completion of which is estimated to
occur on approximately November 1, 1993 containing approximately 58,318 square
feet of Rentable Area (as defined below) located at 1101 Marina Village Parkway,
Alameda, California (the "Master Premises"). A true, complete and correct copy
of the Master Lease, which includes all exhibits, addenda, and amendments
thereto, is attached hereto as Exhibit "A".
------------
B. Sublandlord now desires to sublease a portion of the Master Premises
to Subtenant, and Subtenant desires to sublease a portion of the Master Premises
from Sublandlord, on the terms and conditions set forth in this Sublease.
NOW, THEREFORE, for good and valuable consideration, the adequacy of which
is hereby acknowledged, the parties hereto agree as follows:
1. SUBLEASED PREMISES:
------------------
A. Subleased Premises: Sublandlord hereby subleases to Subtenant, and
------------------
Subtenant subleases from Sublandlord, a total of approximately 44,000 square
feet of Rentable Area consisting of the entire second floor of the Master
Premises and approximately 15,000 square feet of Rentable Area located on the
first floor of the Master Premises, in the location and configuration as shown
on that floor plan (the "Floor Plan") attached hereto as Exhibit "B" (the
----------
"Subleased Premises"). As used herein, the term "Rentable Area" shall have the
meaning ascribed to it by the Master Lease, pursuant to the application of
Section 6.A hereof.
<PAGE>
B. Common Areas: Sublandlord hereby grants Subtenant the non-exclusive
------------
right to use for their intended purposes the interior corridors, stairways,
restrooms and doorways designated on the Floor Plan as common area not intended
for the exclusive use of any occupant of the Master Premises. To the extent of
its rights under the Master Lease, Sublandlord hereby grants to Subtenant the
same non-exclusive right to use the Outside Areas (as defined in the Master
Lease) in common with other occupants of the Project as are granted to
Sublandlord by the Master Lease. The number of parking spaces that may be
occupied and used by Subtenant and its Agents ( as defined in the Master Lease)
shall be limited to 3.5 spaces for automobile parking for each 1,000 square feet
of Rentable Area in the Subleased Premises and Subtenant shall not be obligated
to pay rent therefor over and above the Base Monthly Rent and Additional Rent
otherwise due pursuant to this Sublease.
C. Subtenant Improvements: Sublandlord shall cause certain improvements
----------------------
(the "Subtenant Improvements") to be constructed in the Subleased Premises
pursuant to the terms of the Improvement Agreement ("Improvement Agreement")
attached hereto as Exhibit "C".
-----------
2. TERM:
-----
A. Term of Sublease: The term of this Sublease (the "Sublease Term")
----------------
shall commence on Substantial Completion (as that term is defined in the
Improvement Agreement) of the Subtenant Improvements to be constructed pursuant
to the Improvement Agreement (the "Commencement Date") and shall terminate on
the date which is sixty-two (62) months following the Commencement Date, unless
this Sublease is sooner terminated pursuant to its terms or the Master Lease is
sooner terminated pursuant to its terms or unless the Sublease Term is extended
as provided in Section 2.C hereof.
B. Delay in Delivery and Acceptance: If Sublandlord is unable to deliver
--------------------------------
possession of the Subleased Premises in the condition required by the
Improvement Agreement (i.e., with Substantial Completion having occurred) to
----
Subtenant on or before June 1, 1994 for any reason whatsoever, then, except as
otherwise provided in the Improvement Agreement, this Sublease shall not be void
or voidable, nor shall Sublandlord be liable to Subtenant for any loss or
damage; however, in such event, Base Monthly Rent and Additional Rent shall be
abated until Sublandlord delivers possession of the Subleased Premises to
Subtenant in accordance with the Improvement Agreement upon Substantial
Completion of the Subtenant Improvements. This Section is subject to Paragraph F
of the Improvement Agreement.
-2-
<PAGE>
C. Option to Extend: Sublandlord hereby grants to Subtenant one (1) option
----------------
to extend the Sublease Term for a period commencing on the first (1st) day
following the expiration of the original Sublease Term and ending on September
30, 2004, on the following terms and conditions:
(1) Subtenant must give Sublandlord notice in writing of its exercise
of the option no later than two hundred forty (240) days before the date the
Sublease Term would end but for said exercise.
(2) Subtenant may not extend the Sublease Term pursuant to this option
if Subtenant is in default under this Sublease as of the date of exercise of the
option and such default remains uncured at the expiration of the applicable cure
period set forth in this Sublease.
(3) All terms and conditions of this Sublease shall apply during the
option period, except that the Base Monthly Rent for the option period shall be
determined as provided in Section 3.B hereof.
3. RENT:
----
A. Base Monthly Rent During Initial Sublease Term:
----------------------------------------------
Commencing on the date which is sixty (60) days following the Commencement Date
(the "Rent Commencement Date") and thereafter on the first (1st) day of each
calendar month occurring thereafter during the remainder of the Sublease Term,
Subtenant shall pay to Sublandlord the following sum as Base Monthly Rent:
(1) $1.160 per square foot of Rentable Area within the Subleased
Premises for the period commencing on the Rent Commencement Date and continuing
until March 31, 1995;
(2) $1.305 per square foot of Rentable Area within the Subleased
Premises for the period commencing April 1, 1995 and continuing until March 31,
1998; and
(3) $1.468 per square foot of Rentable Area within the Subleased
Premises for the period commencing April 1, 1998 and continuing until the
expiration of the initial Sublease Term. Subtenant's obligation to pay rent
shall be prorated at the commencement and termination of the Sublease Term.
B. Base Monthly Rent During Option Period: If the option to extend granted
--------------------------------------
by Section 2.C hereof is exercised, the Base Monthly Rent payable during the
option period shall be the following:
-3-
<PAGE>
(1) $1.468 per square foot of Rentable Area within the Subleased
Premises for the period commencing June 1, 1999 and continuing until March 31,
2001;
(2) $1.651 per square foot of Rentable Area within the Subleased
Premises for the period commencing April 1, 2001 and continuing until March 31,
2004; and
(3) $1.857 per square foot of Rentable Area within the Subleased
Premises for the period commencing April 1, 2004 and continuing until September
30, 2004.
C. Additional Rent: Commencing on the Commencement Date and continuing
----------------
throughout the Sublease Term, Subtenant shall pay to Sublandlord all Additional
Rent (as that term is used in the Master Lease, including Property Taxes
pursuant to Paragraph 7 of the Master Lease and Operating Expenses pursuant to
Paragraph 4.F of the Master Lease) charged to Sublandlord under the Master Lease
which are fairly allocable to the Subleased Premises. In addition, Subtenant
shall pay Additional Rent fairly allocable to the Expansion Space for that
period of time and on those terms more particularly set forth in Section 13
hereof entitled "Option to Expand". The payments of Additional Rent required of
Subtenant pursuant to this paragraph shall be made within the same time periods
after notice from Sublandlord of the amount owed as are established by the
Master Lease for the comparable obligation of Sublandlord to make such payments
to Master Landlord. All amounts in addition to the Base Monthly Rent required to
be paid by Subtenant under this Sublease shall be deemed to be rent.
D. Fair Allocation: In a variety of places throughout this Sublease, the
---------------
parties have provided that certain costs will be paid by Sublandlord or
Subtenant based upon the extent to which such amounts are "fairly allocable" to
the Subleased Premises (or the Expansion Area). This concept shall generally
mean that an expense shall be allocated to the area in question based upon the
ratio that the Rentable Area of such area bears to the Rentable Area of the
Building. For example, Property Taxes which are "fairly allocable" to the
initial Subleased Premises would be determined by multiplying the fraction
44,000/58,318 by the total Property Taxes due under the Master Lease for the
Building. However, if an item of expense relates only to the Subleased Premises,
and does not affect the remainder of the Building (e.g., a repair of a portion
of the Subleased Premises), then the amount which is "fairly allocable" to the
Subleased Premises would be one hundred percent (100%) of the cost of the
repair, and if an item of expense relates only to the portions of the Building
other than the Subleased Premises, and does not affect the Subleased Premises,
then the
-4-
<PAGE>
amount which is "fairly allocable" to the Subleased Premises would be zero.
E. Payment Directly to Master Landlord: Subtenant, at its option, may pay
-----------------------------------
Base Monthly Rent and Additional Rent due pursuant to this Sublease directly to
Master Landlord, in satisfaction of Sublandlord's obligations to Master Landlord
under the Master Lease, and such payment to Master Landlord shall have the same
effect as if Subtenant had made such payment to Sublandlord. This Section shall
not apply to express obligations of Subtenant to indemnify Sublandlord.
4. SECURITY DEPOSIT: Upon execution hereof, Subtenant shall deposit with
----------------
Sublandlord Fifty-One Thousand Forty Dollars ($51,040) in cash, as security for
the performance by Subtenant of the terms and conditions of this Sublease. If
Subtenant fails to pay rent or other charges due hereunder or otherwise defaults
with respect to any provision of this Sublease, and such default remains uncured
at the expiration of the applicable cure period set forth herein, then
Sublandlord may draw upon, use, apply or retain all or any portion of the
security deposit for the payment of any rent or other charge in default, for the
payment of any other sum which Sublandlord has become obligated to pay by reason
of Subtenant's default, or to compensate Sublandlord for any loss or damage
which Sublandlord has suffered thereby. If Sublandlord so uses or applies all or
any portion of the security deposit, then Subtenant shall, within ten (10) days
after demand therefor, deposit cash with Sublandlord in the amount required to
restore the deposit to the full amount stated above. Upon the expiration of this
Sublease, Sublandlord shall return to Subtenant that portion of the security
deposit which has not been applied by Sublandlord pursuant to this paragraph, or
which is not otherwise required to cure Subtenant's defaults.
5. RELATIONSHIP TO MASTER LEASE: This Sublease is subject and subordinate to
----------------------------
the Master Lease. Sublandlord shall fully perform all of its obligations under
the Master Lease and shall indemnify, defend, protect, and hold harmless
Subtenant from any and all liability, damages, liabilities, claims, proceedings,
actions, demands and costs (including reasonable attorneys' fees) resulting,
directly or indirectly, from Sublandlord's failure to perform its obligations
under the Master Lease. Upon any termination of the Master Lease, this Sublease
shall also terminate except as otherwise provided in the Consent of the Master
Landlord; provided, however, that if the Master Lease is terminated as a result
of a default by Sublandlord of its obligations under the Master Lease or this
Sublease, Sublandlord shall be liable to Subtenant for all damages resulting
therefrom, and Subtenant shall have all rights and remedies that would otherwise
be available to it at law or in
-5-
<PAGE>
equity as a result of such default. Sublandlord shall not enter into any
amendment or modification of the Master Lease without the consent of Subtenant,
nor shall Sublandlord consent to a termination of the Master Lease (except as
specifically permitted by this Sublease) or a surrender thereof without the
consent of Subtenant.
6. INCORPORATED MASTER LEASE TERMS: Except to the extent expressly provided to
-------------------------------
the contrary in this Sublease, each of the following provisions of the Master
Lease is incorporated into this Sublease as if fully set forth herein and (i)
each reference therein to "Landlord" shall be deemed to refer to Sublandlord
under this Sublease who shall perform the obligations of the "Landlord" set
forth in said paragraph contained in the Master Lease to the extent fairly
allocable to the Subleased Premises, (ii) each reference therein to "Tenant"
shall be deemed to refer to Subtenant under this Sublease who shall perform the
obligations of the "Tenant" set forth in said paragraph in the Master Lease to
the extent fairly allocable to the Subleased Premises, (iii) each reference
therein to the "Term" or "Lease Term" shall be deemed to refer to the Sublease
Term, and (iv) each reference there in to the "Premises" shall be deemed to
refer to the "Subleased Premises".
A. Paragraph 3.B entitled "Definitions"; provided, however, that the
-----------
definition "Commencement Date" contained in clause (v) shall be deleted and not
become part of the Sublease.
B. Paragraph 3.C entitled "Early Entry".
-----------
C. Paragraph 3.D related to the Completion of Shell and
Outside Areas.
D. Paragraph 4.D entitled "Late Charge", subparagraph 4.E entitled
"Additional Rent", and subparagraph 4.F entitled "Operating Expenses".
E. Paragraph 6 entitled "Use of Premises"; provided, however, that
---------------
Subtenant may also use the Subleased Premises for research and development of
software, ancillary software sales and demonstrations (excluding retail sales to
the public generally), and computer storage so long as Subtenant obtains the
consent of Master Landlord therefor to the extent such consent is required by
the Master Lease.
F. Paragraph 7 entitled "Taxes and Assessments"; provided, however, that
---------------------
if Subtenant does not lease the Expansion Space (as hereinafter defined) and all
or a part of such space is improved with tenant improvements that cost in excess
of Thirty Dollars ($30.00) per square foot, the excess over that amount shall be
-6-
<PAGE>
considered over standard tenant improvements and no part of any Property Taxes
attributable to such over standard amount shall be allocated to the Subleased
Premises, and Subtenant shall not be liable to pay any Property Taxes
attributable to such over standard tenant improvement of the Expansion Space
where such space is not leased by Subtenant.
G. Paragraph 8 entitled "Insurance"; provided, however, that:
---------
(1) The waiver given and the indemnity made by Subtenant pursuant to
the incorporation of Paragraph 8.A entitled "Waiver and Indemnity" of the Master
--------------------
Lease shall exist for the benefit of, and benefit, both Sublandlord and Master
Landlord;
(2) The indemnity from Master Landlord set forth in the third sentence
of said Paragraph 8.A of the Master Lease shall not be incorporated into the
Sublease.
H. Paragraph 8.B entitled "Tenant's Liability Insurance"; provided,
----------------------------
however, that Subtenant shall cause Master Landlord to be named as an additional
insured pursuant to all insurance carried by Subtenant pursuant to this Section
and shall provide to Master Landlord all documents, information, and benefits
that Subtenant is obligated to provide to Sublandlord pursuant to this Section.
I. Paragraph 8.C entitled "Landlord's Liability Insurance"; provided,
------------------------------
however, that Subtenant shall not be obligated to reimburse Sublandlord for the
cost of insurance carried by Sublandlord to comply with the obligation created
by the incorporation of this part of the Master Lease into the Sublease, but
Subtenant shall pay as Additional Rent the amount charged by Master Landlord to
Sublandlord pursuant to Paragraph 8.C as an Operating Expense to the extent such
cost is fairly allocable to the Subleased Premises.
J. Paragraph 8.D entitled "Fire and All Risk Insurance"; provided,
---------------------------
however, that Sublandlord shall not be obligated to maintain the "all risk" and
rental income insurance described in said Paragraph 8.D but shall use reasonable
efforts to enforce the obligation of Master Landlord to carry such insurance
pursuant to its obligation to do so stated in said Paragraph 8.D of the Master
Lease.
K. Paragraph 8.E entitled "Release of Landlord".
-------------------
L. Paragraph 8.F entitled "Mutual Waiver of Subrogation"; provided,
----------------------------
however, that Subtenant hereby waives its right of recovery against Master
Landlord for any loss of or damage to the
-7-
<PAGE>
property of Subtenant if such loss or damage is insured by any insurance policy
required to be maintained by the Master Lease or the Sublease or is otherwise in
force at the time of such loss or damage (except such waiver shall not apply to
any loss to the extent it is within the "deductible amount" of any such policy),
The provisions of this subparagraph shall not apply in those instances in which
waiver of subrogation would cause either party's insurance coverage to be voided
or otherwise made uncollectible or is not available at reasonable cost.
M. Paragraph 9 entitled "Utilities".
---------
N. Paragraph 10.A entitled "Tenant Responsibilities"; provided, however,
-----------------------
that Sublandlord shall have the obligations described in the fourth, fifth,
sixth and seventh sentences of said Paragraph 10.A, which relate to the
maintenance and repair of the heating, ventilating and air conditioning
equipment which serves the Master Premises, the cost of which shall be deemed an
Operating Expense to be reimbursed by Subtenant to the extent fairly allocable
to the Subleased Premises; subparagraph 10.C and subparagraph 10.D.
O. Paragraph 11 entitled "Outside Area"; provided, however, that
------------
Sublandlord shall not consent to any changes of the Outside Areas without
Subtenant's consent.
P. Paragraph 12 entitled "Amortization of Certain Improvements as
---------------------------------------
Additional Rent"; provided, however, that in addition Subtenant shall reimburse
- ---------------
Sublandlord for all amounts for which Sublandlord is responsible to pay to
Master Landlord pursuant to Paragraph 12 of the Master Lease to the extent
fairly allocable to the Subleased Premises.
Q. Paragraph 13.A entitled "Trade Fixtures".
--------------
R. Paragraph 13 entitled "Alterations"; provided, however, that:
-----------
(1) Subtenant may not make any Alteration for which the consent of the
Master Landlord is required pursuant to the Master Lease until Subtenant first
obtains such consent;
(2) Subtenant shall have the obligation to remove any alteration
installed by it and restore that part of the Sublease Premises to the condition
existing prior to the installation of such Alteration if said removal and
restoration is required by the Master Lease;
-8-
<PAGE>
(3) Subtenant's obligation to make legally required alterations under
Paragraph 13.D of the Master Lease shall be limited to alterations resulting
from Subtenant's particular use of the Subleased Premises other than for
purposes of general office use.
(4) The last sentence contained in Paragraph 13.D entitled "Legally
-------
Required Alterations" shall not be incorporated into the Sublease, but that
- --------------------
subject is governed by Section 8 of this Sublease.
S. Paragraph 15 entitled "Default".
-------
T. Paragraph 17 entitled "Condemnation"; provided, however, that
------------
Subtenant's right to receive any part of any award made in connection with any
Taking shall not in any event exceed a pro rata share of that part of any Award
which Sublandlord is entitled to under Paragraph 17 of the Master Lease, which
pro rata share shall be the same as the ratio between the Rentable Area of the
Subleased Premises and the Rentable Area of the Master Premises.
U. Paragraph 18 entitled "Mechanic's Liens".
----------------
V. Paragraph 19 entitled "Inspection of the Premises"; provided, however,
--------------------------
that Master Landlord shall have the right to enter the Subleased Premises to the
extent permitted by and in accordance with the terms of Paragraph 19 of the
Master Lease and further provided that Subtenant shall permit Sublandlord to
post "for lease" signs only within six (6) months prior to expiration of the
Sublease Term (as the same may be extended).
W. Paragraph 20 entitled "Compliance with Laws".
--------------------
X. Paragraph 22 entitled "Holding Over".
------------
Y. Paragraph 23 entitled "Notices"; provided, however, that:
-------
(1) The address of Sublandlord is 2440 West El Camino Real, Mountain
View, California 94039, attention: Chief Financial Officer, with a copy to the
attention of the Legal Department, 1201 Marina Village Parkway, Alameda, CA
94501; and
(2) The address of Subtenant is 5820 Shellmound Street, Suite 600,
Emeryville, California 94608, attention: Chief Financial Officer, until the
Commencement Date. Thereafter, the address of Subtenant shall be the address of
the Subleased Premises.
Z. Paragraph 24 entitled "Attorney's Fees".
---------------
-9-
<PAGE>
AA. Paragraph 25 entitled "Non-Assignment"; provided, however, that:
--------------
(1) If the Master Lease provides that any assignment, subletting,
transfer or use by Subtenant requires prior written consent of Master Landlord,
Subtenant shall not enter into any such transaction without first obtaining such
written consent from Master Landlord;
(2) Sublandlord shall not be obligated to enter into an amendment of
the Sublease notwithstanding the incorporation of said Paragraph 25 of the
Master Lease if any such amendment requires the consent of Master Landlord and
Sublandlord cannot obtain such consent;
(3) If Subtenant enters into any assignment, sublease, transfer or
other similar transaction and, as a result thereof, Sublandlord becomes
obligated to pay any amount to Master Landlord pursuant to Paragraph 25.C of the
Master Lease, Subtenant shall pay all such amounts so owed by Sublandlord
directly to Master Landlord;
(4) Stock transfers and transfers of control in connection with or
after a public offering, a bona fide capitalization or in connection with a
private equity infusion shall not be deemed transfers requiring Sublandlord's
consent and Sublandlord shall not be entitled to any participation in the
proceeds thereof; and
(5) Exempt transfers pursuant to Paragraph 25.D of the Master Lease
shall not require consent by Sublandlord.
AB. Paragraph 26 entitled "Successors".
----------
BB. Paragraph 27 entitled "Lender Protection".
-----------------
CC. Paragraph 28 entitled "Estoppel Certificates" and "Financial
-------------------------------------
Statements"; provided, however, that Sublandlord may not require Subtenant to
- ----------
furnish financial statements in the event Sublandlord becomes a direct,
significant competitor of Subtenant with respect to a major product line.
DD. Paragraph 29 entitled "Surrender of Lease Not Merger".
-----------------------------
EE. Paragraph 30 entitled "Waiver".
------
FF. Paragraph 31 entitled "General"; provided, however, that:
-------
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<PAGE>
(1) Only the first two sentences of Paragraph 31.B entitled "Transfers
---------
by Landlord; Limitation on Tenant's Recourse for Landlord Default" shall be
- -----------------------------------------------------------------
incorporated into the Sublease;
(2) With respect to the incorporation of Paragraph 31.H entitled
"Survival" of the Master Lease into the Sublease the reference to Paragraph 37.G
--------
entitled "Landlord's Obligation" is deleted.
---------------------
GG. Paragraph 33 entitled "Interest On Past Due Obligations".
--------------------------------
HH. Paragraph 34 entitled "Surrender of the Premises"; provided, however,
-------------------------
that in this connection Subtenant shall also indemnify Master Landlord against
loss or liability resulting from delay from Subtenant in surrendering possession
of the Sublease Premises at the expiration or earlier termination of the
Sublease Term including, without limitation, any claims made by any seceding
tenant or losses to Master Landlord due to lost opportunities to Lease to
seceding tenants.
II. Paragraph 35 entitled "Authority".
---------
JJ. Paragraph 37 entitled "Hazardous Material"; provided, however, that:
------------------
(1) To the extent prohibited by the Master Lease, Subtenant shall not
cause or grant permission to anyone else to cause any Hazardous Materials to be
used, generated, stored or released or disposed of on or about the Subleased
Premises; the Building or Outside Areas without the prior written consent of
Master Landlord, with Subtenant acknowledging that Master Landlord's right to
withhold such consent is subject to the standards set forth therefor in the
Master Lease;
(2) Subtenant shall defend, hold harmless and indemnify Master
Landlord, Sublandlord, and their respective Agents with respect to (i) all
claims, damages (including consequential damages such as those which may result
from Master Landlord's inability to obtain financing for the Building), costs
(including attorney's fees) and liabilities arising out of or in connection with
the Use of any Hazardous Material in or about the Subleased Premises by
Subtenant or its Agents, and (ii) any disposal or release of any Hazardous
Material on or under the Building emanating from those portions of the Subleased
Premises of which Subtenant has exclusive control occurring after the date
possession of the Subleased Premises, or the portion where such Hazardous
Material is disposed of or released, is delivered to Subtenant and prior to the
termination of this Sublease, and that is not the result of the
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<PAGE>
negligence or willful misconduct of Master Landlord, Sublandlord, or their
respective Agents;
(3) If any liability, cost, expense or obligation is imposed on
Sublandlord pursuant to Paragraph 37 of the Master Lease as a result of the use
or occupancy of the Subleased Premises by Subtenant or the use, disposal,
release, or storage of Hazardous Materials by Subtenant or its Agents, then
Subtenant shall be responsible for the payment of such amounts;
(4) Paragraph 37.G entitled "Landlord's Obligations" of the Master
----------------------
Lease is not incorporated into the Sublease.
KK. Paragraph 38 entitled "Approvals".
---------
LL. Paragraph 39 entitled "Reasonable Expenditures".
-----------------------
MM. Paragraph 40 entitled "Right to Perform Other Party's Covenant".
---------------------------------------
NN. Paragraph 41 entitled "CPI Adjustment".
--------------
00. Paragraph 42 entitled "Integration and Amendments".
--------------------------
PP. Paragraph 44 entitled "Non-discrimination".
------------------
7. FIRE AND ALL RISK INSURANCE: The parties acknowledge that Paragraph 8.D
entitled "Fire and All Risk Insurance" obligates Master Landlord to obtain "all
---------------------------
risk" and rental income loss insurance, and Sublandlord and Subtenant agree as
follows with respect to this subject:
A. Sublandlord shall use reasonable efforts to monitor and enforce the
obligations of Master Landlord contained in Paragraph 8.D of the Master Lease.
B. Subtenant shall reimburse Sublandlord for any amounts paid by
Sublandlord pursuant to Paragraph 8.D to the extent such amounts are fairly
allocable to the Subleased Premises.
8. MAINTENANCE RESPONSIBILITIES OF SUBLANDLORD AND MASTER LANDLORD: The
---------------------------------------------------------------
parties acknowledge that Paragraphs 10.B, 10.C, 10.D, and 13.D of the Master
Lease obligate Master Landlord to provide certain levels of maintenance, repair
and replacement ("Master Landlord's Repair Obligations"), and Sublandlord and
Subtenant agree as follows with respect to this subject:
A. Sublandlord shall use reasonable efforts to enforce Master Landlord's
Repair Obligations. Subtenant shall reimburse
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<PAGE>
Sublandlord for all amounts Sublandlord is required to pay pursuant to
Paragraphs 10.B, 12, and 13.D to the extent such amounts are fairly allocable to
the Subleased Premises.
B. Sublandlord shall have no maintenance or repair obligations with
respect to the Subleased Premises except for its obligation to use reasonable
efforts to enforce the obligations of Master Landlord's Repair Obligations as
described in Section 8.A hereof. Subtenant hereby expressly waives the
provisions of subsection 1 of Section 1932 and Sections 1941 and 1942 of the
civil code of California and all rights to make repairs at the expense of
Sublandlord as provided in Section 1942 of said Civil Code.
C. If during the Sublease Term and before Subtenant exercises its option
to extend the Sublease Term, Subtenant becomes obligated to make capital
expenditures to pay for repairs, replacements, alterations, or improvements to
the Subleased Premises with a useful life that extends beyond the initial
Sublease Term but ends before the end of the initial term of the Master Lease
(the "Stub Period"), Sublandlord shall contribute to the cost of such capital
expenditures a portion thereof that bears the same relationship to the total
that the Stub Period bears to the useful life of the item in question. The
foregoing shall not apply to the following: (i) repairs or replacements required
because of the act or omission of Subtenant or its Agents; (ii) alterations that
Subtenant elects to make but is not required to make; and (iii) restoration work
required of Subtenant at the expiration of the Sublease. If Subtenant exercises
its option to extend, any contribution made by Sublandlord pursuant to this
paragraph shall be reimbursed by Subtenant.
9. DAMAGE AND RELATED TERMINATION RIGHTS: The parties acknowledge that
-------------------------------------
Paragraph 16 entitled "Destruction" of the Master Lease governs the rights of
Master Landlord and Sublandlord concerning damage to the Master Premises by fire
or other peril, and Sublandlord and Subtenant agree as follows with respect to
this subject as it relates to the Subleased Premises:
A. Sublandlord shall use reasonable efforts to enforce the obligations of
Master Landlord pursuant to Paragraph 16, including its obligation to restore
damage caused by any peril to the extent required by Paragraph 16.A entitled
"Landlord's Duty to Restore". Except to the extent of its obligations stated in
--------------------------
the immediate preceding sentence, Sublandlord shall not be obligated to restore
damage to the Subleased Premises caused by fire or other peril, and shall not be
liable for any failure by Master Landlord to perform its obligations under the
Master Lease.
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<PAGE>
B. Subtenant acknowledges that the second and third sentences of Paragraph
16.A of the Master Lease provide that in certain circumstances insurance
proceeds are either paid to or remain the property of Master Landlord, and
Subtenant agrees to such provisions.
C. In the event of any damage to the Subleased Premises caused by fire or
other peril which does not result in a termination of the Sublease, Subtenant
shall forthwith replace or fully repair Trade Fixtures installed by Subtenant
and existing at the time such damage or destruction to the extent still required
by Subtenant for its business operations in the Subleased Premises.
D. The parties acknowledge that Master Landlord has the right to terminate
the Master Lease in certain circumstances pursuant to Paragraph 16.B entitled
"Landlord's Right to Terminate" in the Master Lease. In the event Landlord
-----------------------------
exercises any such right of termination, the Sublease shall terminate on the
date the Master Lease terminates.
E. The parties acknowledge that Sublandlord has the right to terminate
the Master Lease in certain circumstances pursuant to Paragraph 16.C entitled
"Tenant's Right to Terminate". If Sublandlord becomes entitled to terminate the
---------------------------
Master Lease pursuant to said Paragraph 16.C, then it may do so in its sole
discretion, without the consent of Subtenant, and if it so elects to terminate
the Master Lease then the Sublease shall terminate on the date the Master Lease
terminates. Notwithstanding the foregoing, if prior to the damage giving rise to
Sublandlord's right to terminate pursuant to said Paragraph 16.C or if within
fifteen (15) days of the date of the casualty Subtenant has exercised both its
expansion option pursuant to Section 13 hereof and its option to extend the
Sublease Term pursuant to Section 2.C hereof, then in such event Sublandlord may
not exercise its option to terminate the Master Lease unless (i) it has received
prior written consent to do so from Subtenant, or (ii) Subtenant has elected to
terminate the Sublease pursuant to Section 9.F hereof. In addition, if the
Subleased Premises are damaged after January 1, 1995 and before such damage
Subtenant has not exercised the Expansion Option created by Section 13, then
nonetheless Sublandlord shall not be entitled to exercise any option it may have
to terminate the Master Lease as a result of such damage unless within seven (7)
days following receipt of Master Landlord's estimate of the time needed to
complete the repairs, Sublandlord notifies Subtenant in writing of its desire to
terminate, and within seven (7) days following receipt of Sublandlord's notice
Subtenant does not enter into a written agreement in form reasonably
satisfactory to Subtenant and Sublandlord whereby Subtenant obligates itself to
the following: (i) Subtenant shall agree to lease the Expansion Space
immediately,
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<PAGE>
as if Subtenant had been entitled to and had elected to exercise the Expansion
Option stated in Section 13 as of that date, (ii) if there are any third party
subtenants in the Expansion Space, Sublandlord shall assign such subleases to
Subtenant and Subtenant shall lease the Expansion Space subject to the rights
created by those third party subleases, and (iii) if Subtenant has not
previously done so, Subtenant shall have exercised its option to extend the
Sublease Term.
F. Subtenant shall have the option to terminate the Sublease in the event
any of the following occurs, which option may be exercised only by delivery to
Sublandlord of a written notice of election to terminate within thirty (30) days
after Subtenant receives from Sublandlord the estimate of the time needed to
complete such restoration provided by Master Landlord pursuant to Paragraph 16.C
of the Master Lease:
(a) The Building is damaged by any peril and, in the reasonable
opinion of Master Landlord's architect, contractor or construction consultant,
the restoration of the Subleased Premises cannot be substantially completed
within the earlier of (i) two hundred seventy (270) days after the date of
issuance of necessary building permits for such restoration; or (ii) three
hundred sixty five (365) days after the date of such damage; or
(b) The Subleased Premises are damaged by any peril within twelve (12)
months of the last day of the Sublease Term and, in the reasonable opinion of
Master Landlord's architect or construction consultant, the restoration of the
Subleased Premises cannot be substantially completed within ninety (90) days
after the date of such damage.
G. In the event of damage to the Subleased Premises which does not result
in the termination of this Sublease, the Base Monthly Rent and all Additional
Rent shall be temporarily abated from the date of the damage during the period
of restoration in proportion to the degree to which Subtenant's use of the
Subleased Premises is impaired by such damage and restoration. In the event of
any dispute between Sublandlord and Subtenant concerning the amount of such
abatement, the matter shall be determined by binding arbitration under the
Commercial Rules of the American Arbitration Association, after good faith
efforts by Sublandlord and Subtenant to settle the dispute have not resulted in
a resolution. Subtenant shall not be entitled to any compensation from
Sublandlord or Master Landlord for loss of Subtenant's property or loss to
Subtenant's business caused by such damage or restoration. Subtenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil code, and the provisions of any similar
law hereafter enacted.
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<PAGE>
10. SUBORDINATION: The parties acknowledge that Subtenant is obligated under
-------------
certain circumstances to subordinate the Master Lease to any mortgage or deed of
trust to be placed upon the Master Premises by Master Landlord, all as more
particularly set forth in Paragraph 21 entitled "Subordination" of the Master
-------------
Lease. Subtenant agrees that upon the request of either Sublandlord or Master
Landlord, to promptly execute any instrument (including an amendment to this
Sublease) or instruments of subordination reasonably necessary to subordinate
this Sublease to any mortgage or deed of trust to be placed upon the Master
Premises or any part thereof by Master Landlord, which instrument or instruments
may include such other matters as the lender customarily requires in connection
with such agreements in comparable transactions, including provisions that the
lender not be liable for any defaults on the part of Master Landlord occurring
prior to the time lender takes possession of the Master Premises in connection
with the enforcement of its rights under the mortgage or deed of trust.
Subtenant's failure to execute any such instrument within ten (10) days after
written demand therefor shall constitute a default by Subtenant under this
Sublease. Subtenant agrees to attorn to and recognize any mortgagee or
beneficiary of the deed of trust subsequently encumbering the Master Premises or
any party acquiring title to the Master Premises by judicial foreclosure or a
trustee's sale, as a successor to Master Landlord hereunder. Sublandlord shall
use reasonable efforts to obtain non-disturbance rights from the lender for
Subtenant.
11. SIGNS: Subtenant shall not place on any portion of the Subleased Premises
-----
any sign, placard, lettering in or on windows, banner, displays or other
advertising or communicative material which is visible from the exterior of the
Building without the prior written approval of Sublandlord and Master Landlord.
All such approved signs shall strictly conform to all laws and shall be
installed at the expense of Subtenant. Subtenant shall maintain such signs in
good condition and repair, and shall remove all such signs upon the expiration
or earlier termination of the Sublease. In the event that the Sublandlord
subleases the Expansion Space to a third party subtenant, Sublandlord shall not
permit such third party subtenant to post any sign, placard, lettering in or on
windows, banner, display or other advertising or communicative material which is
visible from the exterior of the Building without Subtenant's consent.
Notwithstanding the foregoing, (i) any third party subtenant shall be allowed to
install exterior identification signs complying with design criteria promulgated
by Master Landlord for Marina Village, (ii) Sublandlord and Subtenant shall not
disapprove any sign complying with the sign criteria promulgated by Master
Landlord for Marina Village and (iii) to the extent permitted by Master
Landlord, Subtenant may cause to be installed an exterior entry sign on the
exterior of the Building and a
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<PAGE>
monument sign in a location acceptable to Subtenant in the Outside Areas
adjacent to the Building so long as such signs are in compliance with the sign
criteria promulgated by Master Landlord for Marina Village, and any cost
contribution to which Sublandlord is entitled for such signage from Master
Landlord shall be made available to Subtenant for the payment of the costs of
installing such signs, and any remaining cost shall either be paid from the
Tenant Improvement Allowance (to the extent permitted by Master Landlord), or
shall be paid by Subtenant.
12. MASTER LANDLORD'S OBLIGATIONS REGARDING HAZARDOUS MATERIALS: The parties
-----------------------------------------------------------
acknowledge that Master Landlord has certain obligations to comply with laws
relating to Hazardous Materials and certain obligations to indemnify Sublandlord
and its Agents from any failure to comply, all of which are more particularly
set forth in Paragraph 37.G entitled "Landlord's Obligations" of the Master
Lease. Sublandlord shall use reasonable efforts to enforce all of Master
Landlord's Obligations (including indemnity obligations thereunder) set forth in
- ----------------------
said Paragraph 37.G, but shall not be liable for any failure of Master Landlord
to perform such obligations.
13. EXPANSION OPTION: Sublandlord hereby grants to Subtenant an option to
----------------
sublease the remainder of the first floor of the Building that is not part of
the Subleased Premises, consisting of approximately 15,000 square feet of
Rentable Area identified as the "Expansion Space" on the Floor Plan (the
"Expansion Space") on the following terms:
A. Except for any exercise of the option after January 1, 1995 pursuant to
Section 13.B below, Subtenant may exercise its option to sublease the Expansion
Space only by delivering written notice of such election to Sublandlord on or
before January 1, 1995, which notice must be accompanied by an improvement plan
for the Expansion Space showing in reasonable detail all improvements that
Subtenant requests be constructed within the Expansion Space.
B. In addition to being able to exercise its option to sublease the
Expansion Space pursuant to Section 13A, Subtenant shall also be permitted to
exercise its option to sublease the Expansion space by delivering written notice
of such election to Sublandlord after January 1, 1995 and before such right is
subordinated pursuant to Section 13B(l) or (2) with the effect described in
Section 13B(3).
(1) Subtenant's right to exercise its option to expand into the
Expansion Space created pursuant to this Section 13B shall be subordinated to
Sublandlord's right to use the Expansion Space upon the occurrence of the
following: (i) Sublandlord notifies
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Subtenant in writing after January 1, 1995 of Sublandlord's intention to occupy
all or any part of the Expansion Space for Sublandlord's use, but in no event
less than 7,000 square feet; (ii) Subtenant does not within seven (7) business
days following receipt of Sublandlord's notice notify Sublandlord of Subtenant's
election to exercise its option to lease the Expansion Space; and (iii)
Sublandlord takes possession of and commences occupancy of at least 7,000 square
feet of the Expansion Space within sixty (60) days after it notifies Subtenant
of Sublandlord's intent to occupy such space. If Subtenant's option to expand
is subordinated pursuant to this Section 13B(l), it shall remain subordinated
for as long as Sublandlord occupies at least 7,000 square feet of the Expansion
Space for the conduct of its business.
(2) At any time during the Sublease Term, Sublandlord may offer the
Expansion Space for lease to unaffiliated third party subtenants, for occupancy
to commence after January 1, 1995. If Sublandlord follows the procedures set
forth in the following subparagraphs with the result that Subtenant does not
within the indicated time period exercise its option to lease the Expansion
Space, and Sublandlord does in fact lease the Offered Space (as hereinafter
defined) in question to the third party tenant identified in accordance with the
following procedures within the indicated time period, then the Subtenant's
Expansion option to lease the Expansion Space shall become subordinate to
identified third party tenant to the extent those rights were set forth in the
Offer (as hereinafter defined) to Subtenant:
(a) If Sublandlord received a bona fide written proposal (whether
constituting a formal offer to lease, non-binding letter of intent, or other
expression of interest) to lease all or any part of the Expansion Space (which
space in which such party is interested is referred to herein as the "Offered
Space") signed by a third party (or its agent) that is not affiliated with
Sublandlord, and Sublandlord desires to pursue negotiations with that third
party with the objective of completing a lease transaction affecting the Offered
Space in question, Sublandlord shall, before Sublandlord signs a binding lease
with such third party, give Subtenant written notice of the following (an
"Offer"): (i) the identity of the prospective third party tenant; (ii) a
statement of Sublandlord's intent to pursue negotiations with the objective of
entering into a lease transaction with such identified third party tenant for
the lease of the Offered Space in question; (iii) a request that Subtenant
notify Sublandlord whether or not Subtenant elects to exercise its option to
lease the Expansion Space; (iv) a complete description of the Offered Space,
including the location, the Rentable Area, and a floor plan showing the
configuration thereof; and (v) a description of the following proposed material
terms of a lease that Sublandlord would be
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<PAGE>
willing to enter into with such third party tenant for the Offered Space (the
"Basic Business Terms"): (a) the rent; (b) the obligation, if any, of the
Subtenant to contribute to operating expenses and property taxes; (c) the lease
term; (d) any options to extend the lease term (and the rent for such options);
(e) any tenant improvement allowance Sublandlord is willing to offer; (f) any
material economic benefit given to the Subtenant that directly affect the
Subtenant's occupancy (e.g., "free rent", any contribution toward the
---
Subtenant's rental obligation on other premises occupied by it, contribution to
moving costs); (g) any expansion rights (e.g., options to lease other premises,
or rights of first refusal, first offer, or first negotiation affecting other
premises); and (h) any other material business terms that Sublandlord elects to
specify.
(b) For a period of seven (7) business days after Subtenant's receipt
of the Offer, Subtenant shall have the right to give written notice to
Sublandlord ("Subtenant's Notice") of Subtenant's exercise of its option to
lease the Expansion Space.
(c) If Subtenant does not indicate in writing its election to exercise
its option to lease the Expansion Space within the specified time, then
Sublandlord shall have the right to lease such Offered Premises to the third
party identified, and on the same Basic Business Terms set forth in the Offer,
provided that such lease is executed within one hundred twenty (120) days after
the Offer is delivered to Subtenant. Notwithstanding the foregoing, Sublandlord
may use such form of lease as it desires and may make any changes to such form
of lease or otherwise append language thereto at the request of a prospective
tenant to induce it to lease such space from Sublandlord, provided, however,
that such changes are commercially reasonable and do not materially change the
Basic Business Terms set forth in the Offer. If, within one hundred twenty (120)
days after the Offer is delivered to Subtenant, Sublandlord elects to lease the
Offered Space on terms materially different than the Basic Business Terms stated
in the Offer, then Sublandlord shall give notice to Subtenant of such election
setting forth the new terms upon which Sublandlord is willing to so lease the
Offered Space (the "Amended Offer"). Subtenant shall then have the right to
exercise its option to lease the Expansion Space, which right may be exercised
by delivering written notice of such election to exercise to Sublandlord within
seven (7) days following delivery to Subtenant of the Amended Offer, and upon
the terms stated in Section 14(B)(1). If Subtenant does not give written notice
to Sublandlord of its election to exercise its option to lease the Expansion
Space within said seven (7) day period, then Sublandlord shall have the right to
lease the Offered Space to the identified third party in accordance with the
Basic Business Terms set forth in the Offer, as modified by the
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<PAGE>
Amended Offer and otherwise in accordance with Section 13B(2)(c) so long as the
lease is executed within sixty (60) days after the Amended Offer is delivered to
Subtenant.
(d) Subtenant shall keep confidential the identity of any prospective
third party tenant named in any Offer, and shall not disclose such identity, and
shall implement reasonable security precautions that such identity is not
disclosed, to any person who is not an employee of Subtenant.
(e) Nothing contained in this Section 13 shall be construed to
prohibit Sublandlord from conducting negotiations for the lease of the Expansion
Space either before or after Sublandlord has delivered to Subtenant an Offer,
until Subtenant has elected to lease the Expansion Space. Sublandlord shall be
free to market the Expansion space and negotiate with prospective tenants for
any such space.
(f) If Sublandlord enters into a lease with the identified third party
affecting the Expansion Space after complying with this Section, Subtenant's
option to lease the Expansion Space shall thereafter be subject and subordinate
to any rights granted to such third party tenant with respect to such space, or
any other space in Marina Village, including rights of first refusal, rights of
first negotiation, options to extend, and options to expand, but only to the
extent those rights were reflected in the Basic Business Terms.
(g) If Sublandlord has delivered to Subtenant an Offer or Amended
Offer and Subtenant has not elected to exercise its option to lease the
Expansion Space, then if Sublandlord so requests, Subtenant shall deliver to
Sublandlord or any prospective tenant a certificate or certificates stating
that: (i) Sublandlord has complied with the provisions of this Section 13 and
may lease the premises in question pursuant to the Offer or Amended Offer free
of any rights or claims of Subtenant (except for the continuing application of
this Section); or (ii) Sublandlord has not complied with the provisions of this
Section 13 and specifying the manner in which Sublandlord has failed to so
comply. Such certificate shall be delivered promptly after request therefor but
in no event not more than five (5) days after request has been delivered to
Subtenant. Subtenant's failure to deliver such certificate within the required
time period shall be deemed an admission upon which any party may rely that
Sublandlord has complied with the provisions of this Section 13 and may lease
the premises in question pursuant to the terms of the Offer or Amended Offer
free of any rights or claims by Subtenant.
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<PAGE>
(3) If Subtenant's option to lease the Expansion Space is subordinated
in accordance with the foregoing procedures, then so long as such subordination
remains in effect, Subtenant may not exercise its option to lease the Expansion
space, and any attempt to do so shall be of no affect. However, once such
subordination ends (e.g., Sublandlord vacates the Expansion Space or a sublease
to an identified third party tenant terminates), Subtenant shall thereafter be
entitled to exercise its option to lease the Expansion Space unless and until
its right to do so is again subordinated in accordance with the provisions of
this Section.
C. Subtenant's exercise of its option to sublease shall not be effective
if Subtenant is in default under this Sublease as of the date of the exercise of
such option and such default remains uncured at the expiration of the cure
period set forth in the Sublease.
D. If Subtenant exercises its option to sublease the Expansion Space, the
following shall apply:
(a) The Expansion Space shall become part of the Subleased Premises
for the remainder of the Sublease Term (as it may be extended pursuant to
Section 2.C) and the rights and obligations of Subtenant and Sublandlord with
respect thereto shall be governed by the Sublease.
(b) Sublandlord and Subtenant shall confer to reach agreement upon
final plans, specifications, and working drawings for Subtenant Improvements to
be constructed by Master Landlord within the Expansion Space in accordance with
the Improvement Agreement, and as soon as such agreement is reached, Master
Landlord shall obtain such governmental approvals as are necessary and as soon
as such approvals are obtained shall commence and diligently prosecute to the
completion the Subtenant Improvements to be constructed in the Expansion Space.
The obligations of Master Landlord, Sublandlord and Subtenant with respect to
the construction of the Expansion Space Subtenant Improvements shall be governed
by the Improvement Agreement.
(c) Sublandlord shall deliver possession of the Expansion Space to
Subtenant, and Subtenant shall be entitled to take possession of and commence
the operation of its business in the Expansion Space, upon Substantial
Completion of the Expansion Space Subtenant Improvements.
(d) The Base Monthly Rent that Subtenant shall be obligated to pay for
the Expansion Space shall be at the same rate then applicable to the remainder
of the Subleased Premises as established pursuant to Section 3 of this Sublease,
which Base
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Monthly Rent shall be increased and payable at the same rate throughout the
remainder of the Sublease Term (as it may be extended pursuant to Section 2.C)
as is set forth for the Subleased Premises in said Section 3.
(e) Subtenant's obligation to pay Base Monthly Rent with respect to
the Expansion Space shall commence on the later of (i) delivery of possession of
the Expansion Space to Subtenant or (ii) Substantial Completion of the Expansion
Space Subtenant Improvements, except as otherwise provided in the Improvement
Agreement.
E. Subtenant's obligation to pay Additional Rent (including Operating
Expenses and Property Taxes) fairly allocable to the Expansion Space shall
commence on April 1, 1994 and continue for the remainder of the Sublease Term;
provided, however, that such obligation shall terminate on January 2, 1995 if
Subtenant fails to lease the Expansion Space.
F. If for any reason Subtenant does not exercise its option to lease the
Expansion Space, then at any time after January 1, 1995 Sublandlord shall have
the right to construct a common area entryway and corridor in compliance with
all applicable laws in substantially the configuration and location shown on the
Floor Plan, with a level of improvement and finish that is of a quality
consistent with the interior improvements constructed in the Building (the
"Common Area Improvements") to the extent the Common Area Improvements are
needed for Sublandlord's occupancy or the occupancy of an identified third party
subtenant under this Section 13. Subtenant shall be obligated to pay fifty
percent (50%) of all costs reasonably incurred by Sublandlord in constructing
the Common Area Improvements within fifteen (15) days after receipt of a request
therefor accompanied by a reasonable level of supporting documentation
establishing that all costs have been incurred and are appropriate, which costs
shall include the fees of architects and engineers, building permit costs and
the cost of all contractors and subcontractors engaged to perform the work.
G. During the period prior to January 1, 1995, Sublandlord shall not
sublease the Expansion Space to any other party, and no improvements or
alterations shall be constructed by Sublandlord in the Expansion Space without
Subtenant's consent. However, Sublandlord may use all or part of the Expansion
Space prior to the exercise of the option; provided, however, that (i) if
Sublandlord does so, it shall restore the Expansion Space to the condition
existing prior to Sublandlord's entry, reasonable wear and tear excepted, and
(ii) to the extent Sublandlord does so, Subtenant's obligation to pay Additional
Rent allocable to the Expansion Space shall be equitably abated,
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14. INTENTIONALLY OMITTED
---------------------
15. BROKER: Sublandlord and Subtenant each represent to the other
------
that they have dealt with no real estate brokers, finders, agents or salesmen,
other than Cooper/Brady and The Staubach Company, in connection with this
Sublease. Each party agrees to hold the other party harmless from and against
all claims for brokerage commissions, finder's fees, or other compensation made
by any other agent, broker, salesman or finder as a consequence of said party's
actions or dealings with such agent, broker, salesman, or finder.
16. SUBTENANT'S INDEMNITY: Subtenant shall indemnify, defend, protect, and hold
---------------------
Sublandlord harmless from and against all actions, claims, demands, costs,
liabilities, losses, attorneys' fees, damages, penalties, and expenses
(collectively "Claims") which may be brought or made against Sublandlord or
which Sublandlord may pay or incur by reason of (i) a breach of this Sublease by
Subtenant, (ii) any violation of law by Subtenant or its Agents relating to the
use or occupancy of the Subleased Premises, (iii) the negligence or willful
misconduct of Subtenant or its Agents, or (iv) any occurrence within the
Subleased Premises during the Sublease Term arising out of Subtenant's use or
occupancy thereof, but only in each case to the extent that such Claims are not
caused by the negligence or willful misconduct of Sublandlord or Sublandlord's
Agents.
17. SUBLANDLORD'S INDEMNITY: Sublandlord shall indemnify, defend, protect, and
-----------------------
hold Sublandlord harmless from and against all actions, claims, demands, costs,
liabilities, losses, attorneys' fees, damages, penalties, and expenses
(collectively "Claims") which may be brought or made against Subtenant or which
Subtenant may pay or incur by reason of (i) a breach of this Sublease or the
Master Lease by Sublandlord, (ii) any violation of law by Sublandlord or it
Agents, or (iii) the negligence or willful misconduct of Sublandlord or its
Agents, but only in each case to the extent that such Claims are not caused by
the negligence or willful misconduct of Subtenant or Subtenant's Agents.
18. OBLIGATION TO ENFORCE: In each instance in this Sublease where Sublandlord
---------------------
has agreed to use reasonable efforts to enforce the obligations of Master
Landlord under the Master Lease, such efforts shall include, without limitation:
(i) upon Subtenant's written request, immediately notifying Master Landlord of
any nonperformance under the Master Lease and requesting that Master Landlord
perform its obligations thereunder; and (ii) after the time by which Master
Landlord must cure a breach has expired, cooperating with Subtenant to institute
legal proceedings, in the name of Sublandlord, with legal counsel selected by
Subtenant and approved by Sublandlord, to enforce obligations required to be
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performed by Master Landlord under the Master Lease (including executing such
documents as may be reasonably required by such legal counsel). Sublandlord and
Subtenant shall be entitled to jointly control the conduct of the litigation;
provided, however, that in the conduct of any litigation brought against Master
Landlord to enforce its obligations under the Master Lease for the benefit of
Subtenant, both Sublandlord and Subtenant shall have an obligation to act in a
commercially reasonable manner and with the goal of employing the strategy which
is designed to ensure that Master Landlord will fully perform its obligations
under the Master Lease, and no action may be taken which may materially and
adversely affect the other party's rights or obligations under the Master Lease
or Sublease without such other party's consent, including settlement. All costs
incurred in connection with any enforcement action undertaken by Sublandlord at
the request of Subtenant shall be equitably apportioned between Sublandlord and
Subtenant. In the event of any dispute regarding responsibility for payment of
such costs, or any dispute regarding whether either party is acting in a
commercially reasonable manner and with the goal of employing the strategy which
is designed to ensure that Master Landlord will fully perform its obligations
under the Master Lease in connection with any litigation under this Section,
such dispute shall be resolved by arbitration conducted in accordance with the
provisions of California Code of Civil Procedure Section 1280 et seq. In
addition to the foregoing, Sublandlord and Subtenant acknowledge that
Sublandlord has the right to cure defaults of Master Landlord pursuant to
Paragraph 40 entitled "Right to Perform Other Party's Covenants" of the Master
Lease, and in the event Master Landlord commits a default concerning Master
Landlord's Repair Obligations and does not cure such default within the
applicable time period, and Subtenant requests Sublandlord to cure such default,
Sublandlord shall do so to the extent it is permitted to by the Master Lease so
long as Subtenant pays all costs reasonably incurred by Sublandlord in so doing;
provided, however, that the foregoing shall not obligate Sublandlord to cure a
default of Master Landlord of its obligation to restore damage to the Building
caused by fire or other peril or by condemnation, or to make structural repairs
or replacements to the Building. As a condition to commencing action to cure
Master Landlord's default requested by Subtenant, Sublandlord may require
Subtenant to pay in advance the reasonable costs that Sublandlord estimates it
must incur in order to cure such default, to assure Sublandlord that payment
will be made. If Subtenant pays any costs in connection with Sublandlord's cure
of a Master Landlord default, Sublandlord shall use reasonable efforts to
enforce Master Landlord's reimbursement obligations under the Master Lease, and
shall promptly pay to Subtenant any costs recovered from Master Landlord.
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19. SUBLANDLORD'S REPRESENTATIONS: Sublandlord represents and warrants that:
-----------------------------
(i) the copy of the Master Lease attached hereto is a true, correct and complete
copy thereof; (ii) there exist no amendments, modifications or other agreements
(whether oral or written) affecting the Master Lease except as attached thereto;
(iii) neither Sublandlord nor Master Landlord is in default under the provisions
of the Master Lease, nor is there any event, condition or circumstance existing
which with notice, or the passage of time or both, would constitute a default or
event of default thereunder; (iv) the Master Lease is in full force and effect
and is a valid and binding obligation of Sublandlord; and (v) Sublandlord is
duly authorized to execute and deliver this Sublease.
20. QUIET ENJOYMENT: So long as no default by Subtenant exists hereunder,
---------------
Subtenant shall have the right of quiet enjoyment of the Subleased Premises,
subject to the terms of this Sublease, without interruption or hindrance by
Sublandlord or any other person claiming by, through or under Sublandlord.
21. SUBTENANT'S RIGHT TO CURE: In the event that Sublandlord is in default of
-------------------------
the Master Lease, Sublandlord agrees that Subtenant may cure the default so long
as Master Landlord agrees to accept such performance and Sublandlord agrees to
reimburse Subtenant for all costs and expenses reasonably incurred therefor
within ten (10) days following Subtenant's written request for reimbursement.
22. AUDIT AND CONTEST RIGHTS: The parties acknowledge that Sublandlord has the
------------------------
following rights pursuant to the Master Lease: (i) the right to inspect
information concerning operating Expenses pursuant to Paragraph 4.F(4) of the
Master Lease; and (ii) the right to contest Property Taxes pursuant to Paragraph
7.F of the Master Lease. From time to time during the Sublease Term, Subtenant
may require Sublandlord to exercise such audit and contest rights for the
benefit of Subtenant, and Sublandlord shall use reasonable efforts to fully
exercise such rights to the extent permitted by the Master Lease; provided,
however, that Subtenant shall pay to Sublandlord all costs reasonably incurred
by Sublandlord in connection with the exercise of such rights if the exercise of
such rights was undertaken at the request of Subtenant. Any adjustments, refunds
or reductions in Operating Expenses and Property Taxes that result from the
exercise of such rights shall be passed through to Subtenant to the extent
fairly allocable to the Subleased Premises.
23. CONDITION PRECEDENT: The obligations of Sublandlord and Subtenant under
-------------------
this Sublease are subject to the satisfaction or waiver of the following
conditions within the indicated time
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periods by the party or parties benefitted by the condition in question:
A. Within five (5) business days after execution of this Sublease by
Sublandlord and Subtenant, Master Landlord shall have (i) given its consent to
this Sublease, (ii) made such representations and agreements as are required by
Subtenant in its sole discretion, including an agreement to recognize the rights
of Subtenant under the Sublease in the event the Master Lease is terminated
because of a default by Sublandlord, and (iii) obtained the consent of Wells
Fargo Bank to the foregoing so that Master Landlord's initial consent is no
longer contingent upon obtaining the consent of Wells Fargo Bank. This
condition exists for the benefit of both Sublandlord and Subtenant.
B. Within fifteen (15) days after the execution of this Sublease by
Sublandlord and Subtenant, Subtenant shall have obtained from the holder of any
deed of trust encumbering the Building an agreement to recognize the rights of
Subtenant under this Sublease in the event such deed of trust is foreclosed,
even if the Master Lease has been terminated as a result of a default by
Sublandlord. This condition exists only for the benefit of Subtenant.
C. If either of the foregoing conditions is not satisfied or waived by the
benefitted party or parties within the applicable time period, then this
Sublease shall terminate and neither party shall have any further rights or
obligations under this Sublease.
-26-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease with the intent
to be legally bound thereby.
Subtenant: Sublandlord:
VIEWSTAR CORPORATION, THE ASK GROUP, INC,
a California corporation a Delaware corporation
By: /s/ Stephen E. Recht By: /s/ [signature unreadable]
Print Name: STEPHEN E. RECHT Print Name: ___________________
Its: VICE PRESIDENT, CFO Its: __________________________
Date: OCTOBER 3, 1993 Date: _________________________
<PAGE>
EXHIBIT A
LEASE
BY AND BETWEEN
ALAMEDA REAL ESTATE INVESTMENTS,
a California limited partnership
AND
ASK COMPUTER SYSTEMS, INC.,
a California corporation
1101 Marina Village Parkway
Alameda, California
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Parties 1
2. Demise of Premises 1
3. Lease Term. Definitions, Early Entry and Construction 1
A. Lease Term 1
B. Definitions 1
C. Early Entry 2
D. Construction of Building Shell, Outside Area and Tenant Improvements 3
4. Rent 3
A. Payment of Rent 3
B. Schedule of Base Monthly Rent 3
C. Tenant Improvement Allowance and Amortization 3
D. Late Charge 4
E. Additional Rent 4
F. Operating Expenses 4
G. Place of Payment 6
5. Security Deposit 6
6. Use of Premises 6
7. Taxes and Assessments 7
A. Tenant's Property 7
B. Payment of Property Taxes 7
C. Property Taxes Defined 7
D. Assessments 8
E. Other Taxes 8
F. Tenant's Right to Contest 8
8. Insurance 8
A. Waiver and Indemnity 8
B. Tenant's Liability Insurance 8
C. Landlord's Liability Insurance 9
D. Fire and All Risk Insurance 9
E. Release of Landlord 10
F. Mutual Waiver of Subrogation 10
9. Utilities 10
10. Repairs and Maintenance 10
A. Tenant's Responsibilities 10
B. Landlord's Responsibilities 11
C. Warranties 11
D. Condition on Delivery 11
E. Limitation on Repair obligation of Landlord 11
11. Outside Areas 11
12. Amortization of Certain Improvements as Additional Rent 12
13. Alterations 13
A. Trade Fixtures 13
B. Alteration 13
C. Lien Waiver 13
D. Legally Required Alterations 14
14. Delivery of Possession and Acceptance of the Premises 14
15. Default 14
A. Events of Tenant's Default 14
B. Remedies 15
16. Destruction 16
A. Landlord's Duty to Restore 16
B. Landlord's Right to Terminate 16
C. Tenant's Right to Terminate 17
D. Abatement of Rent 17
17. Condemnation 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
A. Definition of Terms 18
B. Rights 18
C. Total Taking 18
D. Partial Taking 18
E. Temporary Taking 18
18. Mechanics' Lions 19
19. Inspection of the Premises 19
20. Compliance with Laws 19
A. Obligation of Tenant 19
B. Right to Contest 19
21. Subordination 19
22. Holding Over 20
23. Notices 20
24. Attorneys' Fees 20
25. Nonassignment 20
A. Consent Required 20
B. Notice Required 21
C. Landlord's Right to Share in Not Subrent Profit 22
D. Exempt Transfers 22
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
26. Successors 23
27. Under Protection 23
28. Estoppel Certificates and Financial Statements 23
29. Surrender of Lease Not Merger 23
30. Waiver 23
31. General 23
A. Captions 23
B. Transfers by Landlord: Limitation on Tenant's Recourse for
Landlord's Default 23
C. Time 24
D. Severability; Governing Law 24
E. Joint and Several Liability 24
F. Exhibits 24
G. Miscellaneous 24
H. Survival 25
32. Signs 25
33. Interest on Past Due Obligations 25
34. Surrender of the Premises 25
35. Authority 25
36. Options to Extend 25
37. Hazardous Material 27
A. Definitions 27
B. Use Restriction 27
C. Compliance 28
D. Assignment and Subletting 29
E. Notice 29
F. Surrender 29
G. Landlord's Obligations 29
38. Approvals 29
39. Reasonable Expenditures 29
40. Right to Perform Other Party's Covenants 29
41. CPI Adjustment 30
42. Integration and Amendments 30
43. Memorandum of Lease 30
44. Non-Discrimination 30
45. Brokerage Commissions 30
46. Financing Contingency 30
</TABLE>
EXHIBITS
---------
EXHIBIT A - Diagram(s) of Premises
EXHIBIT B - Improvement Agreement
EXHIBIT C - Diagram of Marina Village Project
EXHIBIT D - Existing Hazardous Material Condition
<PAGE>
MARINA VILLAGE
LEASE
-----
ASK COMPUTER SYSTEMS, INC.
1101 MARINA VILLAGE PARKWAY
---------------------------
1. PARTIES. This Lease dated for reference purposes as of June 25, 1992, is
-------
made by and between ALAMEDA REAL ESTATE INVESTMENTS. a California limited
partnership ("Landlord"), and ASK COMPUTER SYSTEMS. INC., a Delaware
corporation ("Tenant").
2. DEMISE OF PREMISES. Landlord hereby leases to Tenant and Tenant hereby
------------------
leases from Landlord, upon the terms and conditions hereinafter set forth,
those certain premises (the "Premises") situated in the City of Alameda.
County of Alameda, State of California, described as follows:
A. The right to use in common with other tenants of the Project and the
Outside Areas adjacent to the Building and located on the Parcel (as such
terms are hereinafter defined);
B. That building (the "Building") to be constructed on a portion of that
certain real property described as Lot 1 of Parcel, Map 5434 recorded
February 23. 1989 in Map Book 182, Pages 56-58, Alameda County Records (the
"Parcel"). and to be identified as 1101 Marina Village Parkway, containing
approximately 58,318 square feet of Rentable Area (as defined in Paragraph
3.B(xiii)) as shown on Exhibit A and attached hereto; and
C. The interior improvements (the "Tenant Improvements") to be constructed
in the Building in accordance with the provisions of the Improvement
Agreement attached hereto as Exhibit B.
3. LEASE TERM, DEFINITIONS, EARLY ENTRY AND CONSTRUCTION.
-----------------------------------------------------
A. Lease Term. The term of this Lease (the "Lease Term") shall commence
----------
on the "Commencement Date" (as hereinafter defined) and shall end September
30, 2004, unless sooner terminated or extended pursuant to any provision of
this Lease.
B. Definitions. As used herein, the following terms shall have the
-----------
following meanings:
(i) The term "Affiliate" shall mean, with respect to either Landlord or
Tenant, a person or entity that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with Landlord (or either of its constituent partners, or the
shareholders or partners of such constituent partners) or Tenant and
any officer, director, trustee, stockholder or partner of any such
person or entity. For purposes of this definition, the term "control"
means the ownership of fifty percent (50%) or more of the beneficial
interest or voting power of the appropriate entity (e.g., partnership,
corporation, trust, or unincorporated association).
(ii) the term "Agent" shall mean, with respect to either Landlord or
Tenant, its respective agents, employees, contractors (and their
subcontractors), and
<PAGE>
invite" (and in the case of Tenant, its
subtenants).
(iii) The term "Agreed Interest Rate" shall mean the "prime" or reference
rate announced from time to time by the Bank of America, NT & SA, or
its successor, for short-term commercial loans plus two percent (2%)
per annum. but in no event to exceed the maximum interest rate
permitted by law.
(iv) The term "Alterations" shall mean all improvements, additions,
alterations and fixtures installed in the Premises bv Tenant at its
expense which are not Trade Fixtures.
(v) The term "Commencement Date" shall mean the later of October 1, 1993
(the "Target Commencement Date"), or the date when all of the
following have occurred: (a) Landlord has caused to be substantially
completed all work to be performed by Landlord pursuant to the
improvement Agreement ("Landlord's Work"); (b) there are no incomplete
items or patent defects in construction in Landlord's Work which
1
<PAGE>
would materially interfere with Tenant's ability to use the Premises
for their intended purpose; (c) the City of Alameda has issued a
temporary Certificate of Occupancy which permits Tenant to legally
occupy the Premises and to commence the operation of its business
therein; (d) possession of the Premises Has been tendered by
Landlord to Tenant; and (e) all utility services are available for
use by Tenant.
(vi) The term "Consumer Price Index" shall mean the Consumer Price Index,
for All Urban Consumers. Subgroup "All Items", for the San
Francisco-Oakland-San Jose Metropolitan Area (Base Year 1982-
84=100), which is currently being published monthly by the United
States Department of Labor, Bureau of Labor Statistics. If, however,
this Consumer Price Index is changed so that the base year is
altered from that used as of the Commencement Date, then the
Consumer Price Index shall be converted in accordance with the
conversion factor published by the United States Department of
Labor, Bureau of Labor Statistics, to obtain the same results that
would have been obtained had the base year not been changed. If no
conversion factor is available or if the Consumer Price Index is
otherwise changed, revised or discontinued for any reason, there
shall be substituted in lieu thereof and the term "Consumer Price
Index" shall thereafter refer to the most nearly comparable official
price index of the United States Government to obtain substantially
the same result as would have been obtained had the original
Consumer Price Index not been changed. revised or discontinued,
which alternative index shall be selected by Landlord and shall be
subject to Tenant's prior written approval.
(vii) The term "Effective Date" shall me-an the date first set forth above
also used for reference purposes as the date of this Lease.
(viii) The term "Institutional Lender" shall mean any commercial bank,
savings and loan association, life insurance company, pension fund,
or other entity regularly engaged in the business of lending where
the primary security is real property whose activities are regulated
by the state or federal government, and which institution is then in
compliance with all regulations by which it is governed.
(ix) The term "Law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule,
administrative order, or other requirement of any municipal, county,
state, federal or other governmental agency or authority having
jurisdiction over the parties to this Lease or the Premises.
(x) The term "Lender" shall mean any beneficiary, mortgagee, secured
party or other holder of any deed of trust, mortgage or other
written security device or agreement encumbering the Premises.
(xi) The term "Outside Areas" shall mean all access roads, driveways,
parking areas, loading docks and ramps, sidewalks, landscape areas,
exterior lighting and other facilities located on the Parcel outside
the exterior walls of the Building.
(xii) The term "Project" shall mean all real property within the West End
Community Improvement Project Area which is commonly referred to as
Marina Village, Alameda, California, and more specifically outlined
on Exhibit C attached hereto.
(xiii) The term "Rentable Area" shall mean rentable square footage of the
Premises as determined by the Building Owners and Managers
Association (BOMA) measurement standards for multi-story buildings,
measuring to the "glass line" outside boundary, excluding major
vertical penetrations, such as stair wells, elevators and mechanical
shafts, exterior decks, atria and courtyards.
<PAGE>
(xiv) The term "Trade Fixtures" shall mean anything installed in or affixed
to the Premises by Tenant at its expense for purposes of trade,
manufacture, ornament or domestic use (except replacement of similar
work or material originally installed by Landlord) which can be
removed without injury to the Premises demountable partitions,
business and production equipment and systems. furniture and
furnishings) unless such thing has by the manner in which it is
affixed, become an integral part of the Premises.
C. Early Entry. Tenant may enter the Building prior to the Commencement
-----------
Date and in accordance with the terms of the Improvement Agreement to
install fixtures and equipment therein provided it first obtains the prior
written approval of Landlord for such entry, which approval Landlord may
withhold if such entry will substantially delay or increase the cost
2
<PAGE>
of completion of construction and Tenant does not agree to pay such
increased cost of Landlord's Work; provided, however, to the extent such
early entry by Tenant causes a delay in the construction of Landlord's
Work, then the Commencement Date for the Premises shall be advanced by the
number of days of delay. If Landlord permits Tenant to so enter upon the
Premises such entry shall be subject to all of the terms and conditions of
this Lease. excepting only the obligation to pay Base Rent Operating
Expenses and Property Taxes. Tenant shall coordinate its entry onto the
Premises with Landlord and the contractors and other personnel employed by
Landlord and shall at all times while exercising its right of entry refrain
from interfering with the construction activities of such personnel. In any
case, Tenant shall repair any damage to the Tenant Improvements constructed
by Landlord pursuant to Exhibit "B" resulting from the entry upon the
----------
Premises by Tenant prior to the Commencement Date or caused by the
installation of Trade Fixtures and equipment by Tenant or Tenant's Agents
If the entry by Tenant or its Agents prior to the Commencement Date causes
a delay in completing the construction of the Tenant Improvements for the
Building, then the Commencement Date shall be deemed to have occurred on
the date the Tenant Improvements would have been completed had there been
no such delay caused by Tenant or its Agents. In the event Tenant does not
immediately comply with any notice from Landlord requesting that Tenant
cease any interference with Landlord's construction activities, Tenant
shall be required to vacate the Premises but shall thereafter be entitled
to re-enter the Premises as soon as reasonably practicable so long as
Tenant's re-entry does not interfere with Landlord's construction
activities in the Premises. Notwithstanding anything to the contrary
contained above. Tenant's obligation for payment of Base Monthly Rent,
Operating Expenses and Property Taxes shall not be advanced unless within a
reasonable period of time after learning of the occurrence of any delay
caused by Tenant or its Agents. Landlord gives notice to Tenant of the fact
that such delay has occurred and the known or anticipated extent of any
such delays.
D. Construction of Building Shell, Outside Area and Tenant Improvements.
--------------------------------------------------------------------
Prior to the Commencement Date. Landlord shall perform Building Shelf,
Outside Area and Tenant Improvements in accordance with the terms of the
Improvement Agreement.
4. RENT.
-----
A. Payment of Rent. Tenant shall pay to Landlord as rent for the Premises
---------------
the sum specified in Paragraph 4.B. as the same may be adjusted pursuant to
such same Paragraph 4.B (the "Base Monthly Rent") each month in advance on
the first day of each calendar month, without deduction, offset, prior
notice or demand (except as otherwise expressly permitted by this Lease),
commencing two weeks following the Commencement Date and continuing through
the initial Lease Term. together with such Additional Rent as is payable by
Tenant to Landlord under the terms of this Lease.
B. Schedule of Base Monthly Rent. The Base Monthly Rent for the Premise
-----------------------------
shall be as follows:
<TABLE>
<S> <C>
Two weeks after
the Commencement Date - 3/31/95 $1.160 per square foot of Rentable
Area
4/1/95 - 3/31/98 $1.305 per square foot of Rentable
Area
4/l/98 - 3/31/01 $1.468 per square foot of Rentable
Area
4/l/01 - 3/31/04 $1.651 per square foot of Rentable
Area
4/l/04 - 9/30/04 $1.857 per square foot of Rentable
Area
</TABLE>
The above schedule of Base Monthly Rent may be adjusted pursuant to
Paragraph 4.C below. If the Base Monthly Rent payment is to commence on
other than the first day of a calendar month, the first payment of Base
Monthly Rent due shall be
<PAGE>
appropriately prorated on the basis of a 30-day month. This Paragraph 4.B
shall not apply during the Option Terms, as the subject of periodic
increases in Base Monthly Rent during the Option Terms is governed by
Paragraph 36.B.
C. Tenant Improvement Allowance and Amortization.
---------------------------------------------
(i) Landlord shall make available for the payment of all Tenant
Improvement Costs (as defined in the Improvement Agreement) an amount
equal to Thirty Dollars ($30) per square foot of Rentable Area (the
"Base TI Allowance") The initial Base Monthly Rent provided in
Paragraph 4.B above is based upon the assumption that all such Tenant
improvement costs paid by Landlord do not exceed the Base TI
Allowance. Landlord shall, however, also make available at Tenant's
request and for the payment of Tenant Improvement costs on the initial
construction of the Premises only an additional allowance up to Ten
Dollars ($10) per square foot of Rentable Area (the "Excess TI
Allowance which may be applied toward improvement of Tenant's
cafeteria improvements, voice and data equipment or fit-up of Tenant's
Trade Fixtures and such other items as Landlord and Tenant shall
reasonably approve
3
<PAGE>
in accordance with the Improvement Agreement. If the Tenant
Improvement Costs exceed the Base TI Allowance, Tenant may elect to
pay all or some of the excess Tenant Improvement costs in each or to
require Landlord to utilize all or a portion of the Excess TI
Allowance to pay such excess Tenant Improvement Costs. All Tenant
Improvement Costs shall be paid by Landlord or reimbursed by Tenant in
accordance with the terms of the Improvement Agreement.
(ii) If Landlord spends any part of the Excess TI Allowance for the payment
of Tenant Improvement Costs, Tenant shall pay monthly commencing on
the Commencement Date, as Additional Rent. that amount (the "Excess TI
Cost Amortization"), equal to the Excess TI Allowance utilized by
Tenant amortized over the lease Term together with interest thereon,
at the rate of ten percent (10%) per annum, in such a manner as to
result in an amortization payment, including interest and principal.
of equal monthly payments bv Tenant.
(iii) The Excess TI Cost Amortization shall be paid by Tenant, on a monthly
basis as and when Base Monthly Rent is payable, over the Lease Term,
but the Excess TI Cost Amortization shall (i) not be increased during
the Lease Term (and shall not be subject to periodic increase in Base
Monthly Rent provided in Paragraph 4.C), (ii) cease upon the
expiration or sooner termination of the Lease Term (except a
termination resulting from an Event of Tenant's Default). and (iii)
not be payable during any Option Term.
D. Late Charge. If any installment of Base Monthly Rent. Additional Rent
-----------
or any other sum payable by Tenant shall not be received by Landlord when due,
Tenant shall pay to Landlord, as Additional Rent, a late charge equal to four
percent (4%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount nor prevent Landlord from exercising any of its rights
and remedies hereunder.
E. Additional Rent. Tenant's obligation to pay Property Taxes in
---------------
accordance with Paragraph 7 and Operating Expenses (as defined herein) shall
commence two weeks after the Commencement Date but its obligation to pay all
other sums required to be paid by Tenant under this Lease other than Base
Monthly Rent (which other amounts. including Operating Expenses and Property Tax
are referred to herein as the "Additional Rent") shall commence on the
Commencement Date. All taxes, Operating Expenses late charges, costs and
expenses which Tenant is required to pay hereunder, together with all interest
and penalties that may accrue thereon in the event of Tenant's failure to pay
such amounts, and all damages, costs, and attorneys" fees and expenses which
Landlord may incur by reason of any default of Tenant or failure on Tenant's
part to comply with the terms of this Lease, shall be deemed to be Additional
Rent and shall be paid in addition to the Base Monthly Rent. and. in the event
of nonpayment by Tenant. Landlord shall have all of the rights and remedies with
respect thereto as Landlord has for the nonpayment of Base Monthly Rent.
F. Operating Expenses
------------------
(1) The term "Operating Expenses" shall mean all expenses and costs of every
kind and nature which Landlord shall reasonably pay or become obligated to
pay because of or in connection with the operation, maintenance and repair
of the Premises, the Building, the Outside Areas, or the Project including,
without limitation, (i) licenses, permit and inspection fees not related to
the initial improvement of the Premises, (ii) premiums for insurance
maintained by Landlord with respect to the Building and the Project which
complies with Paragraphs 8.C and 8.D hereof, (iii) wages, salaries and
related expenses and benefits of all employees engaged in
<PAGE>
operation, maintenance and security to the extent fairly allocable to the
Building (but excluding leasing, accounting and management activities which
are covered by the specified management fee), (iv) supplies and materials
and equipment rental: (v) all maintenance, repair, janitorial, security and
service costs, (vi) a management cost recovery equal to two percent (2%) of
Base Monthly Rent and Additional Rent payable with respect to the Premises
(collectively, "Gross Revenues"), provided that Operating Expenses shall
not include any other management fee or costs incurred by Landlord in
connection with property management services, or payable to any third party
manager for such services. and provided further that Gross Revenues shall
not include any of the items described as exclusions from operating
Expenses under subparagraph 4.F(2), (vii) professional services fees:
(viii) repair, replacement and maintenance costs the Outside Areas.
including, without limitation, those for sidewalks, landscaping, service
areas, parking areas, building exterior, pipes, ducts. conduits, wires and
driveways (excluding those specifically described in Paragraph 1O.B. to be
paid for by Landlord and not reimbursed as an Operating Expense and those
paid for by proceeds of insurance or by other parties). (ix) amortization
of capital improvements to the extent such capital improvements reduce
other Operating Expenses or to the extent that they are required by
governmental authorities amortized according to Paragraph 12. (x) all
4
<PAGE>
charges for heat, water, gas, electricity sewer, and other utilities used
or consumed in the Building and Outside Areas. (xi) maintenance and repair
of the roof membrane. and (xii) all other operating expenses reasonably
incurred bv Landlord in connection with the operation of the Building and
the Project. Landlord shall not collect in excess of 100% of all Operating
Expense and Landlord shall not recover, through Operating Expenses, any
item of cost more than once. Tenant's share of Operating Expenses and
costs incurred by Landlord on a Project-wide basis shall be the product
obtained by multiplying such expenses by a fraction, the numerator of which
is the Rentable Area of the Premises and the denominator of which is the
total Rentable Area of all improvements located within the Project which
benefit from the goods and services relating to such expenses and costs.
(2) Notwithstanding anything contained in this Lease, the term "Operating
Expenses" shall not include any of the following:
(a) Expenses incurred in connection with (i) obtaining financing for
the Project; (ii) constructing improvements for Tenant or any other
tenant of the Project; (iii) procuring tenants for any portion of the
Project (including commissions and legal fees); (iv) the negotiation,
amendment, or termination of any lease (including unlawful detainer
action), or (v) proceedings against any specific tenant;
(b) Any expenditure for which Landlord has been reimbursed by
insurance, by Tenant, or by any third party (other than pursuant to
rent escalation or tax and operating expense reimbursement provisions
in leases;
(c) Any depreciation or amortization on the Project or any property
used in connection therewith:
(d) Expenses in connection with services or other benefits of the type
that are not provided to Tenant, but which are provided to other
tenants of the Project;
(e) Costs incurred due to the violation by Landlord or any other
tenant of the terms of any lease with Landlord affecting the Project;
(f) Overhead and profit increments paid to Affiliates of Landlord, or
to any party as a result of a non-competitive selection process, for
management or other services with respect to the Project to the extent
the cost that would have been paid had the services, supplies, and
materials been provided by parties unaffiliated with Landlord on a
competitive basis;
(g) Interest, principal or any other payment made with respect to any
loans obtained by Landlord or any ground lease or underlying lease
affecting the Project:
(h) Rental incurred in leasing building service equipment ordinarily
considered to be of a capital nature (excluding equipment used in
providing janitorial services that is not affixed to the building);
(i) Accounting expenses relating to the ownership entity and not
related to the ownership or operation of the Project;
(j) Any costs, fines or penalties incurred due to violations by
Landlord or any third party of any Law;
(k) Any fine and the cost of correcting any violations of Laws
applicable to the design or construction of the Premises prior to the
Commencement Date or any latent defects in the construction of the
Premises;
<PAGE>
(l) Costs incurred to comply with any Law to the extent of violations which
existed prior to the Commencement Date, including the cost to bring the
Project into compliance with the Americans with Disabilities Act;
(m) The costs of repairs or replacements incurred by reason of fire or
other peril, or caused by the exercise of the right of eminent domain;
(n) Costs directly resulting from the negligence or intentional misconduct
of Landlord or Landlord's Agents;
(o) Any cost or expense incurred in connection with the presence or alleged
presence or remediation of any, Hazardous Material on (the Project which
subject is governed exclusively in Paragraph 37 of the Lease) not caused by
Tenant, or Tenant's Agents;
5
<PAGE>
(p) The "deductible" under any insurance policy maintained by Landlord
(with Tenant's obligation to contribute to the cost of any
"deductible" covered by Paragraph 8.D hereof),
(q) Any Property Taxes or taxes or similar charges excluded from the
definition of "Property Taxes pursuant to Paragraph 7.C (with Tenant's
obligation to contribute to the payment of Real Property Taxes
governed by Paragraph 7.B hereof);
(r) The cost of maintenance, repairs or replacements to the structural
parts of any Building that is part of the Project (including
foundation load-bearing walls roof structural system, and floor slab)
and all enclosed plumbing and electrical lines up to the point they
enter any Building in the Project
(3) Tenant shall pay to Landlord each month at the same time and in the
same manner as monthly Base Rent 1/12th of Landlord's estimate of Operating
Expenses for the then current calendar year. Within 90 days after the
close of each calendar year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of actual
Operating Expenses for such calendar year. If on the basis of such
statement Tenant owes an amount that is less than the estimated for such
calendar year previously made by Tenant, Landlord shall refund such excess
to Tenant. If on the basis of such statement Tenant owes an amount that is
more than the estimated payments for such calendar year previously made by
Tenant, Tenant shall pay the deficiency to Landlord within 30 days after
delivery of the statement. The obligations of Landlord and Tenant under
this subparagraph with respect to the reconciliation between estimated
payments and actual Operating Expenses for the last year of the term shall
survive the termination of the Lease.
(4) If requested by Tenant, Landlord shall make available to Tenant, within
45 days of Tenant's notice of request, which notice shall be given no later
than 90 days following Tenant's receipt of Landlord's statement, actual
bills and invoices, or copies thereof, supporting Landlord's statement of
estimated or actual Operating Expenses for such calendar year. If Tenant
disputes such statement, then Tenant shall not withhold payment but shall
within 10 days after reviewing such bills and invoices, send notice to
Landlord objecting to such statement. If such notice is sent, the parties
recognize the unavailability of Landlord's book and records because of the
confidential nature thereof and hence agree that either Pam may refer the
decision of the issues raised to a reputable independent firm of certified
public accountants selected by Landlord and approve by Tenant, which
approval shall not be unreasonably withheld or delayed, which accountants
shall, have the right to audit Landlord's records pertaining to Operating
Expenses. Any adjustment to any previous payment of Operating Expenses
shall be paid by Landlord or Tenant, as the case may be, within 30 days
after such accountants render their decision. If the accountants find that
the Landlord's statement has overstated the total Operating Expenses by 5%
or mom, then Landlord shall bear the cost of ail fees and expenses of the
accountants. Otherwise, the Tenant shall bear the cost of all fees and
expenses of the accountants.
G. Place of Payment. Rent shall be payable in lawful money of the United
----------------
States of America to Landlord at 1150 Marina Village Parkway, Suite 100,
Alameda, California or to such other person(s) or at such other place(s) as
Landlord may designate in writing.
H. Rental Abatement. Landlord shall credit an amount equal to one days'
----------------
Base Monthly Rent for each day that the Commencement Date is delayed
following November 1, 1993 for reasons other than events under Tenant's
control and other than events of force majeure; i.e., those not under
Landlord's control such as fire, weather. acts of God or of war, strikes or
the unavailability of materials.
<PAGE>
5. SECURITY DEPOSIT. No security or similar deposit shall at any time be due
----------------
from Tenant under this Lease.
6. USE OF PREMISES. Tenant may use the Premises for general office use and.
---------------
for so long as Tenant is the tenant for the entire Building, for research
and development purposes which are similar to, and not inconsistent with,
other uses in the Project and which do not require excessive use or misuse
of Building mechanical, electrical, structural or elevator systems, but the
Premises shall not be used for any other purpose. In making such use of the
Premises, Tenant shall comply with all provisions of this Lease. including
without limitation Paragraph 37 Tenant shall indemnify, defend and hold
Landlord harmless against any loss, expense, damage, reasonable attorneys"
fees or liability arising out of failure of Tenant to comply with any
applicable Law. Tenant shall not commit, or suffer to be committed, any
waste upon the Premises, or any nuisance, or allow any sale by auction upon
the Premises, or allow the Premises to be used for any unlawful purpose, or
use any corridor, sidewalks or Outside Areas for storage or any purpose
other than access to the premises, or place or maintain any signs on or
visible from the exterior of the Premises without Landlord's written
consent or do or permit to
<PAGE>
be done anything in and about the Premises either in connection with
activities hereunder expressly permitted or otherwise, which would cause a
cancellation of any policy of insurance (including fire insurance)
maintained by Landlord in connection with the Premises or the Building
which would violate the terms of any covenants conditions or restrictions
affecting the Building or the land on which it is located or place any
loads upon the floor, walls or ceiling which endanger the structure, or
place any harmful liquids in the drainage system of the Building. No waste
materials or refuse shall be dumped upon or permitted to remain upon any
part of the Outside Areas except in trash containers placed inside exterior
enclosures designated for that purpose by Landlord or otherwise with the
written consent of Landlord.
7. TAXES AND ASSESSMENTS.
---------------------
A. Tenant's Property. Tenant shall pay before delinquency any and all
-----------------
taxes and assessments license fees and public charges levied, assessed or
imposed upon or against Tenant's Trade Fixtures, equipment, furnishings,
furniture, appliances and personal property installed or located on or
within the Premise, Tenant shall use all reasonable efforts to cause said
Trade Fixtures, equipment, furnishings, furniture, appliances and personal
property to be assessed and billed separately from the real property of
Landlord If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay Landlord the taxes attributable
to Tenant within ten (10) days after received of a written statement from
Landlord setting forth the am applicable to Tenant's personal property.
B. Payment of Property Taxes. Tenant shall pay, as Additional Rent, one
-------------------------
hundred percent (100%) of all Property Taxes payable by Landlord and levied
or assessed with respect to the Building and parking area attributable to
the Building, which accrue and become due during the Lease Term provided.
However, that if the Premises do not constitute a separate parcel for
purposes of assessing Property Taxes, Tenant shall only pay that portion of
the Property Taxes for the tax parcel of which the Building is a part that
is reasonably and equitably allocable to the Building and attributable
parking. Tenant shall pay such Property Taxes to Landlord not later than
(i) twenty (20) days after receipt of billing; or (ii) ten (10) days prior
to the delinquency date of such Property Taxes. whichever is later. If
Tenant fails to do so, Tenant shall reimburse Landlord, on demand, for all
interest late fees and penalties that the taxing authority charges the
Landlord as a result of such late payment by Tenant. In the event the
Lender holding a first deed of trust encumbering the Premises requires an
impound for Property Taxes then Tenant may pay on the first day of each
calendar month one twelfth (1/12) of its annual sum of such Property Taxes,
so long as Tenant receives all interest earned thereon received by Landlord
until paid to the taxing authority. Tenant's liability hereunder shall be
prorated to reflect the commencement and termination dates of the Lease
Term and any overpayment of taxes by Tenant shall be credited against sums
otherwise due hereunder or shall be paid by Landlord to Tenant in cash if
attributable to any period after the termination date of this Lease
provided. However, that if there exists an uncured Event of Tenant's
Default at any time that Landlord is obligated to reimburse overpayments to
Tenant pursuant to this sentence, Landlord may apply the amount so held by
it to cure such uncured default Upon written re-quest, Landlord shall
supply to Tenant all tax bills and other correspondence from any
governmental agency relating to any Property Tax that Tenant is obligated
to pay, and Tenant shall have the right to inspect and copy Landlord's
books and records at Tenant's expense upon reasonable notice to the extent
such books and records relate to a determination of the amount of Property
Taxes due or being contested by Landlord or Tenant.
<PAGE>
C. Property Taxes Defined. For the purpose, of this Lease. "Property
----------------------
Taxes" means and includes all taxes, assessments (including but not limited
to, assessments for public improvements or benefits), taxes based on
vehicles utilizing parking areas. taxes based or measured by the rent paid,
payable or received under this Lease, taxes on the value, use or occupancy
of the Premises and all other governmental impositions and charges of every
kind and nature whatsoever, whether or not customary or within the
contemplation of the parties hereto and regardless of whether the same
shall be extraordinary or ordinary, general or special, unforeseen or
foreseen, or similar or dissimilar to any of the foregoing which, at any
time during the Lease Term, shall be applicable to the Premises, or
assessed, levied or imposed upon the Premises, or become due and payable
and a lien or charge upon the Premises. or any part thereof, under or by
virtue of any present or future Laws whatsoever. There shall be credited
against Property Taxes all amounts received by Landlord from tax increment
reimbursements from the West End Community Improvement District related to
improvements to real property on the tax Parcel to which such Property
Taxes relate, The term "Property Taxes" shall not include (i) any federal.
state or local net income, estate, transfer, excise, capital stock or
inheritance tax imposed on Landlord. or (ii) any tax assessment or other
Governmental levy or any increase therein occasioned bv or relating to any
"change in ownership" (as defined in Sections 60-65 of the California
Revenue and Taxation Code and the regulations thereunder) during the
initial term of the Lease. and in such event Tenant also shall not receive
the benefit of any increase in tax increment, if any, resulting from such
change of ownership or transfer.
<PAGE>
D. Assessments. With respect to any Property Tax that may be payable in
-----------
installments or by an alternative means at the election of Landlord.
Tenant shall be obligated to pay no more than that amount which would have
been payable had Landlord elected to Day such Property Tax in installments
over the maximum term allowable.
E. Other Taxes. Tenant shall pay, as Additional Rent, or reimburse
-----------
Landlord for any tax based upon, allocable to, or measured by the area of
the Premises or the rental payable by Tenant under this Lease, including,
without limitation, any gross receipts tax levied by any state, local or
federal government with respect to the receipt of such rental; any tax upon
or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of the Premises or any
portion thereof; any privilege tax, business and occupation tax, sales
and/or use tax, water tax, sewer tax, employee tax, parking tax,
occupational license tax imposed upon Landlord or Tenant with respect to
the Premises; any tax upon this transaction or any document to which Tenant
is a party creating or transferring an interest or an estate in the
Premises; provided, however, that Tenant shall not be obligated to pay any
Federal. State or local not income, estate, transfer, excise, capital stock
or inheritance tax imposed on Landlord or imposed as a result of the sale
or conveyance of Landlord's interest in the Premises and/or this Lease.
F. Tenant's Right to Contest. Tenant shall have the right, by appropriate
-------------------------
proceedings, to protest or contest any assessment, reassessment or
allocation of Property Taxes or any change therein or any application of
any Law to the Premises or Tenant's use thereof. Landlord shall notify
Tenant in writing of any change in Property Taxes within sufficient time to
allow Tenant to review and, if it so desires, to contest or protest such
change. In the contest or proceedings, Tenant may act in its own name
and/or the name of Landlord and Landlord will. at Tenant's request and
expense. cooperate with Tenant in any way Tenant may reasonably require in
connection with such contest. It Tenant does not pay the Property Taxes
when due which are the subject of such protest or contest, Tenant shall
post a bond in lieu thereof and, with respect to any contest of Property
Taxes or Laws, shall hold Landlord and the Premises harmless from any
damage arising out of the proceedings or contest and shall pay any judgment
that may be tendered for which Tenant would otherwise be liable under this
Lease without such contest or protest. In any event, Tenant agrees to pay
the Property Taxes prior to the foreclosure of any tax lien. Any contest
conducted by Tenant under this Paragraph shall be at Tenant's expense and
if interest or late charges become-payable as a result of such contest or
protest, Tenant shall pay the same.
8. INSURANCE.
---------
A. Waiver and Indemnity. As this I case does not involve the public
--------------------
interest and insurance is available to Tenant which will protect it against
such claims, damage, injury or death, Tenant hereby waives all claims
against Landlord for damage to any property or injury to or death of any
person in, upon or about the Premises or the Building arising at any time
and from any cause: provided, however, that the foregoing waiver shall not
apply to (i) damage to the property of persons other than Tenant or (ii)
death or injury to any person resulting from the negligence or willful
misconduct of Landlord or its Agents. Tenant shall hold Landlord harmless
from and defend Landlord against all claims (except to the extent such
arises from the negligence or willful misconduct of Landlord or its Agents)
(i) for damage to any property or injury to or death of any person arising
from the use of the Premises by Tenant, or (ii) arising from the negligence
or willful misconduct of
<PAGE>
Tenant, its employees, agents, or contractors in, upon or about those
portions of the Project or the Building other than the Premises. Landlord
shall hold harmless from and defend Tenant against all claims (except such
as arise from the negligence or willful misconduct of Tenant or its Agents)
for damage to any property or injury to or death of any person arising from
events occurring in the Outside Areas. The foregoing indemnity obligation
of Landlord and Tenant shall include attorneys" fees, investigation costs,
and all other costs and expenses incurred by the other party from the first
notice that any claim or demand is to be made or may be made. The
provisions of this Paragraph 8 shall survive the expiration or termination
of this Lease with respect to any damage, injury, or death occurring prior
to such termination, and other than with respect to Tenant's right to early
entry under Paragraph 3, its provisions shall only apply after the later of
the Commencement Date or the date that Tenant or its Agents has actually
entered into occupancy of the Premises.
B. Tenant's Liability Insurance. Tenant shall obtain and maintain during
----------------------------
the term of this Lease comprehensive general liability insurance with
combined single limit for personal injury and property damage in a form and
with carriers acceptable to Landlord in an amount not less than $1,000,000,
and employer's liability and worker's compensation insurance as required by
Law. In addition, Tenant shall maintain excess or umbrella liability
insurance with limits not less than $4,000,000 having the general liability
coverage desired above as underlying. Tenant's comprehensive general
liability and excess umbrella insurance policy shall be endorsed to provide
that (i) it may not be canceled or altered in such a manner as adversely to
affect the coverage afforded thereby without 30 days" prior written notice
to Landlord. (ii) Landlord is named as additional insured. (iii) the
insurer acknowledges acceptance of the mutual waiver of claims by Landlord
and Tenant pursuant to
8
<PAGE>
subparagraph (F) below, and (iv) such insurance is primary with respect to
Landlord and that any other insurance maintained by Landlord is excess and
noncontributing with such insurance. If, in the reasonable opinion of
Landlord's insurance adviser, based on a substantial increase in recovered
liability claims generally, the specified amounts of coverage are no longer
adequate, such coverage shall be appropriately increased but, in no event
shall such required coverage exceed the level of coverage customarily
carried by similar businesses in Alameda County. Prior to the Term
Commencement, Tenant shall deliver to Landlord a duplicate of such policy
or a certificate thereof to Landlord for retention by it, with
endorsements. and at least 30 days prior to the expiration of such policy
or any renewal thereof. Tenant shall deliver to Landlord a replacement or
renewal binder, followed by a duplicate policy or certificate within a
reasonable time thereafter. If Tenant fails to obtain such insurance or to
furnish Landlord any such duplicate policy or certificate as herein
required. Landlord may, at its election, without notice to Tenant and
without any obligation to do so, procure and maintain such coverage and
Tenant shall reimburse Landlord on demand as Additional Rent for any
premium so paid by Landlord.
C. Landlord's Liability Insurance. Landlord shall maintain a policy or
------------------------------
policies of comprehensive general liability insurance insuring Landlord
(and such others as are designated by Landlord) against liability for
personal injury, bodily injury, death and damage to property occurring or
resulting from an occurrence in, on or about the Premises in an amount not
more than that required of Tenant, endorsed to provide coverage for the
obligations of Landlord under Paragraph 8.A. provided if Landlord elects to
carry a higher level of coverage such amount of excess coverage must be
reasonable. The cost of such liability insurance which Landlord elects to
maintain shall be Additional Rent, and Tenant shall pay to Landlord the
cost of such insurance as a part of Operating Expenses.
D. Fire and All Risk Insurance. Landlord shall obtain and keep in force
---------------------------
during the Lease Term a policy or policies of insurance covering loss or
damage to the Building in the amount of the full replacement cost thereof
and the Tenant Improvements to the extent paid for by Landlord providing
protection against those perils included within the classification of "all
risk" insurance, plus a policy of rental income insurance in the amount of
twelve (12) months of Base Monthly Rent and revenues received from the
Building together with such additional coverages (such as earthquake and
flood insurance) which Landlord may reasonably elect to maintain from time
to time or which Landlord's Lender may require Landlord to maintain from
time to time so long as such Lender is an Institutional Lender whose loan
is secured by a deed of trust encumbering the Premises. Tenant shall have
no interest in nor any right to the proceeds of any insurance procured by
Landlord on the Building and Tenant Improvements. Tenant shall pay to
Landlord, as Additional Rent, the cost of such insurance procured and
maintained by Landlord as part of its Operating Expense payment. Tenant's
liability for the cost of such insurance shall be prorated as of the
commencement and termination of the Lease Term. Tenant acknowledges that
such insurance procured by Landlord shall contain a commercially reasonable
deductible approved by Landlord and Tenant which reduces Tenant's cost for
such insurance and, in the event of loss or damage which is not caused by
Landlord or its Agents. Tenant shall be required to pay to Landlord the
amount of such deductible. Not withstanding anything contained herein, the
following shall apply:
(i) In the event Tenant becomes liable to pay "deductibles" with respect
to any loss or losses the aggregate amount of which exceeds for any
twelve (12) month period during the Lease Term an amount equal to one
installment of the Base Monthly Rent then payable, the amount of such
excess shall not be payable by Tenant currently but instead shall be
amortized over the useful life of the improvements constructed with
such deductible amount, together with interest
<PAGE>
at the Agreed Interest Rate, and payable as Additional Rent in
accordance with the procedure set forth in Paragraphs 12.A. and B.
(ii) Tenant shall not be obligated to pay the cost of earthquake insurance
to the extent that it exceeds a commercially reasonable rate for
earthquake insurance: provided, however, that in the event an
Institutional Lender which holds at least 30 loans secured by
office/industrial buildings in Northern California and is holding a
loan that is secured by a deed of trust encumbering the Premises
requires that earthquake insurance be maintained, and it is the
general policy of such Lender to require that earthquake insurance be
maintained on substantially all properties owned, managed or
encumbered by such Lender in the same or comparable seismic zone as
the Premises in California, then in that event Tenant shall pay the
entire cost of earthquake insurance even if it exceeds a commercially
reasonable rate; provided, however, if such Institutional Lender does
not hold loans on a minimum of 30 office or industrial buildings in
Northern California then Tenant shall not be obligated to pay the cost
of such earthquake insurance to the extent the annual cost thereof
exceeds Thirty-Six Cents ($0.36) per One Hundred Dollars ($100) of
replacement cost. If the cost of earthquake insurance exceeds a
commercially reasonable rate. Tenant shall nonetheless continue to
pay an amount equal to a commercially reasonable rate for such
earthquake insurance so long
9
<PAGE>
as such insurance is carried by Landlord, subject to the limit
contained in preceding sentence, and Landlord shall pay the remainder
of the cost of earthquake insurance. For purposes hereof, a
"commercially reasonable rate" for earthquake insurance shall mean any
rate that is within the range of the then-current cost of earthquake
coverage which is then being paid by "Prime Owners" (defined below) of
office buildings in the San Francisco Bay Area containing more than
50,000 square feet that were built after 1976 and which is customarily
being reimbursed or paid by tenants occupying, under triple net office
leases, such buildings. The term "Prime Owners" shall be defined to
mean any entity or individual whose office or commercial real property
holdings in the San Francisco Bay Area exceed Fifty Million Dollars
($50,000,000) in fair market value who fit into any one of the
following categories: (a) institutional investors such as pension
funds, insurance companies. and syndications where partnership
interests were offered pursuant to a registered public offering; (b)
office developers and their affiliated partnerships who individually
have owned or developed more than 250,000 square feet of office
buildings in the San Francisco Bay Area: and (c) office corporations
who own office facilities they occupy.
E. Release of Landlord. Tenant acknowledges that the insurance to be
-------------------
maintained by Landlord on the Premises pursuant to Paragraph 8.D above will
not insure any of Tenant's property. Accordingly, Tenant, at Tenant's own
expense, shall maintain in full force and effect on all of its Trade
Fixtures, equipment, leasehold improvements and personal property in the
Premises, a policy of "all risks" coverage insurance to the extent of at
least ninety percent (90%) of their insurable value.
F. Mutual Waiver of Subrogation. Tenant and Landlord hereby mutually
----------------------------
waive their respective rights for recovery against each other for any loss
of or damage to the property of either party, where such loss or damage is
insured by any insurance policy required to be maintained by this Lease or
otherwise in force at the time of such loss or damage (except such waiver
shall not apply to any loss to the extent it is within the "deductible
amount" of such policy). Each party shall obtain any special endorsements,
if required by the insurer, whereby the insurer waives its right of
subrogation against the other party hereto. The provisions of this
Paragraph 8.F shall not apply in those instances in which waiver of
subrogation would cause either party's insurance coverage to be voided or
otherwise made uncollectible or is not available at reasonable cost.
9. UTILITIES. Tenant shall pay for all water, gas, light, heat, power,
---------
electricity, telephone, trash pick-up, sewer charges, and all other
services supplied to or consumed on the Premises, and all taxes and
surcharges thereon.
10. REPAIRS AND MAINTENANCE.
-----------------------
A. Tenant's Responsibilities. Subject to Landlord's obligation to
-------------------------
maintain, repair and replace pursuant to Paragraph 10.B. Tenant shall,
during the Lease Term, at Tenant's sole cost and expense, keep and maintain
in good order, condition and repair the entire Premises and every part
thereof, including, without limitation, windows, window frames, plate
glass, glazing, skylights, truck doors. doors and all door hardware,
partitions and all plumbing, electrical, gas, water, telephone and other
cabling, lighting, heating, air conditioning and ventilation facilities,
equipment and systems within the Premises or within the Building serving
the Premises. The term "repair" shall include replacements, restorations
and/or renewals when necessary, as well as painting. Tenant's obligation
shall extend to all alterations, additions and improvements to the
Premises, and all fixtures and
<PAGE>
appurtenances therein and thereto. Tenant shall, at all times during the
Lease Term, either (i) personally maintain any heating, ventilating and air
conditioning ("HVAC") equipment which serves the Premises through a
maintenance program reasonably approved by Landlord; or (ii) have in effect
a service contract for the maintenance of such HVAC equipment with an HVAC
repair maintenance contractor approved by Landlord which provides for
periodic inspection and servicing at least once every sixty (60) days
during the Lease Term and shall provide Landlord with a copy of such
contract. No less frequently than annually, Tenant shall cause to be made
an inspection of any HVAC system which serves the Premises by a licensed
HVAC repair and maintenance contractor or mechanical engineer approved by
Landlord. Tenant shall deliver to Landlord a written report prepared by the
party making such inspections promptly after the conclusion of each such
inspection. Except as otherwise provided herein. Tenant shall perform such
maintenance and repair work as is recommended by such inspectors to the
extent such work is equipment which serves the Premises in good order,
condition and repair. Tenant shall indemnify and save Landlord harmless
against and from all costs, expenses, liabilities, losses, injuries,
damages, suits, fines, penalties, claims and demands, including reasonable
attorneys' fees. resulting from Tenant's failure to comply with the
foregoing. and Tenant hereby expressly releases and discharges Landlord of
and from any liability therefor.
10
<PAGE>
B. Landlord's Responsibilities. During the Lease Term. Landlord shall be
---------------------------
responsible for the following:
(i) Landlord shall maintain, repair and replace when necessary in order to
maintain good order, condition and repair: (1) Outside Areas; (2) all
structural parts of the Building (i.e., foundation, floor slabs, load-
bearing walls and roof structural systems); (3) roof membrane; (4) all
plumbing and electrical lines, pipes, conduits, systems and facilities
up to the point they enter the Building; and (5) all other portions of
the Building requiring capital expenditures excluding Tenant
Improvements (but not excluding HVAC, plumbing and electrical systems)
where (a) the useful life of any replacement item will mend beyond the
remaining Lease Term (excluding options to extend that have not yet
been exercised), and (b) the cost of replacement (and all other
replacements commenced within the same calendar year) exceeds $28,000.
Landlord shall be solely responsible for the payment of costs relating
to the maintenance, repair and replacement of all structural parts of
the Building and all plumbing and electrical lines, pipes, conduits,
systems and facilities up to the point they enter the Building (except
to the extent such costs are the result of an event of damage or
destruction covered under Paragraph 16 below). Landlord shall pay for
the other maintenance, repair and replacement obligations set forth in
this subparagraph provided that the cost thereof shall be considered
Operating Expenses reimbursable by Tenant under Paragraph 4.F., except
that costs of capital expenditures items which, together with all
other capital expenditures incurred within the same calendar year,
exceeds $28,000, shall be amortized, together with interest, as
described in Paragraph 12.A., and shall be paid by Tenant in
accordance with Paragraph 12.B. Upon the commencement of any Option
Term. the $28,000 limit in this subparagraph (i) shall be increased
pursuant to Paragraph 41 in accordance with the increase in the
Consumer Price Index" from the Effective Date through the commencement
of the Option Term.
(ii) Landlord shall be responsible for the correction of defects in design
and construction of the Building and Tenant Improvements and for
corrections of violations of Law existing as of the date the building
permits for the Building and Tenant Improvements were issued. The
costs of such correction shall be borne exclusively by Landlord
without right of reimbursement from Tenant.
(iii) No less frequently than annually, Landlord shall cause to be made an
inspection of the Building roof membrane and roof system by an
inspection service approved by Tenant which inspection shall be done
in accordance with the roofing contractor's specifications and the
roof vendor's recommended specifications. Landlord shall deliver to
Tenant a written report prepared by the party making such inspections
promptly after the conclusion of each such inspection. Landlord shall
perform such maintenance and repair work as is recommended by such
inspectors to the extent such work is reasonably necessary to keep the
roof membrane and roof system in good order. condition and repair.
The costs of the inspection and any resulting repairs of the Building
roof membrane (to the extent not capital expenditures subject to
subparagraph 10.B.(i)) shall be considered Operating Expenses
reimbursable by Tenant under Paragraph 4.G and the costs related to
the structural roof system shall be borne exclusively by Landlord
without right of reimbursement from Tenant.
C. Warranties. Landlord shall assign to Tenant for the term of this
----------
Lease the benefit of all warranties available to Landlord which would reduce
the cost of performing the obligations of Tenant pursuant to this Lease,
Landlord shall cooperate with Tenant in the enforcement of such warranties.
<PAGE>
D. Condition on Delivery. As of the Commencement Date. Landlord shall
---------------------
deliver such portion of the Premises in good condition and repair, broom
clean, with all electrical, mechanical, HVAC, plumbing and lighting
equipment, systems and facilities servicing the Premises in good working
order.
E. Limitation on Repair Obligation of Landlord. Landlord shall have no
--------------------------------------------
maintenance or repair obligations whatsoever with respect to the Premises
except as expressly provided in Paragraphs 10, 13.D., 16 and 17. Tenant
hereby expressly waives the provisions of Subsection 1 of Section 1932 and
Sections 1941 and 1942 of the Civil Code of California and all rights to
make repairs at the expense of Landlord as provided in Section 1942 of said
Civil Code.
1l. OUTSIDE AREAS. Tenant and its Agents shall have the non-exclusive right to
-------------
use the Outside Areas in common with other occupants of the Project, which
shall include Tenant's right to not less than three and one-half (3.5)
spaces for automobile parking for each one thousand (1,000) square feet of
Rentable Area in the Premises. This right shall terminate upon the
expiration or earlier termination of this Lease. Landlord may make non-
material changes to the shape, size, location, amount and extent of the
Outside Areas provided that no such change shall reduce the parking rights
granted to Tenant hereunder and shall not in any case unreasonably
interfere with the use of the Premises by Tenant. Unless required by
<PAGE>
Law or any governmental agency. Landlord shall obtain Tenant's prior
consent to any material modifications or changes to the Outside Areas.
Tenant shall nor abandon any inoperative vehicles or equipment on any
portion of the Outside Areas. Tenant shall make no Alterations to the
Outside Areas without the consent of Landlord. In no event shall Tenant be
charged by Landlord for use of parking spaces in the Outside Areas except
to the extent required by Law or any governmental agency and any revenue
received by Landlord with respect to Tenants use of such parking spaces, if
not paid by the governmental entity, shall be reimbursed to Tenant, less
costs attributable to Landlord's collection thereof.
12. AMORTIZATION OF CERTAIN IMPROVEMENTS AS ADDITIONAL RENT. Tenant shall pay
-------------------------------------------------------
Additional Rent in the amount described in this paragraph in the event
Landlord is required by this Lease to do any of the following: (i) pay the
deductible amount in excess of the limit paid by Tenant pursuant to
Paragraph 8.D and on account of damage caused by any peril to the premises:
(ii) make replacements to the Premises or to the Building when required
pursuant to Paragraph 10.B.(i); or to make improvements required to be
constructed in order to comply with any Law not in effect or applicable to
the premises as of the Effective Date, which improvements are not the
responsibility of Tenant pursuant to Paragraph 13.D. The amount of
Additional Rent Tenant is to pay with respect to the amounts spent by
Landlord pursuant to the foregoing paragraph shall be determined as
follows:
(i) All costs paid by Landlord to construct such improvements or make such
restoration (including financing costs but not including
reimbursements received from insurers or other third parties and any
management fee to Landlord) shall be amortized over the useful life of
such improvements or restoration (determined in accordance with
generally accepted accounting principles) and payable by Tenant,
together with interest at the Agreed Interest Rate, in equal monthly
installments, Landlord shall inform Tenant of the monthly
amortization payment required so to amortize such costs and also to
provide Tenant with the information upon which such determination is
made.
(ii) Additional Rent. Tenant shall pay an amount equal to Tenant's share of
such monthly amortization payment for one month after such improvement
or restoration is completed until the first to occur of (i) the
expiration of the Lease period, which shall not include the period of
any subsequent option to extend where the Base Monthly Rent is
determined based upon the fair market rental value of the Premises),
or (ii) the end of the term of the useful life over which such costs
are amortized. The amount of such Additional Rent that Tenant is to
pay shall be due at the same time the Base Monthly Rent is due.
13. ALTERATIONS.
-----------
A. Trade Fixtures. Throughout the Lease Term, Tenant shall provide,
--------------
install and maintain in good condition all Trade Fixtures required in
the conduct of its business in the Premises. All Trade Fixtures shall
remain Tenant's property.
B. Alterations. The following provisions govern Alterations constructed
by Tenant:
(i) Tenant shall not construct any Alterations or otherwise alter the
Premises without Landlord's prior approval if
(a) such action results in the demolition, removal or material
alteration of existing improvements or future Renovation
Improvements (including partitions, wall and floor
coverings, ceilings, lighting fixtures or other utility
installations), or
<PAGE>
(b) the cost of such construction or alteration exceeds One
Hundred Thousand Dollars (S100,000) per work of improvement
(as such amount is adjusted pursuant to Paragraph 41) or if
the cost of Alterations done, under construction, or for
which approval is sought during any calendar quarter exceeds
One Hundred Thousand Dollars ($100,000) (as such amount is
adjusted pursuant to Paragraph 41). With respect to any
Alterations which must be approved by Landlord pursuant to
the immediately preceding sentence. Tenant shall not
commence construction of such Alterations until Landlord
shall have first approved the plans and specifications
therefor, which approval shall be deemed given if not denied
in writing within ten (10) working days after Landlord shall
have received Tenant's request for such approval. In no
event shall Tenant make any Alterations to the Premises
which could affect the structural integrity or the exterior
design of the Building. Notwithstanding anything contained
herein. Tenant shall have the right to reconfigure
demountable walls and partitions without Landlord's prior
consent.
(ii) Alterations requiring Landlord's approval shall be installed by
Tenant in substantial compliance with the approved plans and
specifications therefor. All construction undertaken by Tenant
shall be done in accordance with all Laws and in a good and
workmanlike manner using materials of good quality. Tenant shall
nor commence construction of any Alterations until (a) all
required governmental approvals and permits shall have been
obtained, and (b) all requirements regarding insurance imposed by
this Lease have been satisfied.
12
<PAGE>
(iii) Landlord shall cause to be made available to Tenant all
information maintained by Landlord or Landlord's architect which
relate to the plans for the Building, including any "as-built"
plans for the Building (and mechanical platforms on the Building
roof) and/or Outside Areas, so that Tenant can incorporate such
information into Tenant's files relating to plans for the Tenant
Improvements and for Alterations. At all times during the Lease
Term, (a) Tenant shall maintain and keep updated "as-built" plans
for all Alterations constructed by Tenant which may or may not
have required a building permit or other governmental approval,
and (b) Tenant shall provide to Landlord copies of all such "as-
built" plans and any and all other drawings relating to Tenant's
Alterations in the Premises.
(iv) All Alterations shall remain the property of Tenant during the
Lease Term. Tenant shall have the right to remove any
Alterations so long as it repairs all damage caused by the
installation thereof and returns the Premises to the condition
existing prior to the installation of such Alterations. At the
expiration or sooner termination of the Lease Term all
Alterations that Tenant does not elect to remove shall be
surrendered to Landlord as a part of the realty and shall then
become Landlord's property, and Landlord shall have no obligation
to reimburse Tenant for all or any portion of the value or cost
thereof. Notwithstanding anything contained herein (but subject
to the restrictions set forth in Paragraphs 13.B(iv)(a) and (b)),
if Landlord so requires, at the expiration or earlier termination
of the Lease Term. Tenant shall remove any Alterations
designated for removal by Landlord, including those Alterations
for which Landlord's consent was not initially required. and
shall restore the Premises to the condition existing prior to the
installation of such Alterations only to the extent necessary to
return the Premises to a condition that has substantially the
same value to subsequent tenants as existed on the Commencement
Date, ordinary wear and tear excepted. The following provisions
shall qualify the general rule set forth in the immediately
preceding sentence:
(a) Tenant shall remove and restore all damage caused by the
removal of any specialized Alterations specifically related
to the operation of Tenant's business in the Premises. To
the extent Alterations made by Tenant results in a reduction
in the capacity of HVAC, mechanical, electrical or plumbing
systems. Tenant shall restore HVAC, mechanical, electrical
and plumbing systems so that the capacity thereof is
substantially the same as existed as of the Commencement
Date, ordinary wear and tear excepted. If restroom "cores"
and fixtures have been changed, such "cores" shall be moved
to their original location and such "cores" and fixtures
shall be restored to substantially the same condition as
existed as of the Commencement Date, ordinary wear and tear
excepted. If Tenant has made any Alterations to the
structural parts of the Building (ie., foundations, load-
bearing walls, and structural roof system, out excluding
roof membrane) or the floor slab, such structural parts of
the Building shall be returned to the condition existing
prior to the making of such Alterations by Tenant (including
the filling of any pits, wells or trenches). If Tenant has
made any Alterations to the roof membrane, the roof membrane
shall be returned to the condition existing prior to the
making of such Alterations by Tenant, except that Tenant
shall not be obligated to restore any penetration of the
roof membrane that has been made with the written approval
of Landlord. The percentage of dropped ceiling for each area
of the Building (office, research and development, etc.)
shall be substantially
<PAGE>
the same as existed as of the Commencement Date. Any
Alterations made by Tenant to the fire sprinkler system
shall be restored to substantially the same condition as
existed as of the Commencement Date, ordinary wear and tear
excepted.
(b) Tenant shall only be required to remove Alterations for
which either of the following is true, and only if such
removal is otherwise required by all of the preceding
provisions of this Paragraph 13.B(iv): (i) such Alterations
were approved in writing by Landlord and, at the time such
approval was given by Landlord. Landlord informed Tenant in
writing that Landlord would require that such Alterations be
removed at the termination of the lease Term: or (ii) such
Alterations were installed without Landlord's consent.
C. Lien Waiver Landlord. Within thirty (30) days after request from
--------------------
Tenant, shall execute and deliver any document reasonably required by
any supplier, lessor or lender in connection with the installation in
the Premises of Tenant's personal property or Tenant's Trade Fixtures
pursuant to which Landlord waives any rights it may have with respect
to such personal property or Trade Fixtures provided that the
supplier, lessor or lender agrees in writing that (i) it will remove
the personal Property and Trade Fixtures from the Premises before the
expiration of the Lease Term or within five (5) days after termination
of the Lease Term, and if it does not remove the property within such
period of time, it shall have waived any rights it may have had to the
property in question: (ii) it shall repair any damage to the Premises
resulting from the removal of the personal property or Trade Fixtures
from the Premises: (iii) it will indemnify Landlord for any loss or
liability resulting from its entry onto the Premises; and (iv) it
agrees that the lien waiver will not be recorded.
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<PAGE>
D. Legally Required Alterations. If, during the Lease Term, any
----------------------------
alteration, addition or change of any sort to all or any portion of
the Premises is required bv Law because of (i) Tenant's particular use
or change of use of the Premises, (ii) Tenant's application for a new
permit or governmental approval, or (iii) Tenant's construction or
installation of any Alterations or Trade Fixtures. Tenant shall
promptly make the same at its sole cost and expense. If during the
Lease Term, any alteration, addition, or change to the Premises is
required bv any Law and is not made the responsibility of Tenant
pursuant to the immediately preceding sentence, Landlord shall
promptly make the same and the cost of such alteration. addition or
change shall be amortized and Tenant shall pay its share of said cost
to Landlord to the extent provided in Paragraph 12.
14. DELIVERY OF POSSESSION AND ACCEPTANCE OF THE PREMISES. Landlord shall use
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reasonable efforts to deliver possession of the Premises to Tenant by the
Target Commencement Date. Tenant's acceptance of the Premises shall be
governed in accordance with the terms of Paragraph 12 of the Improvement
Agreement.
15. DEFAULT
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A. Events of Tenant's Default. A breach of this Lease shall exist it any
--------------------------
of the following events (hereinafter referred to as "Event of Tenant's
Default") shall occur:
(i) Default in the payment when due of any installment of rent or
other payment required to be made by Tenant hereunder, and such
default shall not have been cured within three (3) business days
after written notice of such default is given to Tenant (such
three (3)-day period shall be concurrent with, and not in
addition to, the notice period required by Law prior to the
commencement of an unlawful detainer action);
(ii) Tenant's failure to perform any other term, covenant or
condition contained in this Lease, and with respect to those
terms, covenants, or conditions which are susceptible of cure,
such failure shall have continued for thirty (30) days after
written notice of such failure is given to Tenant: provided,
however, that if the nature of Tenant's failure reasonably
requires more than thirty (30) days to cure. Tenant shall not be
deemed in default if Tenant commences to cure such failure
within said thirty (30) day period and thereafter diligently and
in good faith prosecutes such cure to completion;
(iii) Tenant's vacation or abandonment of the Premises while there
exists an Event of Tenant's Default with regard to the payment
of the Base Monthly Rent or Additional Rent:
(iv) Tenant's assignment of its assets for the benefit of its
creditors:
(v) The sequestration of, attachment of, or execution on any
substantial part of the property of Tenant or on any property
essential to the conduct of Tenant's business shall have
occurred, and Tenant shall have failed to obtain a return or
release of such property within sixty (60) days thereafter or
prior to sale pursuant to such sequestration, attachment or
levy, whichever is earlier;
(vi) Tenant shall commence any case, proceeding or other action
seeking reorganization. arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any Law
relating to bankruptcy,
<PAGE>
insolvency, reorganization or relief of debtors or seek
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its
property;
(vii)Tenant's board of directors shall adopt a resolution to authorize
any of the actions set forth in Paragraph 15.A(vi);
(viii)Any case, proceeding or other action against Tenant shall be
commenced seeking to have an order for relief entered against it
as debtor or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or
relief or debtors, or seeking appointment or a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its property and such case, proceeding or
other action (a) results in the entry of an order for relief
against it which is not fully stayed within thirty (30) business
Dave after the entry thereof or (b) remains undismissed for a
period or sixty (60) days: or
14
<PAGE>
(ix) Tenant shall fail to provide financial statements or estoppel
certificates to Landlord in accordance with Paragraph 28 within
two (2) business Dave after giving of notice by Landlord of
Tenant's delinquency in delivery of such statements.
B. Remedies. Upon any event of Tenant's Default, Landlord shall have
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the following remedies, in addition to all other rights and remedies
provided by Law or in equity, to which Landlord may resort
cumulatively or in the alternative:
(i) Recovery of Rent. Landlord shall be entitled to keep this Lease
----------------
in full force and effect (whether or not Tenant shall have
abandoned the Premises) and to enforce all of its rights and
remedies under this Lease, including the right to recover rent
and other sums as they become due, plus interest at the Agreed
Interest Rate from the due date of each installment of rent or
other sum until paid.
(ii) Termination. Landlord may terminate this Lease by giving Tenant
-----------
written notice of termination. On the giving of the notice all of
Tenant's rights in the Premises shall terminate. Upon the giving
of the notice of termination. Tenant shall surrender and vacate
the Premises in the condition required by Paragraph 34, and
Landlord may re-enter and take possession of the Premises and all
the remaining improvements or property and eject Tenant or any of
Tenant's subtenants, assignees or other person or persons
claiming any right under or through Tenant or eject some and not
others or eject none. This Lease may also be terminated by a
judgment specifically providing for termination. Any termination
under this Paragraph 15.B(ii) shall not release Tenant from the
payment of any sum then due Landlord or from any claim for
damages or rent previously accrued or then accruing against
Tenant or relating to events accruing prior to such termination.
In no event shall any one or more of the following actions by
Landlord constitute a termination of this Lease:
(a) maintenance and preservation of the Premises;
(b) efforts to relet the Premises;
(c) appointment of a receiver in order to protect Landlord's interest
hereunder;
(d) consent to any subletting of the Premises or assignment of this
Lease by Tenant, whether pursuant to provisions hereof concerning
subletting and assignment or otherwise; or
(e) any other action by Landlord or Landlord's Agents intended to
mitigate the adverse effects from any breach of this Lease by
Tenant.
(iii) Damages. In the event this Lease is terminated pursuant to
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Paragraph 15.B or otherwise. Landlord shall be entitled to
damages in the following sums:
(a) the worth at the time of award of the unpaid rent which has been
earned at the time of termination; plus
(b) 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
<PAGE>
exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds
the amount of such rental loss that Tenant proves could be
reasonably avoided; and
(d) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which in the ordinary
course of things would he likely to result therefrom, including,
without limitation, the following: (i) expenses for cleaning.
repairing or restoring damage to the Premises for which Tenant is
responsible: (ii) real estate broker's fees, advertising costs
and other expenses of reletting the Premises fairly allocable to
the remainder of the Least Term; (iii) costs of carrying the
Premises
15
<PAGE>
such as Property Taxes and insurance premiums thereon. utilities
and security precautions until the Premises are released (but
only to the extent not included in calculating damages pursuant
to Paragraphs 15.B(iii)(a). (b) and (c)): (iv) expenses in
retaking possession of the Premises (v) reasonable attorneys"
fees and court costs: and (vi) any unamortized real estate
brokerage commission paid in connection with this Lease.
The "worth at the time of award" of the amounts referred to in Paragraphs
15.B(iii)(a) and (b) shall be computed by allowing interest at the Agreed
Interest Rate. The "worth at the time of award" of the amounts referred to
in Paragraph 15.B(iii)(c) shall be computed bv discounting such amount at
the discount rate of the Federal Reserve Board of San Francisco at the time
of award plus one percent (1%). The term "rent" as used in this Paragraph
shall include all sums required to be paid by Tenant to Landlord pursuant
to the terms of this lease.
16. DESTRUCTION.
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A. Landlord's Duty to Restore. If the Premises are damaged by any peril
--------------------------
after the Effective Date, Landlord shall restore the Premises except
to the extent that this Lease is terminated by Landlord pursuant to
Paragraph 16.B or by Tenant pursuant to Paragraph 16.C. All insurance
proceeds available from the fire and property damage insurance carried
by Landlord pursuant to Paragraph 8.D shall be paid to and become the
property of Landlord. If this Lease is terminated pursuant to either
Paragraph 16.B or 16.C, then all insurance proceeds available from
insurance carried by Tenant which covers loss to the Building that is
Landlord's property or would become Landlord's property on the
termination of this Lease shall be paid to and become the property of
Landlord. To the extent this lease is not so terminated, then upon
Landlord's receipt of the insurance proceeds (if the loss is covered
bv insurance) and the issuance of all necessary governmental permits.
Landlord shall commence and diligently prosecute to completion the
restoration of the Premises, to the extent then allowed by Law, to
substantially the same condition in which the Premises were
immediately prior to such damage. Landlord's obligation to restore
shall be limited to the Premises and Tenant Improvements constructed
by Landlord as they existed as of the Commencement Date, as modified
or improved by Alterations constructed by Tenant thereafter with
Landlord's consent. but shall exclude any Trade Fixtures and/or
personal property installed bv Tenant in the Premises. Tenant shall
forthwith replace or fully repair all Trade Fixtures installed by
Tenant and existing at the time of such damage or destruction to the
extent still required by Tenant for its business operations in the
Premises.
B. Landlord's Right to Terminate. Landlord shall have the option to
-----------------------------
terminate this Lease in the event any of the following occurs, which
option may be exercised only by delivery to Tenant of a written notice
of election to terminate within sixty (60) days after the date of such
damage:
(i) Building is damaged by any peril either (a) covered by the type of
insurance Landlord is required to carry pursuant to Paragraph 8.D. or
(b) covered by valid and collectible insurance actually carried by
Landlord and in force at the time of such damage or destruction and in
either event the proceeds of such insurance are made available to
Landlord, to such an extent that the estimated restoration cost
exceeds eighty percent (80%) of the then actual replacement cost
thereof and there remains less than three (3) years in the Lease Term:
provided, however, that Landlord may not terminate this Lease pursuant
to this subparagraph if Tenant at the time of such damage has a then
valid written option to extend the Lease Term and Tenant exercises
such option
<PAGE>
to extend the Lease Term within thirty (30) days following
the date of such damage and such action results in there being more
than three (3) years remaining in the Lease Term (as it has been
extended bv the exercise of such option).
(ii) The Building is damaged bv any peril both (a) not covered by the type
of insurance Landlord is required to carry pursuant to Paragraph 8.D.
and (b) not covered by valid and collectable insurance actually
carried by Landlord and in force at the time of such damage or
destruction to such an extent that the estimated restoration cost
exceeds five percent (5%) of the then estimated replacement cost of
the Building: provided, however, that Landlord may not terminate this
Lease pursuant to this subparagraph if Tenant agrees in writing to pay
the amount by which the restoration costs exceed five percent (5%) of
the replacement costs of the Building and deposits an amount equal to
the estimated amount of such costs within thirty (30) days after
Landlord has notified Tenant of its election to terminate this Lease
pursuant to this subparagraph.
16
<PAGE>
(iii) The Building is damaged by any peril during the last twelve (12)
months of the Lease Term: provided, however, that Landlord may not
terminate this Lease pursuant to this subparagraph if Tenant, at the
time of such damage, has previously, effectively exercised its Option
to Extend the Lease Term, if any.
(iv) The Building is damaged by any peril and, because of the Laws then in
force, may not be restored to substantially the same condition in
which it was prior to such damage because of a substantial increase in
the cost of restoration directly related to changes in Laws that have
occurred since the Building was constructed, which substantial
increase is not covered by insurance proceeds actually made available
by Landlord: provided, however, that Landlord may not terminate this
Lease pursuant to this subparagraph if (a) Tenant agrees in writing to
pay the additional restoration costs directly related to changes in
Laws that have occurred since the Building was constructed to the
extent it is not covered by insurance proceeds actually recovered by
Landlord, and Tenant deposits such amount within thirty (30) days
after Landlord has exercised its option to terminate this Lease, or
(b) the Building may be redesigned in a manner that does not
materially change its size, configuration or value, which redesign
would result in Landlord being able to restore the Building at
reasonable costs and would not result in there being insufficient
insurance proceeds actually recovered by Landlord so long as Landlord
and Tenant reach agreement on such redesign within thirty (30) days
after Landlord has exercised its option to terminate the Lease and any
and all Lenders approve such redesign. For purposes of this
subparagraph, a "substantial increase in the costs of restoration"
shall mean an increase of five percent (5%) or more over what the
restoration costs would have been had no changes in Laws occurred
since the damaged Building was originally constructed.
(v) If Tenant elects to make a deposit to avoid a termination of this
Lease pursuant to Paragraph 16.B(ii) or (iv), the following shall
apply to such deposit: (a) the deposit may be in the form of cash or
an irrevocable letter of credit; (b) any irrevocable letter of credit
provided by Tenant to satisfy this requirement must be payable to
Landlord, be in the amount of the required deposit, be in form
reasonably acceptable to Landlord, and provide for the disbursal of
funds to Landlord upon Landlord's certification that the same are
needed to pay for restoration costs actually incurred; (c) the deposit
shall be disbursed to Landlord as it is needed to pay restoration
costs as they come due on a progress payment basis in accordance with
customary commercial bank construction lending practices, and Tenant
shall take such action as is necessary to cause the deposit to be so
disbursed; and (d) the deposit, whether in the form of cash or letter
of credit, shall be held in trust for disbursal to pay restoration
costs by any Lender that is an insurance company or financial
institution, or if there is no such Lender or if such Lender does not
agree to act in such capacity, then by a bank, savings and loan
association, or other financial institution selected bv Landlord and
approved by Tenant, whose fee shall be paid by Tenant.
C. Tenant's Right to Terminate. If the Building is damaged by any peril
---------------------------
and Landlord does not elect to terminate this Lease or is not entitled so to
terminate this lease pursuant to Paragraph 16.B, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect, contractor or construction consultant as to when the
restoration work required of Landlord may be completed. Tenant shall have
the option to terminate this lease in the event any of the following occurs,
which option may be exercised only by delivery to Landlord of a written
notice of election to terminate within fifteen (15) days after Tenant
receives from Landlord the estimate of the time needed to complete such
restoration;
<PAGE>
(i) The Building is damaged by any peril and, in the reasonable opinion of
Landlord's architect, contractor or construction consultant, the
restoration of the Premises cannot be substantially completed within
the earlier of (a) two hundred seventy (270) days after the date of
issuance of necessary building permits for such restoration: or (b)
three hundred sixty-five (365) days after the date of such damage.
(ii) The Building is damaged by any peril within twelve (12) months of the
last day of the Lease Term, and, in the reasonable opinion of
Landlord's architect or construction consultant, the restoration of
the Building cannot be substantially completed within ninety (90) days
after the date of such damage.
D. Abatement of Rent. In the event of damage to the Building which does
-----------------
not result in the termination of this Lease, the Base, Monthly Rent,
Property Taxes and Operating Expenses, shall be temporarily abated from the
date of the damage and during the period of restoration in proportion to
the degree to which Tenant's use of the Building is impaired by such damage
and restoration. In the event of any dispute between Landlord and Tenant
concerning the amount of such
17
<PAGE>
abatement, the matter shall be determined by binding arbitration under the
Commercial Rules of the American Arbitration Association. Tenant shall not
be entitled to any compensation from Landlord for loss of Tenant's property
or loss to Tenant's business caused bv such damage or restoration, Tenant
hereby waives the provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4, of the California Civil Code, and the Provisions of
any similar law, hereafter enacted.
17. CONDEMNATION.
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A. Definition of Terms. For the purposes of this Lease, the following
-------------------
terms shall have the indicated meanings: (1) "Taking" means a taking of the
Premises or damage to the Premises related to the exercise of the power of
eminent domain and includes a voluntary conveyance, in lieu of court
proceedings, to any agency, authority, public utility, person or corporate
entity empowered to condemn property, (2) "Total Taking" means the taking
of the entire Building or so much of the Building or the Outside Area as to
prevent or substantially impair the use thereof by Tenant for the uses
herein specified, provided,, however, in no event shall a Taking of less
than ten percent (10%) of the total Rentable Area of the Building or
Outside Areas be deemed a Total Taking; (3) "Partial Taking" means the
taking of only a portion of the Building or of the Outside Areas which does
not constitute a "Total Taking", (4) "Date of Taking" means the date upon
which the title to the Premises or a portion thereof pass to and vests in
the condemnor or the effective date of any order for possess if issued
prior to the date title vests in the condemnor, and (5) "Award" means the
amount of any award made, consideration paid, or damages ordered as a
result of a Taking.
B. Rights. The parties agree that in the event of a Taking all rights
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between them or in and to an Award shall be as set forth herein and Tenant
shall have no right to any Award except as set forth herein.
C. Total Taking. In the went of a Total Taking during the Lease Term: (i)
------------
the rights of Tenant under the Lease and the leasehold estate of Tenant in
and to the Premises shall cease and terminate as of the Date of Taking;
(ii) Landlord shall refund to Tenant any prepaid rent; (iii) Tenant shall
pay the Landlord any rent or charges due Landlord under the Lease, each
prorated as of the Date of Taking; (iv) Tenant shall receive from the
Landlord those portions of the Award attributable to Trade Fixtures of
Tenant, the value of any Alterations which Tenant has the right to remove
from the Premises, the unamortized value allocable to the remainder of the
Lease Term of any Alterations installed at Tenant's expense which are not
removable, and moving expenses of Tenant; and (v) the remainder of the
Award shall be paid to and be the property of Landlord.
D. Partial Taking. In the event of a Partial Taking during the Lease Term,
--------------
the following shall apply: (i) the rights of Tenant under the Lease and the
leasehold estate of Tenant in and to the portion of the Building and any
Outside Areas taken shall cease and terminate as of the Date of Taking;
(ii) from and after the Date of Taking the Base Monthly Rent shall be
reduced to an amount which beats the same relationship to such Base Monthly
Rent before such reduction as the fair market rental value of the Building
which remains after the Partial Taking bears to the fair market rental
value of the Building prior to the Partial Taking: (iii) Tenant shall
receive from the Award the portions of the Award attributable to Trade
Fixtures of Tenant, the value of any Alterations which Tenant has the right
to remove from that part of the Building taken in the Partial Taking, and
the unamortized value allocable to the remainder of the Lease Term of any
Alterations installed at Tenant's expense which are not removable and which
am located in that
<PAGE>
part of the Building taken in the Partial Taking: and (iv) the remainder of
the Award shall be paid to and be the property of the Landlord.
E. Temporary Taking. If any portion of the Building or Outside Areas is
----------------
temporarily taken for two hundred seventy (270) days or less this Lease
shall remain in effect with no abatement of rent and Tenant shall be
entitled to recover any Award that is made for such Taking. If any portion
of the Building or Outside Areas is temporarily taken by a Taking for a
period which exceeds two hundred seventy (270) days or which extends beyond
the natural expiration of the Lease Term. and such taking prevents or
substantially impairs the use of the remainder of the Building or Outside
Areas bv Tenant for the uses herein specified, then Tenant shall have the
right to terminate this Lease effective as of the Date of Taking.
18. MECHANICS' LIENS. Tenant shall (i) pay for all labor and services
----------------
performed for materials used by or furnished to Tenant or any contractor
employed by Tenant with respect to the Premises, and (ii) indemnify, defend
and hold Landlord and the Premises harmless and free from and shall
promptly cause to be removed any liens, claims, demands, encumbrances or
judgments created or suffered by reason of any labor or services performed
for, materials, used by or furnished to Tenant or any contractor employed
bv Tenant with respect to the Premises, (iii) give notice to Landlord in
writing five (5) business Dave prior to employing any laborer or contractor
to perform services related to, or receiving materials for use upon the
18
<PAGE>
Premises, and (iv) permit Landlord to post a notice of nonresponsibility in
accordance with the statutory requirements of California Civil Code Section
3094 or any amendment thereof. In the event Tenant is required to post an
improvement bond with a public agency in connection with the above, Tenant
agrees to include Landlord as an additional obligee. Nothing herein shall
prohibit Tenant from contesting any claim for labor, services or materials,
provided Tenant complies with the provisions of this Paragraph 18.
19. INSPECTION OF THE PREMISES. Tenant shall permit Landlord and its Agents to
--------------------------
enter the Premises at any reasonable time for the purpose of inspecting the
same, performing Landlord's maintenance and repair responsibilities, making
alterations or improvements to the Premises or to the Building, posting
notices of nonresponsibility for alterations, additions or repairs and, if
Tenant has not effectively exercised its option to extend the Lease Term
and such extension option has expired, at any time within eighteen (18)
months prior to expiration of this Lease. to place upon the Premises
ordinary "For Lease" or "For Sale" signs, and, to show the Premises and
Building to prospective tenant and brokers, provided that with respect to
any such entry, other than in the case of an emergency, Landlord shall have
given Tenant at least twenty-four (24) hours prior written notice of intent
to enter the Premises, shall be accompanied by a representative of Tenant
(if Tenant requests and provides such representative), shall comply with
any security procedures of Tenant while therein, and at all times shall use
commercially reasonable efforts to minimize interference with Tenant's use
of the Premises.
20. COMPLIANCE WITH LAWS.
--------------------
A. Obligation of Tenant. Tenant shall, at its own cost, comply with all
--------------------
Laws now in force or which may hereafter be in force pertaining to the use
and occupancy of the Premises by Tenant and its Agents. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action or
proceeding against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any such Laws in the use and occupancy of the Premises
shall be conclusive of the fact that such violation by Tenant has occurred.
B. Right to Contest. Tenant shall have the right to contest or otherwise
----------------
review by appropriate legal or administrative proceedings the application
of any Law or insurance underwriters requirement to the use by Tenant of
the Premises. If Tenant desires to so contest any such Law or requirement,
Tenant shall give Landlord written notice of its intention to do so and may
conduct such contest or other reviews so long as it pays all costs, and
compliance therewith maybe held in abeyance pending completion of such
proceedings. Tenant shall protect and indemnify Landlord against any and
all expenses or damages resulting from such contest or other proceeding.
21. SUBORDINATION. Tenant shall, upon Landlord's request, promptly execute any
-------------
instrument (including an amendment to this Lease) or instruments of
subordination reasonably necessary to subordinate this Lease to any
mortgage or dead of trust to be placed upon the Premises, or any part
thereof, by Landlord, which instrument or instruments may include such
other matters as the Lender customarily requires in connection with such
agreements in comparable transactions, including provisions that the Lender
not be liable for any defaults on the part of Landlord occurring prior to
the time the Lender takes possession of the Premises in connection with the
enforcement of its rights under the mortgage or deed of trust. Tenant's
failure to execute any such instrument within ten (10) days after written
demand therefor shall constitute a default by Tenant under this Lease.
Tenant agrees to attorn to and recognize any mortgagee or beneficiary of
the deed of trust subsequently encumbering
<PAGE>
the Premises and any party acquiring title to the Premises, by judicial
foreclosure or a trustee's sale. as a successor to Landlord hereunder.
Tenant's obligation to subordinate this Lease to any mortgage or deed of
trust is conditioned upon the following:
(i) The Lender must consent in writing to this Lease and agree in writing
that. so long as there does not then exist any Event of Tenant's
Default, in the event of foreclosure of the mortgage or deed of trust
the Lender shall recognize the tenancy of Tenant on the terms
contained herein and this Lease shall remain in full force and effect.
(ii) If the instrument effecting subordination provides that upon
foreclosure of the mortgage or deed of trust the Lender (or any
successor in interest, is not liable for the full and complete
performance of all of the obligations of the Landlord under this Lease
(e.g., the completion of improvements to be constructed by the
Landlord), then such agreement shall provide that if a foreclosure of
such mortgage or deed of trust does occur and the Lender (or its
successor in interest) at any time thereafter relies upon such
provision to avoid performance of any obligation of the Landlord
contained in this Lease thus causing a material interference with
Tenant's use of the Premises, then in that limited circumstance Tenant
shall have the
19
<PAGE>
following rights: (i) Tenant may terminate this Lease; or (ii) Tenant
may perform the obligation that such Lender (or successor in interest
has elected not to perform and deduct the cost thereof (with interest
at the Agreed Interest Rate from date of expenditure until
reimbursement) from the payments of the Base Monthly Rent until
Tenant has been fully reimbursed for the cost of such performance.
(iii) With respect to any Lender having a security interest in the Premises
as of the Commencement Date, such Lender shall execute a non-
disturbance agreement in accordance with the aforementioned terms
within ninety (90) days after the Commencement Date. If such non-
disturbance agreement is not executed within such ninety (90) day
period then Tenant shall have the option at any time prior to the
execution by the Lender of such non-disturbance agreement, but shall
not be obligated to do so, to terminate this Lease.
22. HOLDING OVER. This Lease shall terminate without further notice at the
------------
expiration of the Lease Term. Any holding over by Tenant after expiration
shall not constitute a renewal or extension or give Tenant any rights in or
to the Premises except as expressly provided in this Lease. Any holding
over after the expiration with the consent of Landlord shall be construed
to be a tenancy from month to month, at one hundred twenty-five percent
(125%) of the Base Monthly Rent for the last month of the Least Term, and
shall otherwise be on the terms and conditions herein specified insofar as
applicable.
23. NOTICES. Any notice required or desired to be given under this Lease shall
-------
be in writing with copies directed as indicated below and shall be
personally served or given upon the earlier of delivery or by mail. Any
notice given by mail shall be deemed to have been given when forty-eight
(48) hours have elapsed from the time which such notice was deposited in
the United States mail, certified and postage prepaid, addressed to the
party to be served with a copy as indicated herein at the last address
given by that party to the other party under the provisions of this
Paragraph. At the date of execution of this Lease, the address of Landlord
is:
c/o Vintage Properties With a Copy To
--------------
393 Vintage Park Drive c/o Marina Village
Suite 210 1150 Marina Village Parkway
Foster City, California 94404 Suite 100
Attn: Joseph R. Seiger Alameda, California 94501
Attn: Property Manager
and the address of Tenant is:
2440 West El Camino Real
Mountain View, California 94039
Attention: Chief Financial Officer.
24. ATTORNEYS' FEES. In the event either party shall bring any action or legal
---------------
proceeding for damages for any alleged breach of any provision of this
Lease, to recover rent or possession of the Premises, to terminate this
Leases, or to enforce, protect or establish any term or covenant of this
Lease or right or remedy of either
<PAGE>
party, the prevailing party shall be entitled to recover as a part of such
action or proceeding reasonable attorneys" fees and court costs, including
attorneys" fees and costs for appeal, as may be fixed by the court or jury.
The term "prevailing party" shall mean the party who received substantially
the relief requested, whether by settlement, dismissal, summary judgment,
judgment or otherwise.
25. NONASSIGNMENT.
-------------
A. Consent Required. Tenant's interest in this Lease is not assignable, by
----------------
operation of law or otherwise, nor shall Tenant have the right to sublet
the Premises, transfer any interest of Tenant therein or permit any use of
the Premises by another party, without the prior written consent of
Landlord to such assignment, subletting, transfer or use, which consent
Landlord agrees not to unreasonably withhold, subject to the provisions of
Paragraph 25.B and Paragraph 37. A consent to one assignment, subletting,
occupancy or use by another party shall not be deemed to be a consent to
any subsequent assignment, subletting, occupancy or use by another party.
Any assignment or subletting without such consent shall be void and shall.
at the option of Landlord, terminate this Lease. Landlord's waiver or
consent to any assignment or subletting hereunder shall not relieve Tenant
from any obligation under this Lease unless the consent shall so provide.
Tenant may, with Landlord's prior written consent, assign this Lease as
security for a bona fide loan; provided, however, that if the lender is an
Institutional Lender or syndicate of lenders headed by an Institutional
Lender (a "Syndicate"), Landlord's prior
20
<PAGE>
consent shall not be required. If the lender taking this Lease as security
is an institutional Lender or a Syndicate. Landlord shall make such
amendments to this Lease or agreements with such lender as (i) are
reasonably requested by such lender, (ii) are limited to protecting the
lender's security interest in the Lease, (iii) are customarily received by
Institutional Lenders in connection with leasehold mortgage financing, (iv)
do not materially and adversely affect Landlord's rights under the Lease
and will not delay Landlord's exercise of its remedies for an Event of
Tenant's Default and in no event change the Base Monthly Rent, Additional
Rent, or Lease Term, and (v) would not constitute a default under any
mortgage or deed of trust encumbering the Premises. Notwithstanding the
foregoing, Landlord shall not be obligated to make amendments to the Lease
or agreements with such lender which would permit the Lease to be assigned
without the prior consent of Landlord. Without limiting the other
instances in which it may be reasonable for Landlord to withhold its
consent to an assignment or subletting, Landlord and Tenant acknowledge
that it shall be reasonable for Landlord to withhold its consent (i) if the
proposed assignee or sublessee is a governmental agency; (ii) if, in
Landlord's reasonable judgement, the use of the Premises by the proposed
assignee or sublessee would entail any alterations which would materially
lessen the value of the leasehold improvements in the Premises (and Tenant
does not provide Landlord with reasonable assurance that such alterations
will be removed and restored upon termination of the Lease, or would
require materially increased services by Landlord for which reimbursement
by Tenant is not sufficient to cover all costs that Landlord would incur as
a result of providing such additional services; (iii) if, in Landlord's
reasonable judgment, the financial worth of the proposed assignee or
sublessee does not meet the credit standards applied by Landlord for other
tenants under leases with comparable term and the proposed sublease term
expiration is within one (1) year of the expiration of the Lease Term, or
the character, reputation or business of the proposed assignee or sublessee
is not consistent with the quality of the other tenancies in the Project;
(iv) in the case of a subletting of less than the entire Premises, if the
subletting would result in the division of any given floor of the Premises
into more than four subparcels, would create a subparcel of a configuration
that is not suitable for normal leasing purposes or would require access to
be provided through space leased or held for lease to another tenant or
improvements to be made outside of the Premises and Tenant does not provide
Landlord with reasonable assurance that such alterations to create such
configuration will be removed and restored to the original configuration
upon termination of the Lease; or (v) if, at the time consent is requested
or at any time prior to the granting of consent, there is an uncured Event
of Tenant's Default under the Lease which is capable of being cured and
which has not been cured. As used in this Paragraph 25, the term "assign"
or "assignment" shall include, without limitation, any sale, transfer, or
other disposition of all or any position of Tenant's estate under this
Lease, whether voluntary or involuntary, and whether by operation of law or
otherwise including any of the following:
(i) If Tenant is a corporation: (i) any dissolution, merger,
consolidation, or other reorganization of Tenant or (ii) a sale of
more than 50% of the value of the assets of Tenant or (iii) if Tenant
is a corporation with fewer than 50 shareholders, sale or other
transfer of a controlling percentage of the capital stock of Tenant
to one entity or to a group of related entities. The phrase
"controlling percentage" means the ownership of, and the right to
vote, stocks possessing at least 50% of the total combined voting
power of all classes of Tenant's stock issues, outstanding and
permitted to vote for the election of directors;
(ii) If Tenant is a trust the transfer of more than 50% of the beneficial
interest of Tenant, or the dissolution of the trust;
(iii) If Tenant is a partnership or joint venture, the withdrawal, or the
transfer of the interest of any general partner or joint venturer or
the dissolution of the partnership or joint venture:
<PAGE>
(iv) If Tenant is composed of tenant-in-common, the transfer of interest of
any cotenants or the partition of dissolution of the cotenancy.
B. Notice Required. If Tenant desires to assign its interest in this Lease
---------------
or sublet the Premises, or transfer any interest of Tenant therein, or
permit the use of the Premises by another party (hereinafter collectively
referred to as a "Transfer"). Tenant shall give Landlord at least fifteen
(15) days prior written notice of the proposed Transfer and of the terms of
such proposed Transfer, including, but not limited to, the name and legal
composition of the proposed transferee, a financial statement of the
proposed transferee, the nature of the proposed transferee's business to he
carried on in the Premises, the payment to be made or other consideration
to be given on account of the Transfer, and such other pertinent
information as may be requested by Landlord. all in sufficient detail to
enable Landlord to evaluate the proposed Transfer and the prospective
transferee.
21
<PAGE>
C. Landlord's Right to Share in Net Subrent Profit. If Landlord consents
-----------------------------------------------
to a Transfer proposed by Tenant. Tenant may enter into such Transfer, and
if Tenant does so, the following shall apply to such Transfer (but not to
any Transfer described by paragraph 25.D):
(i) If Tenant assigns its interest in this Lease, the Tenant shall pay to
Landlord fifty percent (50%) of all consideration received by Tenant
over and above (a) the assignee's agreement to assume the obligations
of Tenant under this Lease, and (b) all "Permitted Transfer Costs" (as
defined in Paragraph 25.C(v)). In the case of assignment, the amount
of consideration owed to Landlord shall be paid to Landlord on the
same basis, whether periodic or in lump sum, that such consideration
is paid to Tenant by the assignee.
(ii) If Tenant sublets any part of the Premises then with respect to the
space so subleased. Tenant shall pay to Landlord fifty percent (50%)
of the positive difference, if any, between (a) all rent and other
consideration paid by the subtenant to Tenant, less (b) all Permitted
Transfer Costs and all payments of the Base Monthly Rent and
Additional Rent fairly allocable to that part of the Premises affected
by such sublease. Such amount shall be paid to Landlord on the same
basis, whether periodic or in lump sum, that such rent and other
consideration is paid to Tenant by its subtenant. In calculating
Landlord's share of any periodic payments, all such costs permitted to
be deducted from the gross consideration received by Tenant that have
been paid by Tenant shall be first recovered by Tenant.
(iii) Tenant's obligations under this Paragraph 25.C shall survive any
Transfer. At the time Tenant makes any payment to Landlord required by
this Paragraph 25.C. Tenant shall deliver an itemized statement of the
method by which the amount to which Landlord is entitled was
calculated. certified by Tenant as true and correct. Landlord shall
have the right at reasonable intervals to inspect Tenant's books and
records relating to the payments due hereunder. Upon request therefor,
Tenant shall deliver to Landlord copies of all bills, invoices or
other documents upon which its calculations are based.
(iv) As used in this Paragraph 25.C, the term "consideration" shall mean
any consideration of any kind received by Tenant as a result of the
Transfer if such consideration is paid or given in exchange for
Tenant's interest in this Lease or in the Premises.
(v) As used herein, the term "Permitted Transfer Costs" shall mean the
following: (a) all reasonable leasing commissions paid to third
parties not affiliated with Tenant in order to obtain the Transfer in
question; (b) all reasonable attorneys" fees incurred by Tenant with
respect to the Transfer in question; (c) the cost, of Alterations that
must be made by Tenant in order to obtain the Transfer in question;
(d) the amount of the Base Monthly Rent and all Additional Rent paid
by Tenant with respect to that part of the Premises affected by the
Transfer in question for that period of time during which such part of
the Premises was vacant and actively being marketed for sublease or
assignment so long as at the commencement of such vacancy previous
notice of such vacancy was delivered to Landlord and Landlord was able
to inspect and verify same: and (e) any of the foregoing types of
costs paid or incurred by Tenant with respect to prior Transfers which
Tenant did not recoup (after first paying the Base Monthly Rent and
Additional Rent fairly allocable to the space affected bv such prior
Transfers) from rent and other consideration paid by the subtenants or
assignees that were parties to such prior Transfers.
(vi) In the event Tenant shall assign the Lease or sublet the Premises or
request the consent of Landlord to any assignment or subletting or if
Tenant shall request the consent of Landlord for any act that Tenant
proposes to do then
<PAGE>
Tenant shall pay Landlord's reasonable attorney's fees incurred in
connection therewith up to One Thousand Dollars ($1,000) per event, as
such amount is adjusted pursuant to Paragraph 41.
D. Exempt Transfers. Tenant may, without Landlord's prior written consent
----------------
and without any participation by Landlord in assignment or subletting
proceeds, assign its interest in the Lease or sublet the Premises or a
portion thereof to (i) an Affiliate of Tenant; (ii) a successor corporation
related to Tenant by merger, consolidation, non-bankruptcy or government
action. or engage in a merger, consolidation or other reorganization of
Tenant which is defined as an "Assignment" under Paragraph 25.A.(i); or
(iii) a purchaser of substantially all of the Tenant's assets related to
the business being operated at the Premises, so long as the Affiliate and
Tenant combined under (i), such successor or the entity which continues as
Tenant under (ii), or such purchaser under (iii) has a net worth equal to
or greater than the net worth of Tenant as of the Effective Date; provided
in all such instances that the transferee assumes the obligations of the
Tenant
22
<PAGE>
under this Lease in a written instrument delivered to Landlord and provided
further that the transferor tenant remains liable as a primary obligor for
the obligations of Tenant under this Lease (excluding a transferor
corporation which does not survive a merger or other reorganization).
26. SUCCESSORS. This Lease shall be binding on the parties hereto and on their
----------
respective heirs, successors and assigns (to the extent the Lease is
assignable).
27. LENDER PROTECTION. In the event of any default on the part of Landlord,
-----------------
Tenant shall give notice by registered or certified mail to any Lender
whose address shall have been furnished it, and shall offer such Lender a
reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or judicial foreclosure, if
such should prove necessary to effect a cure.
28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS. At all times during the
----------------------------------------------
Lease Term, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party an estoppel
certificate (i) certifying that this lease is unmodified and in full force
and effect or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect,
(ii) stating the date to which the rent and other charges are paid in
advance, if any, (iii) acknowledging that there are not, to the certifying
party's knowledge any uncured defaults on the part of any party hereunder
or, if there are uncured defaults, specifying the nature of such defaults,
and (iv) certifying such other information about the Lease as may be
reasonably required by the requesting party. A failure to deliver an
estoppel certificate within ten (10) days after delivery of a request
therefor shall be a conclusive admission that, as of the date of the
request for such statement, (a) this Lease is unmodified except as may be
represented by the requesting party in said request and is in full force
and effect, (b) there are no uncured defaults in the requesting party's
performance, and (c) no rent has been paid in advance for more than thirty
(30) days. At any time during the Lease Term Tenant shall, upon ten (10)
days prior written notice from Landlord, provide Tenant's most recent
financial statement and financial statements covering the twenty-four (24)
month period prior to the date of such most recent financial statement to
Landlord, any existing Lender or to any potential Lender or buyer of the
Premises. Such statements shall be prepared in accordance with generally
accepted accounting principles and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant.
Failure to deliver such statements within ten (10) days after receipt of
written notice from Landlord of delinquency in delivery of such statement
shall be an Event of Tenant's Default under Paragraph 15. Landlord shall
use reasonable efforts to keep confidential all financial statements
delivered to it by Tenant pursuant to this paragraph and shall cause any
potential Lender or buyer of the Premises to whom such statements are
delivered also to agree to use reasonable efforts to keep such statements
confidential.
29. SURRENDER OF LEASE NOT MERGER. The voluntary or other surrender of this
-----------------------------
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger
and shall, at the option of Landlord, terminate all or any existing
subleases or subtenants or operate as an assignment to Landlord of any or
all such subleases or subtenants.
30. WAIVER. The waiver by Landlord or Tenant of any breach of any term,
------
covenant or condition or any subsequent breach of the same or any other
term, covenant or condition herein contained shall not be deemed to be a
waiver of such term, covenant or condition or any subsequent breach of the
same or any other term, covenant or condition herein contained.
<PAGE>
31. GENERAL
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A. Captions. The captions and paragraph headings used in this Lease are
---------
for the purposes of convenience only. They shall not be construed to limit
or extend the meaning of any part of this Lease.
B. Transfers by Landlord; Limitation on Tenant's Recourse for Landlord
-------------------------------------------------------------------
Default:
-------
Landlord and its successors in interest shall have the right to transfer
their interest in this Lease and the Premises at any time and to any person
or entity. In the event of any such transfer, the Landlord originally
named herein (and, in the case of any subsequent transfer, the transferor
from the date of such transfer shall be relieved of all liability for the
performance of the obligations of the Landlord hereunder which accrue after
the date of such transfer except for those relating to any funds in which
Tenant has an interest that are in the hands of Landlord or the then
transferor at the time of such transfer which are not turned over the
transferee: provided, however, that the foregoing release shall not be
effective unless the transferee shall have executed an assumption agreement
by which it agrees to perform all of the obligations of the Landlord under
this Lease which accrue after the date of such transfer or which are then
in default. The release of a transferring Landlord of its obligations
under Paragraph 37.G concerning Hazardous Materials shall further be
conditioned upon the transferee having
23
<PAGE>
at the time of transfer of title to the Premises, either (i) a net worth
determined in accordance with generally accepted accounting principles of
at least $5,000,000(as such amount is adjusted pursuant to Paragraph 41)
which net worth is also not less than twenty-five percent (25%) of the
value of all assets of such transferee. or (ii) a net worth determined in
accordance with generally accepted accounting principles of at least
$15,000,000 (as adjusted pursuant to Paragraph 41). In addition, if
Landlord voluntarily transfers fee title to the Premises prior to
completion of the Building and Tenant Improvements, then Landlord or the
transferor shall not be relieved of its obligations to complete such
improvements in accordance with the Lease unless Landlord shall upon such
transfer deposit into an escrow under the control of Landlord's transferee
and Tenant, as security for the performance of all obligations under the
Improvement Agreement, an amount equal to Landlord's reasonable estimate of
the costs which will then be required to complete such improvements, or
shall deliver to Tenant a surety bond in such amount as security for the
obligation of Landlord's transferee with respect to the completion of the
Building and Tenant Improvements which bond shall be in form, and be issued
by such surety company, as is reasonably acceptable to Tenant. The
obligations of Landlord under this Lease do not constitute personal
obligations of the partners, directors, officers, shareholders or trustees
of Landlord, or of the partners, directors, officers, shareholders or
trustees of Landlord's partners ("Beneficial Owners") except with respect
to Landlord and its general partners (but not the partners of its general
partners) as provided below. For the realization of any claim against
Landlord arising under this Lease, Tenant shall have recourse only to the
assets of Landlord which are real property subject to this Lease or
proceeds therefrom (e.g. condemnation proceeds, insurance proceeds, or
----
rent) (the "Building Assets") for the satisfaction of such obligations and
not against the other assets of Landlord or its Beneficial Owners.
Notwithstanding the foregoing, the following shall apply only with respect
to claims by Tenant directly resulting from any and all defaults bv
Landlord of its obligations under the Improvement Agreement and/or
Paragraph 37.G concerning Hazardous Materials ("Special Defaults"): (i) for
Special Defaults, Tenant shall first seek recourse against the Building
Assets but not to exceed $5,000,000 (as adjusted pursuant to Paragraph 41
for each claim and in the aggregate; (ii) to the extent Tenant is unable to
recover all amounts to which it is entitled for Special Defaults from
recourse against Building Assets, Landlord and its general partners (but
not any partners or Beneficial Owners of such general partners) shall be
liable to pay the short fall in Tenant's recovery to the extent necessary
to provide Tenant with an aggregate total recovery from Building Assets and
such additional payments by Landlord and its general partners of the lesser
of $5,000,000 (as that amount is adjusted pursuant to Paragraph 41 hereof)
or the aggregate amount Tenant is entitled to recover from Landlord for
Special Defaults under the following three sentences: and (iii) the
obligation of Landlord and its general partners to make the additional
contribution described in clause (ii) immediately preceding (the "Special
Contribution Obligation") shall be limited as provided in the following
three sentences. The parties acknowledge that concurrently with the
execution of this Lease, Landlord and Tenant are executing other leases and
option agreements (which, if options are exercised, will lead to the
execution of additional leases) covering facilities in the Project (the
"Other Leases"), and that each of the Other Leases contains a provision
substantially the same as that contained in the immediately preceding
sentence. Notwithstanding anything contained herein, in no event shall
Landlord and its general partners be required to pay more than $10,000,000
(as such amount is adjusted pursuant to Paragraph 41 hereof) in discharge
of the Special Contribution Obligations described herein or in the Other
Leases. In no event shall Landlord be liable for consequential damages,
such as lost revenues or lost profits, which may result from Landlord's
breach of its obligations to complete the Renovation Improvements set forth
in the Improvement Agreement.
C. Time. Time is of the essence for the performance of each term,
-----
covenant and
<PAGE>
condition of this Lease.
D. Severability; Governing Law. In case any one or more of the provisions
---------------------------
contained herein, except for the payment of rent, shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Lease but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had not been contained herein.
This Lease shall be construed and enforced in accordance with the laws of
the State of California.
E. Joint and Several Liability. If Tenant is more than one person or
---------------------------
entity each such person or entity shall be Jointly and severally liable for
the obligations of Tenant hereunder.
F. Exhibits. All exhibits attached hereto and referred to herein are
---------
incorporated herein by this reference.
G. Miscellaneous. Any executed copy of this Lease shall be deemed an
--------------
original for all purposes. As used herein, "party" shall mean Landlord or
Tenant, as the context implies. The language in all parts of this Lease
shall in all cases be
24
<PAGE>
construed as a whole according to its fair meaning, and not strictly for or
against Landlord or Tenant. When the context of this Lease requires, the
neuter gender includes the masculine, the feminine, a partnership or
corporation or joint venture, and the singular includes the plural. The
terms "shall", "will", and "agree" are mandatory. The term "may" is
permissive. When a party is required to do something by this Lease. it
shall do so at its sole cost and expense without right of reimbursement
from the other party unless specific provision is made therefor. When a
party is obligated not to perform any act, that party is also obligated to
restrain any others within its control from performing said act, including
agents, contractors and employees. The use herein of the word "including,"
when following any general statement. term or matter shall not be construed
to limit such statement, term or matter to the specific items or matters
set forth immediately following such word or to similar items or matters,
whether or not non-limiting language (such as "without limitation" or "but
not limited to," or word of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of such general
statement, term or matter.
H. Survival. The following provisions of this Lease shall survive the
---------
expiration or earlier termination of this Lease; 4.F.(3) (payment of
Percentage Share of Operating Expenses); 7.B. (payment of Percentage Share
of Property Taxes); 8.A. (Waiver and Indemnity); 9. (Utilities); 13.B.(iv)
(removal of alterations); 22 (Holding Over); 31.B. (Transfers by Landlord;
Limitation on Tenant's Recourse); 34 (Surrender); 37.F. (surrender); and
37.G. (Landlord's Obligations).
32. SIGNS. Tenant shall be entitled to install signs identifying its business
------
within the Project and exterior signs an the Building as described and in
accordance with an overall signage program to be approved by Landlord and
Tenant and subject to any Laws, provided, however, Landlord has previously
agreed to (i) allow Tenant its own separate identity signage from that of
the Project, and (ii) include in Tenant's signage program major entry
signage at the entry to Tenant's campus within the Project, secondary
identity signage at secondary entrances and directional signage to all of
Tenant's buildings within the Project. The cost of all exterior signage
shall be paid by Landlord. At the termination of this Lease, Tenant shall
remove any signs which it has placed on the Premises and shall repair any
damage caused by the installation or removal of such signs.
33. INTEREST ON PAST DUE OBLIGATIONS. Any amount due to Landlord or Tenant not
---------------------------------
paid when due shall bear interest from the due date until paid at the
Agreed Interest Rate. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
34. SURRENDER OF THE PREMISES. On the last day of the Lease Term, or on sooner
-------------------------
termination of this lease, Tenant shall surrender the Premises to Landlord
in their condition existing as of the Commencement Date, ordinary wear and
tear excepted, with all originally painted, interior walls washed and other
interior wails cleaned, all damaged ceiling tiles and lighting lenses
replaced, all carpets shampooed and cleaned, the air conditioning and
heating equipment serviced and repaired by a reputable and licensed service
firm, all floors cleaned and waxed, all to the reasonable satisfaction of
Landlord, subject to the limitations on Tenant's obligation to remove
Alterations and restore the Premises to its prior condition set forth in
Paragraph 13. Nothing contained in this Paragraph 34 shall require Tenant
to repair the effects of any condemnation, damage or destruction or any
other condition which Tenant is not required to remedy under this Lease.
Tenant shall remove all of Tenant's personal property and Trade Fixtures
from the Premises and all property not so removed shall be deemed abandoned
by Tenant. Tenant, at its
<PAGE>
sole cost shall repair any damage to the Premises caused by the removal of
Tenant's Trade Fixtures, personal property, machinery and equipment, which
repair shall include the patching and filling of holes and repair of
structural damage. If the Premises are not so surrendered at the
termination of this Lease. Tenant shall indemnify Landlord against loss or
liability resulting from delay by Tenant in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant or
losses to Landlord due to lost opportunities to lease to succeeding
tenants.
35. AUTHORITY. The undersigned parties hereby warrant that they have proper
----------
authority and are empowered to execute this Lease on behalf of Landlord and
Tenant, respectively.
36. OPTIONS TO EXTEND.
-----------------
A. Tenant shall have three (3) options to extend the Lease Term, each for
a period of five (5) years (each of which is referred to herein as an
"Option Term"). Each option may be exercised only by written notice given
to Landlord not earlier than twenty-four (24) months and not later than
eighteen (18) months prior to the expiration of the then existing Lease
Term. Tenant may not exercise any of such options at any time that there
exists an Event of Tenant's Default involving
25
<PAGE>
those events described in Paragraph 15.A(iv), (vi) or (vii) or there exists
an Event of Tenant's Default that is capable of being cured but has not
been cured by Tenant. In all respects, the terms, covenants and conditions
of this Lease shall remain unchanged during each Option Term except that
the Base Monthly Rent payable during each Option Term shall be increased in
accordance with Paragraph 36.B., Landlord shall have no obligation to fund
additional tenant improvements in the Premises or pay Tenant's brokerage
commission, if any, and there shall be no further option to extend the
Lease Term at the end of the third Option Term.
B. The Base Monthly Rent payable during each Option Term shall be ninety
percent (90%) of the "Fair Market Rent for the Premises" (as defined in
Paragraph 36.D) as of the first day of the Option Term in question. Base
Monthly Rent during an Option Term may be subject to an adjustment or
adjustments at such times, in such amount or using such formula, as may be
established in connection with determining the Fair Market Rent for the
Premises.
C. Promptly following exercise of each option to extend, the parties
shall meet and endeavor to agree upon the Fair Market Rent of the Premises.
If within fifteen (15) days after exercise of any of the options, the
parties cannot agree upon the Fair Market Rent for the Premises as of the
first day of the Option Term in question. the parties shall submit the
matter to binding appraisal in accordance with the following procedure:
Within thirty (30) days after exercise of the option, the parties shall
either (i) jointly appoint an appraiser for this purpose or (ii) failing
this joint action, separately designate a disinterested appraiser. No
person shall be appointed or designated an appraiser unless he has at least
five (5) years experience in appraising major commercial property in
Alameda County and is a member of a recognized society of real estate
appraisers. If within thirty (30) days after the appointment the two
appraisers reach agreement on the Fair Market Rent for the Premises as of
the first day of the Option Term in question, that value shall be binding
and conclusive upon the parties. If the two appraisers thus appointed
cannot reach agreement on the question presented within thirty (30) days
after their appointment then the appraisers thus appointed shall appoint a
third disinterested appraiser having like qualifications. If within thirty
(30) days after the appointment of the third appraiser a majority of the
appraisers agree on the Fair Market Rent of the Premises as of the first
day of the Option Term in question, that value shall be binding and
conclusive upon the parties. If within thirty (30) days after the
appointment of the third appraiser a majority of the appraisers cannot
reach agreement on the question presented. then the three appraisers shall
each submit their independent appraisal to the parties the appraisal
farthest from the median of the three appraisals shall be disregarded, and
the average of the remaining two appraisals shall be deemed to be the Fair
Market Rent of the Premises as of the first day of the Option Term in
question and shall be binding and conclusive upon the parties. Each party
shall pay the fees and expenses of the appraiser appointed by it and shall
share equally the fees and expenses of the third appraiser. If the two
appraisers appointed by the parties cannot agree on the appointment of the
third appraiser, they or either of them shall give notice of such failure
to agree to the parties and if the parties fail to agree upon the selection
of such third appraiser within ten (10) days after the appraisers appointed
bv the parties give such notice, then either of the parties upon notice to
the other party, may request such appointment by the American Arbitration
Association or, on its failure, refusal or inability to act, may apply for
such appointment to the presiding judge of the Superior Court of Alameda
County, California.
D. For purposes of this Paragraph, the term "Fair Market Rent for the
Premises" shall mean the going market rental and any adjustment or
adjustments to such rental at such time(s) and in such amount or using such
formula as is prevailing at the time of the commencement of the Option Term
in question, for comparably equipped space in buildings containing between
50,000 and 250,000 square feet, located within a five (5) mile radius of
the Premises, and in a condition comparable to the then
<PAGE>
condition of the Premises, taking into account all legal uses for which the
Premises could be used without material alteration thereto and the value of
all the improvements in the Premises made by Landlord (but adjusting for
the age and then condition of such improvements) for a tenant proposing to
sign a lease for a similar term and having financial qualifications similar
to Tenant and using as a guide equivalent space in the size range specified
above of similar age, construction, quality. use and location. There shall
be excluded from any determination of "Fair Market Rent of the Premises"
the rental value attributable to any improvements constructed bv Tenant
with its own funds, or paid for with the Excess TI Allowance. and all Trade
Fixtures and personal property of Tenant located in the Premises. Any
determination of "Fair Market Rent of the Premises" shall take into account
rental concessions then prevailing in the market (e.g., "free rent," lease
----
assumptions, payment of moving expenses, etc.).
E. If the Base Monthly Rent for any Option Term is established by
appraisal conducted pursuant to Paragraph 36.C hereof and if Tenant does
not, in its sole discretion, approve the Fair Market Rent for the Premises
established for the Option Term in question as so established by appraisal,
then Tenant may rescind its exercise of the option in question by giving
Landlord written notice of such election to rescind within fifteen (15)
days after the Fair Market Rent for the Premises for the Option Term in
question is so established by appraisal. If Tenant so timely rescinds its
exercise of the
26
<PAGE>
option in question, then (i) the Lease shall expire on the later to occur
of either five hundred forty (540) days after Tenant's notice of rescission
is delivered to Landlord or on the date the Lease would otherwise have
expired absent such exercise of the option in question by Tenant; (ii) if
the Lease Term is extended as a result of Tenant's rescission, then the
Base Monthly Rent for the extended period shall be that in effect prior to
the delivery of Tenant's notice of recession; and (iii) Tenant shall pay
all costs incurred by Landlord in participating in any appraisal to
establish the Fair Market Rent for the Premises for the Option Term in
question.
37. HAZARDOUS MATERIAL.
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A. Definitions. As used herein, the term "Hazardous Material" shall mean
-----------
any substance or material which has been determined by any state, federal,
or local governmental authority to be capable of posing a risk of injury to
health, safety or property including all of those materials and substances
designated as hazardous or toxic by the Environmental Protection Agency,
the California Water Quality Control Board, the Department of Labor, the
California Department of Industrial Relations, the Department of
Transportation, the Department of Agriculture, the Consumer Product Safety
Commission, the Department of Health and Human Services the Food and Drug
Administration, or any other governmental agency now or hereafter
authorized to regulate materials and substances in the environment. Without
limiting the generality of the foregoing, the term "Hazardous Material"
shall include asbestos, PCB's, petroleum products and all materials and
substances listed under Article II. or defined as hazardous or extremely
hazardous pursuant to Article 1 of Title 22 of the California Code of
Regulations Division 4, Chapter 30, as the same shall be amended from time
to time.
B. Use Restriction. Tenant shall not cause or allow anyone else to cause,
---------------
any Hazardous Materials (other than commercially reasonable quantities of
cleaning and office supplies for Tenant's use) to be used, generated,
stored, released or disposed of (collectively, "Use") on or about the
Premises, the Building or Outside Areas without the prior written consent
of Landlord, which consent may be withheld in the sale discretion of
Landlord unless oil of the conditions set forth in subparagraphs (i)
through (iii) below are met, in which event such consent shall not
unreasonably be withheld. In the event of any breach by Tenant which
constitutes an Event of Tenant's Default of the covenants or conditions set
forth in this Paragraph B, in addition to all of its other remedies under
this Lease, Landlord may revoke any consent previously given with respect
to the Use of Hazardous Materials.
(i) The proposed Hazardous Material does not include freon, TCE,
hydrocarbons or any hydrocarbon-band compounds or any Hazardous
Material that has been detected at any time at levels exceeding
"action levels" of any governmental agency in the soil or groundwater
of the Premises, the Use does not involve; (1) outside or underground
storage; (2) storage of any quantities in excess of those requiring
the establishment of a Business Plan under the provisions of Health &
Safety Code Section 25503.5; (3) the proposed Use does not involve
manufacturing of commercial quantities of any Hazardous Materials; or
(4) above-ground or inside storage, unless Tenant has made appropriate
provisions for leak protection, leak detection, and leak containment
and such provisions arc compatible with Building systems.
(ii) The tangible net worth of Tenant at the time it requests consent to
such Use is at least equal to $5,000,000 (as increased in accordance
with the percentage increase in the Consumer Price Index from the
Effective Date through the month prior to Tenant's request),
"Tangible net worth" shall mean, at any date, the sum of the capital
stock and additional paid-in capital stock and additional paid-in
capital plus retained earnings (or minus
<PAGE>
accumulated deficit) of Tenant and its subsidiaries, on a consolidated
basis, minus all intangible assets of Tenant and its subsidiaries,
including, without limitation; (a) goodwill, trademarks, patents,
patent application, brand names, copyrights, franchises and deferred
charges (including unamortized debt discount and software development
and other research and development costs), determined in accordance
with generally acceptable accounting principles (b) treasury stock;
(c) cash held in a sinking or other similar fund established for the
purpose of redemption or other retirement of capital stock; (d) to the
extent not already deducted from total assets, reserves for
depreciation, depiction, obsolescence or amortization of properties
and other reserves or appropriations of retained earnings which have
been or should be established in connection with the business
conducted by the relevant corporation: (e) purchased intangibles; and
(f) any revaluation or other write-up in book value of assets
subsequent to the fiscal year of Tenant last ended at the date of this
Lease. Such tangible net worth shall be as reported by an independent
certified public accountant according to generally accepted accounting
principles.
27
<PAGE>
(iii) Tenant, and/or any subtenant on whose behalf Tenant requests such
consent has not previously been cited or charged by any governmental
authority for improper use, storage or discharge of any Hazardous
Material and is not, and has not previously been involved, either as
a potentially responsible party, or otherwise, in any remediation or
clean-up of a release of Hazardous Material; provided, however, if
Tenant's proposed subtenant is an entity whose snares are publicly
traded the subtenant explicitly assumes in writing the obligations
of Tenant under this Paragraph 37 with respect to those Hazardous
Materials Used by such subtenants, on a joint and several basis, and
the net worth of such proposed subtenant, as determined in
accordance with generally acceptable accounting principles, is at
least $50,000,000, then this subparagraph (iii) shall not be
applicable.
Upon seeking Landlord's consent, Tenant shall provide a complete list of
all Hazardous Materials proposed to be permitted on the Premises, the
maximum quantities to be used during any one-month period and a description
of the means which will be used to handle, store and remove such materials
from the Premises. Tenant shall obtain Landlord's consent before using any
additional Hazardous Materials on the Premises not included in Tenant's
most recent list, and shall provide written certification to Landlord at
least once during any twelve month period of the term, and at any time
within five business days of Landlord's request, but not more often than
four times during each twelve month period of the continued accuracy of
Tenant's prior disclosures with respect to the Hazardous Materials then
being used on the Premises. Tenant at its sole cost shall strictly comply
with all Laws relating to the Use by Tenant or its Agents of Hazardous
Materials. Landlord and its Agents may, from time to time, and without
prior notice to Tenant, inspect the Premises for the purposes of confirming
the presence of Hazardous Materials thereon and the means and methods then
being used to handle and dispose of such materials, but Landlord shall not
have an obligation so to do. The costs of inspections by Landlord's
consultants shall be paid by Tenant as an Operating Expense, and if, as a
result of any such inspection, or otherwise, Landlord determines that any
certification by Tenant is inaccurate, then, promptly following Landlord's
request, Tenant shall cause the proper legal removal from the Premises of
Hazardous Materials not previously disclosed and opposed by Landlord, and
shall cease all use or processes for which Landlord has not previously
given its consent. If the Use of Hazardous Materials on the Premises
caused by Tenant or its Agents results in contamination of the Premises or
any soil or groundwater in, under or about the Premises, Tenant, at its
expense, shall promptly take all actions necessary to remediate such
contamination and otherwise to comply with the requirements of any
governmental agency or other authority having jurisdiction over the
Premises, Tenant shall defend, hold harmless and indemnify Landlord and
its Agents and employees with respect to (i) all claims, damages (including
consequential damages such as those which may result from Landlord's
inability to obtain financing for the Building), costs (including
attorneys' fees) and liabilities arising out of or in connection with the
Use of any Hazardous Material in or about the Premises by Tenant or its
Agents, and (ii) any disposal or release of any Hazardous Material on or
under the Building emanating from those portions of the Premises which
Tenant has exclusive control occurring after the date possession of the
Premises, or the portion where such Material is disposed or released, is
delivered to Tenant and prior to the termination of this Lease, and that is
not the result of the negligence or willful misconduct of Landlord or its
Agents. In the event of any dispute between Landlord and Tenant concerning
Tenant's indemnification and defense obligations under this Paragraph 37.B.
for so long as Tenant uses the Premises solely for general office purposes.
Landlord shall have the burden of showing by the preponderance of the
evidence that the Use of any Hazardous Material was caused bv Tenant or its
Agents. If the Premises has been used for other than general office
purposes by Tenant or its Agents, then Tenant shall bear the burden of
showing by the same burden of proof that neither it nor any of its Agents
caused the contamination of the Premises or any such soil or groundwater or
such claims, damages or liabilities.
<PAGE>
C. Compliance. Tenant, at its sole cost, shall strictly comply with all
----------
Laws relating to the Use by Tenant of Hazardous Materials. If the presence
of Hazardous Materials on the Premises caused by Tenant or its Agents
results in contamination of the Premises or any soil or groundwater in,
under or about the Premises. Tenant, at its expense, shall promptly take
all actions necessary to remediate such contamination and otherwise to
comply with the requirements of any governmental agency or other authority
having jurisdiction over the Premises. Tenant shall not suffer any lien to
be recorded against the Premises as a consequence of the disposal of a
Hazardous Material on the Premises by Tenant or its Agents, including any
so-called state, federal or local "super fund" lien related to the "clean-
up" of a Hazardous Material in or about the Premises. Tenant shall
promptly, following Tenant's becoming aware of the same, notify Landlord of
any inquiry test, investigation or enforcement proceeding by or against
Tenant or the Premises concerning a Hazardous Material. If Landlord
reasonably believes that Tenant has violated the provisions of this
Paragraph 37 and, if following notice by Landlord to Tenant. Tenant has
failed to correct such violation in a timely manner. Landlord shall have
the right to appoint a consultant to conduct an investigation to determine
whether Hazardous Materials are being used, stored and disposed of in an
appropriate manner. If Tenant has violated any Law or covenant in this
Lease regarding the Use of Hazardous
28
<PAGE>
Materials on or about the Premises. Tenant shall reimburse Landlord for
the cost of such investigation. Tenant, at its expense, shall comply with
all reasonable recommendations of the consultant required to conform
Tenant's Use of Hazardous Materials to the requirements of applicable Law
or to fulfill the obligations of Tenant hereunder.
D. Assignment And Subletting. In evaluating a proposed Transfer and the
-------------------------
prospective transferee in accordance with Paragraph 25. Landlord may take
into account the proposed transferee's history of compliance with Laws
regulating Hazardous Materials.
E. Notice. Landlord and Tenant shall each give written notice to the
------
other as soon as reasonably practicable of (i) any communication received
from any governmental authority concerning Hazardous Materials which
relates to the Premises, and (ii) any contamination of the Premises by
Hazardous Materials which constitutes a violation of any Law regulating
Hazardous Materials. At any time during the Lease Term, Tenant shall,
within five (5) days after written request therefor received from Landlord,
disclose in writing all Hazardous Materials that are being used by Tenant
on the Premises, the Use of which requires Tenant to make written reports
to any governmental agency under any Law regulating Hazardous Materials
which disclosure by Tenant shall state the nature of such Use.
F. Surrender. Upon the expiration or earlier termination of the Lease,
---------
Tenant, at its sole cost, shall remove all Hazardous Materials from the
Premises and from the groundwater under the Premises which Tenant
introduced to the Premises to the extent required by Law or to that level
that a prudent owner would do on its own account (taking into account cost,
legal requirements, anticipated changes in legal requirements and potential
threat to groundwater), with disputes settled by binding arbitration under
the Commercial Rules of the American Arbitration Association. Tenant shall
indemnify and hold Landlord harmless from all claims, liabilities, expenses
(including attorney's fees and investigation costs) penalties, fines,
response costs and damages resulting from Tenant's failure to surrender the
Premises as required by this Paragraph, including, without limitation, any
claims or damages in connection with the condition of the Premises,
including damages occasioned by the inability to relet the Premises or a
reduction in the fair market and/or rental value of the Premises by reason
of the existence of any Hazardous Materials disposed of by Tenant in or
around the Premises. Upon the expiration or earlier termination of the
Lease, Landlord, at its option, may through outside consultants, perform an
exit environmental site assessment of the Premises the cost of which would
be paid by Tenant if (i) Tenant has not increased the intensity of use of
Hazardous Materials over the Lease Term but there is contamination at the
Premises caused by Tenant, or (ii) Tenant (or a subtenant) has increased
the intensity of use of Hazardous Materials over the Lease Term at the
Premises. The foregoing notwithstanding, Tenant's payment of such
assessment shall be limited to $10,000, as adjusted pursuant to Paragraph
41, unless such assessment indicates that Tenant has caused such
contamination.
G. Landlord's Obligations. Landlord represents and warrants that, without
-----------------------
independent investigation, it has no knowledge of any Hazardous Materials
present in, on or under the Premises other than as described in those
reports described in Exhibit "D" (the "Existing Hazardous Material
Condition"). Landlord, at its sole cost, shall comply with all Laws
(including the federal law known as "CERCLA" and its California
counterpart) which impose liability or responsibility upon either Landlord
or Tenant to investigate, remediate or otherwise take any action with
respect to the following; (i) the Existing Hazardous Material Condition;
and (ii) compliance with all Laws regulating Hazardous Materials affecting
the Premises to
<PAGE>
the extent that Landlord is legally obligated to do so by such Laws and
such compliance is not made the responsibility of Tenant pursuant to
Paragraph 37.B. 37.C and 37.F. Landlord shall indemnify, defend and hold
Tenant and its Agents harmless from and against all liabilities, claims,
penalties, fines, response costs, and other expenses (including reasonable
attorneys' fees) which result from Landlord's failure to perform the
obligation stated in the immediately preceding sentence.
38. APPROVALS. Whenever this Lease requires an approval, consent, designation,
---------
determination or judgment by either Landlord or Tenant, such approval,
consent, designation, determination or judgment shall not be unreasonably
withheld or delayed.
39. REASONABLE EXPENDITURES. Any expenditure by a party provided or required
-----------------------
under the Lease, for which such party is entitled to demand and does demand
reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party or its representative during normal business
hours.
40. RIGHT TO PERFORM OTHER PARTY'S COVENANTS. If either party shall at any
-----------------------------------------
time fail to make any payment or perform any other act on its part to be
made or performed under this Lease, and such failure shall continue for
thirty (30) days following notice to the other party and, in the case of
Landlord, to Landlord's Lender(s), or such failure (unless the nature of
the obligation is such that it cannot be completed within thirty (30) days.
in which event the defaulting party need only
29
<PAGE>
commence performance within the thirty (30) day period and thereafter
diligently complete the same), the other party may, but shall not be
obligated to and without waiving or releasing such party from any
obligation of such party under this Lease, make such payment or perform
such other act to the extent the other party may deem desirable, and in
connection therewith pay expenses and employ counsel. Notwithstanding the
above, in the event such failure to perform shall create any unsafe or
other emergency condition, the other party may take such actions as it
deems reasonably necessary for protection of person and property in and
about the Premises and shall promptly thereafter notify the other party of
such actions. All sums so paid by the other party and all penalties,
interest and costs in connection therewith shall be due and payable by the
defaulting party on the next day after any such payment by the other party,
together with interest at the Agreed Interest Rate from such date to the
date of payment thereof by the defaulting party to the other party. All
such sums owed by Tenant to Landlord under this Paragraph 40 shall be
deemed Additional Rent.
41. CPI ADJUSTMENT. Where provisions of this Lease specify dollar amounts and
---------------
state that they are to be adjusted pursuant to this Paragraph (e.g.,
Paragraph 13.B(i) and 31.B), at the time such provisions are applied during
the Lease Term the amount in question shall be adjusted to that amount
which is equal to the product obtained by multiplying (i) the amount
originally specified in the provision in question as of the Effective Date,
by (ii) a fraction the numerator of which is the Consumer Price Index
published immediately preceding the date upon which such provision is to be
applied and the denominator of which is the Consumer Price Index published
immediately preceding the Effective Date.
42. INTEGRATION AND AMENDMENTS. Except as expressly provided herein, Tenant
---------------------------
acknowledges that neither the Landlord nor Landlord's Agents has made any
representation or warranty as to the suitability of the Premises to the
conduct of Tenant's business. Any agreements, warranties or
representations not expressly contained herein shall in no way bind either
Landlord or Tenant, and Landlord and Tenant expressly wave all claims for
damages by reason of any statement, representation, warranty, promise or
agreement, if any, not contained in this Lease. This Lease, together with
all Exhibits hereto, constitutes the entire understanding between the
parties regarding Tenant's lease of the Premises and no addition to, or
modification of, any term or provision of this Lease shall be effective
until set forth in writing signed by both Landlord and Tenant.
43. MEMORANDUM OF LEASE. Concurrently with the execution hereof, the parties
-------------------
shall execute, acknowledge and record a Memorandum of Lease referencing
Tenant's options to extend the term in a form approved by Landlord and
Tenant.
44. NON-DISCRIMINATION. Tenant covenants for itself, its heirs, executors,
-------------------
administrators, and assigns, and all persons claiming under or through it,
and this Lease is made and accepted upon it subject to the condition that
there shall be no discrimination against or segregation of any person or
group of persons. on account of race, color, creed, religion, sex, marital
status, national origins, or ancestry in the leasing, subleasing,
transferring, use, occupancy, tenure, or enjoyment of the Premises herein
leased nor shall the Tenant itself, or any person claiming under or through
it, establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use, or
occupancy of tenant, subtenants, vendees in the Premises.
45. BROKERAGE COMMISSIONS. Each party hereto represents and warrants to the
----------------------
other that
<PAGE>
it has not had any dealings with any real estate brokers, leasing agents or
salesmen, other than Cooper/Brady Commercial Real Estate and Steven R.
Meckfessel (collectively "Brokers"), or incurred any obligations for the
payment of real estate brokerage commissions or finder's fees which would
be earned or due and payable by reason of the execution of this Lease other
than to Brokers. Landlord shall pay any applicable commission to Brokers in
accordance with separate agreements between Landlord and Brokers.
46. FINANCING CONTINGENCY.
---------------------
A. Landlord's obligation to construct the Building Shell and Tenant
improvements within the Building shall be conditioned upon the issuance to
Landlord of a commitment for, and the subsequent funding of, a construction
loan in the amount of Development Costs excluding Fair Market Value of the
Land (as defined below) acceptable to Landlord no later than December 1,
1992. In the event such construction loan is not funded on or before
December 1. 1992, then Landlord shall promptly notify Tenant and Tenant
shall have the option by notice to Landlord given on or before December 15,
1992, to (i) terminate this Lease effective immediately, (ii) elect to
provide construction and permanent financing in an amount not to exceed the
Development Costs excluding the Fair Market Value of the Land for the
Building on commercially reasonable terms or (iii) elect to fund all or a
portion of the Base TI Allowance in order to facilitate the financing of
the Building, and Tenant shall then receive a reduction in the Base Monthly
Rent equal to the portion of the Base TI
30
<PAGE>
Allowance funded by Tenant multiplied by Landlord's Return on Cost. The
term "Landlord's Return on Cost" shall mean the Base Monthly Rent before
the above reduction divided by the "Development Costs."
B. The term "Development Costs" means all expenses incurred by Landlord
in planning and constructing the Building Shell and the Tenant
Improvements, including, without limitation: (i) the Fair Market Value
(determined in a manner similar to that used for Fair Market Rent under
Paragraph 36) of the land (the "Fair Market Value of the Land") valued as
if unimproved with any structure required for the Building, parking and
related landscaping and other open areas assuming such land will be
improved with the Building and other improvements Landlord will be required
to construct, assuming such land is free of all toxic or Hazardous
Materials subtracting the cost of demolishing any improvements then present
which will be required to be removed in order to construct the Premises and
adding the replacement cost of any improvements then present on the land
which will be incorporated into the Premises; (ii) architects', engineers'
and other consultants' fees, (iii) permit fees and other costs and
exactions paid or dedications made to obtain permits for the development of
the Building; (iv) the cost to Landlord of constructing the Building, the
Base TI Allowance prior to any reduction due to Tenant's funding of such
Base TI Allowance and related improvements to be incorporated into the
Premises (v) taxes and assessments for the Land. Building and Tenant
Improvements accruing during the time period between the commencement of
construction of the Building Shelf and the commencement of Tenant's
obligation to pay Base Monthly Rent under the Lease; (vi) utilities connect
charges; (vii) all interest, loan fees, loan commitment fees, loan
application fees and points charged on loans related to the Building and
Tenant Improvements before and during the construction period; (viii)
insurance covering the Building and Tenant improvements during the
construction period; (ix) costs of grading, utilities, storm drains, roads,
sidewalks buildings, Landscaping and necessary or desirable off-site
improvements; (x) negotiated fees including general contractor fees as
approved by Tenant, and a fee equal to three percent of other Development
Costs which may be paid to Landlord or its affiliate or an unrelated party
for construction management and other services; (xi) leasing brokerage
commissions; and (xii) uninsured losses to the extent not otherwise
amortized by Tenant under Paragraph 16 of this Lease and all other leases
entered into between Landlord and Tenant concurrently herewith.
C. "Development Costs" shall not include any of the following: (i) costs
incurred by Landlord for the investigation or remediation of Hazardous
Materials except in connection with reports required by Lenders in
connection with the financing of the Premises to confirm the absence of any
such Hazardous Materials; (ii) any cost which is paid or incurred by
Landlord for which it is subsequently reimbursed by a third party (e.g.,
insurance proceeds, payments on account of contract warranties judgments or
settlements in connection with claims or litigation), after deducting the
cost of recovery; (iii) any cost incurred to cure or correct the default
by, or loss, damage or liability resulting from, or any net increase in
Development Costs resulting from (A) a default by Landlord of its
obligations under the Lease (unless resulting from a default by Tenant of
its obligations under the Lease), or (B) a default by the general
contractor or any subcontractor resulting from a default by Landlord of its
obligations under its agreement with the general contractor;(iv) payments
by Landlord to any Affiliate except to the extent set forth above or
otherwise approved by Tenant; (v) the costs of correcting defects in the
design of the Building (but not the Tenant Improvements) or the
construction of the Building and Tenant Improvements (except to the extent
covered by the contractor's contingency in its contract); and (vi)
construction loan interest and other financing costs allocable to (A) any
period prior to the commencement of construction (which shall be deemed to
be the commencement of demolition of the existing improvements on the land
if just prior to the commencement of construction of the Building), or (B)
any period of delay in completion of construction which is attributable to
a default by Landlord under the Lease, or its construction contract.
<PAGE>
D. If Tenant so elects to terminate this Lease then Tenant may, by notice
also given to Landlord on or before December 15, 1992, terminate all other
leases entered into between Landlord and Tenant concurrently with this
Lease, provided that at the time Tenant gives such notice of termination
Tenant also pays to Landlord the amount by which (i) all sums which would
otherwise have been payable by Tenant during the period commencing on April
1, 1992 and continuing through the date on which Tenant gives its notice
under the leases described below exceeds (ii) all amounts actually paid by
Tenant to Landlord during the same period. In such event, the following
previous leases with Landlord shall be reinstated as if such leases
previously had not been superseded:
1. Marina Village Office Lease dated as of August 1, 1994 by and between
Landlord and Tenant for premises located in 1080 Marina Village
Parkway, Alameda, California;
2. Marina Village Office Lease dated as of October 1, 1987 by and between
Landlord and Tenant for premises located in 1001 Marina Village
Parkway, Alameda, California; and
31
<PAGE>
3. Marina Village Office Lease dated as of August 10, 1988 by and between
Landlord and Tenant for premises located in 1201 Marina Village
Parkway, Alameda, California.
Upon the reinstatement of such leases, Landlord and Tenant shall execute and
deliver amendments to the leases for 1001 and 1080 Marina Village Parkway
extending the terms thereof for one year following the date they otherwise would
have expired and amending the base rent and the provisions relating to the
obligations to pay utilities, operating expenses and property taxes and to
perform maintenance and repair to reflect the arrangements set forth in this
Lease.
IN WITNESS WHEREOF, the parties have executed this Lease on the dates set forth
below.
TENANT: LANDLORD:
ASK COMPUTER SYSTEMS, INC. ALAMEDA REAL ESTATE INVESTMENTS,
a Delaware corporation a California limited partnership
By: /s/ Signature Unreadable By: Vintage Properties - Alameda
Commercial
Its: VP & General Council a California corporation,
Managing General Partner
By:_____________________ By: /s/ Signature Unreadable
Its:____________________ Its: President
Date of Execution Date of Execution
by Tenant: June 26, 1992 By Landlord: 6/26/92
32
<PAGE>
EXHIBIT A
---------
1101 MARINA VILLAGE PARKWAY
PAGE 1 OF 2
[Graphic Floorplan Omitted]
<PAGE>
EXHIBIT A
---------
1101 MARINA VILLAGE PARKWAY
(CONTINUED)
PAGE 2 OF 2
[Graphic Floorplan Omitted]
<PAGE>
EXHIBIT B
IMPROVEMENT AGREEMENT
FOR 1101 MARINA VILLAGE PARKWAY
INITIAL IMPROVEMENT OF THE BUILDING AND
TENANT IMPROVEMENTS
This Exhibit B is incorporated into that certain Lease dated June 25, 1992,
between ASK COMPUTER SYSTEMS, INC., as "Tenant", and ALAMEDA REAL ESTATE
INVESTMENTS, as "Landlord", (the "Lease). All of the defined terms as used in
the Lease shall have the same meanings herein.
1. BUILDING SHELL AND OUTSIDE AREA IMPROVEMENTS. Landlord, through its
---------------------------------------------
general contractor, shall furnish substantially in accordance with the
working drawings and specifications prepared by Leason Pomeroy and
Associates identified as Progress Set dated May 8, 1992, the base Building
shell (the "Building Shell") and the exterior Outside Area Improvements
substantially in accordance with the plans and specifications prepared by
Ken Kay and Associates identified as Sheets L-1, LD-1, LI-1, LI-2, LP-1 and
LP-2 dated December 10, 1991. The Building Shell drawings and Outside Area
drawings and specifications for construction which shall be prepared as the
logical extension of the documents listed above shall be collectively
referred to herein as the "Working Drawings". Landlord shall bear the cost
of constructing the entire Building Shell and Outside Area improvements as
set forth on the Working Drawings.
2. CHANGES TO BUILDING SHELL AND OUTSIDE AREA. Neither Landlord nor Tenant
-------------------------------------------
shall have the right to order extra work or change orders with respect to
the construction of the Building Shell or the Outside Area Improvements
without the prior written consent of the other, provided that Landlord may
make non-material changes in such construction without Tenant's consent in
order to comply with applicable Laws or the demands of public officials. or
in order to reduce costs or enhance functionality. All extra work or change
orders requested by either Landlord or Tenant shall be made in writing
shall specify any added or reduced cost and/or construction time resulting
therefrom, and shall become effective and a part of the Working Drawings
once approved in writing by both parties. If a change order requested by
Tenant results in a net increase in the cost to Landlord of the
constructing the Building Shell, Outside Area Improvements or the Tenant
Improvements, Tenant shall pay the amount of such increase caused by the
change order requested by Tenant upon completion of the Building Shell or
Outside Area Improvements, as applicable, or, at Landlord's option, within
fifteen (15) days of Landlord's request for progress billings in the manner
described in paragraph 5 below.
3. TENANT IMPROVEMENTS. Landlord, through its general contractor, shall
--------------------
furnish and install within the Premises substantially in accordance with
the plans and specifications finally approved by Landlord and Tenant,
partitions, doors, lighting fixtures, acoustical ceilings, window
coverings, electrical outlets, telephone outlets, heating, ventilating and
air conditioning, fire sprinklers (subject to Landlord's obligations to
construct a portion of the system as part of the Building Shell), restrooms
and other items of general construction in compliance with all applicable
Laws to the extent such improvements are not included in the Building Shell
(the "Tenant Improvements"). The quantities, character and manner of
installation of all of the Tenant Improvements shall be subject to the
limitations imposed by any applicable governmental regulations.
<PAGE>
4. ALLOCATION OF COST.
-------------------
a. Landlord shall bear Tenant Improvement Costs (as defined below) up to
Thirty Dollars ($30.00) per square foot of Rentable Area (the "Base TI
Allowance") and Tenant shall bear any Tenant Improvement Costs which
exceed the Base TI Allowance; provided, however, Landlord shall also
make available at Tenant's request and for the payment of Tenant
Improvement Costs in excess of the Base TI Allowance an additional
allowance up to Ten Dollars ($10.00) per square foot of Rentable Area
(the "Excess TI Allowance") which may be applied to Tenant's cafeteria
improvements, voice and data equipment or fit-up of Tenant's Trade
Fixtures and such other items as Landlord and Tenant shall reasonably
approve. Any Excess TI Allowance shall be fully amortized over the
Lease term together with interest at the rate of 10% per annum and
paid by Tenant as Additional Rent, as set forth in Paragraph 4.E. of
the Lease. For purposes hereof the Base TI Allowance plus the Excess
TI Allowance, if any, shall be defined as the "Tenant Improvement
Allowance". If total Tenant Improvement Costs as set forth in the
Final Cost Estimate exceed the sum of the Base TI Allowance and the
Excess TI Allowance, to the extent Tenant elects to utilize the Excess
TI Allowance rather than
<PAGE>
pay currently, Landlord shall pay a share of each progress billing
from its general contractor determined by multiplying the amount of
such billing by a fraction, the numerator of which is the Tenant
Improvement Allowance (reduced by that part of the Excess TI Allowance
Tenant does not elect to utilize), and the denominator of which is the
estimated total Tenant Improvement Costs, Tenant shall pay the
balance of such progress billing. If upon completion of the Tenant
Improvements in the Premises and payment in full to the general
contractor the portion of Tenant Improvement Costs theretofore paid by
Landlord is less than the Tenant Improvement Allowance. Landlord
shall reimburse Tenant for costs expended by Tenant for improvements
to the Premises up to the amount by which the Tenant Improvement
Allowance exceeds the portion of such cost theretofore paid by
Landlord.
b. The term "Tenant Improvement Costs" shall mean the following
"Included Costs", but not the following "Excluded Costs":
(1) "Included Costs" shall mean the total of the following hard and
soft costs: (i) the lesser of the Final Cost Estimate (as defined
in Subparagraph 6.c. below) or payments pursuant to the
construction contract for labor and materials furnished for
construction of the Tenant Improvements (but not the Building
Shell and Outside Area Improvements which shall be performed at
Landlord's sole expense); (ii) reasonable fees paid by Landlord
to architects, engineers and other construction professionals
(other than employees or Affiliates of Landlord) for services
required in connection with the design and construction of the
Tenant Improvements (but not the Building Shell and Outside Area
Improvements); (iii) fees paid by Tenant to architects, space
planners, designers, inspectors and other construction
professionals in connection with the Tenant Improvements; (iv)
utility connection charges; (v) the amounts paid to governmental
authorities or agencies for inspections and issuance of building
permits and approvals for the Tenant Improvements, including
transit, housing, school and other development impact fees (but
not that portion of such amounts applicable to, or based on the
value of the Building Shell and Outside Area Improvements); and
(vi) builders' risk and liability insurance premiums, performance
and payments bonds premiums, utilities consumed and customary
general conditions items related to the Tenant Improvements.
(2) "Excluded Costs" shall mean (i) charges and expenses for changes
to the Working Drawings or the Tenant Improvement Drawings, as
the case may be, which have not been approved in writing by
Tenant; (ii) wages, labor and overhead for overtime and premium
time, unless approved in advance by Tenant in writing; (iii)
additional costs and expenses incurred on account of any of
Landlord's contractor's or subcontractor's default or
construction defects, the negligent act or omission or willful
misconduct of Landlord or its Agents, or Landlord's breach of the
Lease; (iv) principal, interest and fees for construction or
permanent financing; (v) management or other general overhead
costs incurred by Landlord; (vi) costs for which Landlord has a
right of reimbursement from others (including, without
limitation, insurers and warrantors); (vii) the cost of the
Building Shell and Outside Area Improvements; and (viii) costs of
management, design and all other services provided by employees
or Affiliates of Landlord, and the cost of any administration,
profit and overhead for Landlord or any of its employees or
Affiliates in connection with the Tenant Improvements. All of
the Excluded Costs shall be the sole obligation of Landlord.
5. PAYMENT OF TENANT'S COST. Tenant shall pay to Landlord all amounts due
-------------------------
under the
<PAGE>
terms of this Exhibit B within fifteen (15) days after billing by Landlord.
Bills may be rendered during the progress of the drawings and
specifications and the Tenant Improvements so as to enable Landlord to pay
permit and processing fees and its architects, engineers and general
contractor without advancing Landlord's funds for more than its share of
each progress billing. Landlord shall not be obligated to continue
installation of the Tenant Improvements if Tenant does not pay its share of
the cost of the Tenant Improvements to Landlord when due until such time as
Tenant has made such payment. If Tenant does not make timely payment to
Landlord, Landlord may, but shall not be obligated to, advance Landlord's
funds to pay Tenant's share of the cost of the Tenant's Improvements and
any funds so advanced shall be payable to Landlord upon demand as
additional rent and shall bear interest as provided in the Lease.
6. DRAWINGS AND SPECIFICATIONS.
----------------------------
a. Landlord, through its architects and engineers, shall furnish drawings
and specifications required for the pricing and construction of the
Tenant Improvements. At its own expense and in accordance with the
schedule outlined below, Tenant shall provide Landlord's architects
and engineers with sufficient instructions, as described below, to
enable Landlord's architects and engineers to prepare complete plans
and specifications for the Tenant Improvements.
2
<PAGE>
b. Tenant's instructions to Landlord's architects and engineers shall
include all relevant information, including without limitation,
Tenant's budget, special floor loadings, floor openings, air
conditioning plumbing and electrical loads, location and size of
telephone equipment, location and size of all of the functional
requirements and the nature of desired finishes, casework. millwork,
lighting and any special acoustic treatments. Tenant and Landlord
shall diligently pursue preparation of all such drawings and
specifications which shall be subject to the reasonable approval of
both Landlord and Tenant. If information submitted by Tenant is not
sufficient for Landlord's purposes, Landlord shall so notify Tenant
within fifteen days after receipt of such information specifying the
required additional information. Within five days thereafter, Tenant
shall provide the additional information to Landlord in a form
sufficient to permit Landlord, its architects and engineers, and
general contractor to proceed with the design and construction of the
Tenant Improvements. Tenant shall approve or disapprove the final
drawings and specifications within the time period provided in
paragraph 9 below. If Tenant disapproves the drawings and
specifications submitted by Landlord, the parties shall meet within
five (5) days of such disapproval and confer to develop drawings and
specifications acceptable to both Landlord and Tenant. In the event
Tenant and Landlord do not resolve all of Tenant's objections within
five (5) days after initially conferring to resolve such objections
Landlord and Tenant shall immediately cause Landlord's architect, or a
representative of Landlord's architect, to meet and confer with
Tenant's architect or construction consultant, who shall apply the
standards set forth in this Agreement to resolve Tenant's objections
and incorporate such resolution into the drawings and specifications
for the Tenant Improvements, which process Landlord and Tenant shall
cause to be completed within five (5) business days after the
conclusion of the five (5) day period referred to in the immediately
preceding sentence. The "standards set forth in this Agreement" to be
applied by Landlord's architect and Tenant's architect or construction
consultant to resolve objections pursuant to this paragraph shall be
(i) any drawings and specifications that have been previously approved
by Landlord and Tenant; (ii) the requirement that at each stage of
development, the drawings and specifications in question are to be the
logical and reasonable evolution and development of drawings and
specifications previously approved by Landlord and Tenant; (iii)
Landlord and Tenant are obligated to act reasonably and in good faith;
and (iv) unless there is an agreement to the contrary, Landlord and
Tenant have agreed that the improvement requirements of each shall be
evaluated in accordance with custom prevailing in Alameda County for
the development of comparable facilities.
c. Upon completion and approval of the drawings and specifications by
Landlord and Tenant (which approved documents are the "Tenant
Improvement Drawings"), Landlord shall obtain and submit to Tenant a
quotation of the cost of the Tenant Improvements from Landlord's
contractor, which quotation, upon approval by Tenant, shall be
referred to as the "Final Cost Estimate." The general contractor to be
used to construct the Tenant Improvements shall be selected jointly by
Landlord and Tenant. Each party shall have the right to disapprove
any general contractor proposed by the other party, provided, however,
neither Tenant nor Landlord shall unreasonably withhold its approval
of any general contractor proposed by the other party. Tenant
acknowledges that the contractor and some or all subcontractors may be
required to be signatories to agreements requiring the use of union
labor. All subcontractors for the Tenant Improvements shall be chosen
by a competitive bid process where (i) Tenant shall have the right to
approve subcontractors who bid on specific parts of the job, (ii) the
subcontract shall be awarded to the lowest responsible bidder unless
Landlord and Tenant otherwise agree, and (iii) Tenant shall have the
right to cause a subcontract to be re-bid if Tenant does not approve
the low bid. Tenant shall have a right and approve all bid documents
prior to submission to subcontractors. The Tenant Improvements
<PAGE>
shall be constructed by the general contractor pursuant to a "cost
plus a fee" construction contract between Landlord and general
contractor.
7. CHANGES TO TENANT IMPROVEMENTS. Neither Landlord nor Tenant shall have the
-------------------------------
right to order extra work or change orders with respect to the construction
of the Tenant Improvements without the prior written consent of the other.
All extra work or change orders requested by either Landlord or Tenant
shall be made in writing, shall specify any added or reduced cost and/or
construction time resulting therefrom, and shall become effective and a
part of the Tenant Improvement Drawings once approved in writing by both
parties. If a change order requested by Tenant results in a net increase in
the cost to Landlord of the constructing the Building Shell, Outside Area
Improvements or the Tenant Improvements. Tenant shall pay the amount of
such increase caused by the change order requested by Tenant, together with
a fee payable to Landlord equal to 15% of such net increase (but only if
and when Tenant's changes have resulted in a net increase in Tenant
Improvement Costs in excess of 5% of initial construction hard costs as set
forth in the Final Cost Estimate) upon completion of the Building Shell,
Outside Area Improvements or Tenant Improvements, as applicable, or. at
Landlord's option, within fifteen (15) days of Landlord's request for
progress billings in the manner described in paragraph 5 above.
3
<PAGE>
8. TENANT'S WORK
-------------
a. Any items or work beyond the scope of the Tenant Improvements for
which Tenant contracts separately (hereinafter "Tenant's Work"), shall
be subject to Landlord's and its contractors policies and schedules
and shall be conducted in such a way as not to unreasonably hinder,
cause any disharmony with or delay work of improvements in the
Building and, Tenant shall be allowed early entry access to the
Premises in accordance with the terms and conditions of Paragraph 3.C.
of the Lease and this Paragraph 8. To this end, Tenant's Work shall
conform with a schedule determined by Landlord's contractor and no
work shall be done by Tenant which would cause Landlord's contractor
to be dependent upon such work for completion of Landlord's
contractor's work. All of Tenant's Work shall be done with union
labor in accordance with the Northern California Master Labor
Agreement. In no event shall work involving the sprinkler, plumbing,
mechanical, electrical power, fighting or life safety systems of the
Building be performed by other than Landlord's approved subcontractors
and all telecommunications and other special electrical equipment
shall be installed under the supervision of Landlord's electrical
subcontractor.
b. Not less than five business days prior to the date Tenant desires to
commence Tenant's Work, it shall give a written request to Landlord
setting forth or accompanied by all of the following:
1. A description and schedule for the work to be performed;
2. The names and addresses of all contractors, subcontractors and
material suppliers who will perform Tenant's Work;
3. The approximate number of individuals, itemized by trade, who
will be present in the Premises;
4. Copies of all drawings and specifications pertaining to that
portion of Tenant's Work;
5. Copies of all licenses and permits which may be required in
connection with the performance of Tenant's Work;
6. Certificates of insurance indicating compliance with the
insurance requirements set forth in the Lease; and
7. At Landlord's request, evidence of the availability of funds
sufficient to pay for all such Tenant's Work.
All of the foregoing shall be subject to Landlord's approval, which
approval shall not unreasonably be withheld.
c. Tenant shall be responsible for any hoisting charges incurred in
connection with Tenant's Work and for any expenses incurred by
Landlord due to hinderance or delay to Landlord's contractors caused
by those performing Tenant's Work or inadequate cleanup by those
performing Tenant's Work.
d. If any supplier, contractor or worker performing Tenant's Work
unreasonably hinders or delays any other work of improvement in the
Building or performs any work which may or does unreasonably impair
the quality, integrity or performance of any portion of the Building,
Landlord may give notice to Tenant. If within one business day after
Tenant's receipt of such notice, such supplier, contractor or worker
does not cure the failure set forth in Landlord's notice to Tenant,
Tenant shall cause such supplier, contractor or
<PAGE>
worker immediately to remove ail of its tools. equipment and materials
and to cease working in the Building. As Additional Rent under the
Lease, Tenant shall reimburse Landlord for any repairs or corrections
of the Improvements or of any portion of the Building or the cost of
any delays caused by or resulting from the actions or omissions of
anyone performing Tenant's Work.
9. PROGRESS SCHEDULE FOR BUILDING SHELL AND TENANT IMPROVEMENTS. Landlord has
-------------------------------------------------------------
previously received Development Plan approval for construction of the
Building from the City of Alameda by means of Alameda Planning Board
Resolution No. 2183, adopted May 29, 1991. Landlord shall use its
reasonable efforts to complete construction of the Building Shell, Outside
Area improvements and Tenant Improvements to accommodate an October 1, 1993
occupancy of the Premises by Tenant. To accomplish this estimated
completion date, Landlord and Tenant shall maintain the following progress
schedule with dates and times for performance for actions as follows,
subject to delays for events beyond the control of either party:
4
<PAGE>
<TABLE>
<CAPTION>
ACTION DATE OR TIME
- ------ ------------
<S> <C>
a. Delivery of Instructions by Tenant to No later than October 1,
Landlord's architects under Paragraph 6 1992
above
b. Approval or disapproval by Tenant of ten days after submission
drawings and specifications after or resubmission
submission or resubmission to Tenant by
Landlord's architect
c. Approval or disapproval of cost quotation ten days after submission
by Tenant after submission or resubmission or resubmission
to Tenant
</TABLE>
10. AVAILABILITY OF LANDLORD'S CONSTRUCTION INFORMATION. Landlord shall
----------------------------------------------------
deliver to Tenant, promptly following Landlord's receipt, all information
relating to construction of the Building and Tenant Improvements,
including, but not limited to, its construction budget, contractor bids,
contracts, cost reports, invoices and applications for payment. Within
sixty (60) days after substantial completion, Landlord shall render to
Tenant a final, detailed accounting of all Tenant Improvement Costs.
11. Completion and Rental Commencement Date. If Landlord shall be delayed in
----------------------------------------
substantially completing the Building Shell or Tenant Improvements as a
result of:
a. Tenant's failure to comply with the schedule set forth in Paragraph 9
above;
b. Tenant's changes to drawings and specifications after approval thereof
pursuant to Paragraph 6(c) above:
c. Tenant's requirement that certain contracts or subcontracts be re-bid;
d. Changes in the Tenant Improvements at Tenant's request after
commencement of construction in the amount of time of delay specified
in the change order approved by Tenant;
e. Hindrance or disruption of the work of Landlord's contractor resulting
from Tenant's Work or any other reason under Tenant's control; or
f. Cessation or termination of work in the Premises due to Tenant's
failure to pay when due all amounts payable by Tenant pursuant to this
Exhibit B;
then the commencement date of Tenant's obligation for payment of rental
shall be advanced by the number of days of such delay. Unless otherwise
noted, all time periods referred to in this Exhibit B shall be computed on
a calendar basis with no allowance for holidays or weekends.
Notwithstanding anything to the contrary contained above, Tenant's
obligation for payment of rental shall not be advanced unless within a
reasonable period of time after learning of the occurrence of any delay
caused by Tenant or its contractors, Landlord notifies Tenant in writing of
the fact that such delay has occurred and the known or anticipated extent
of any such delay.
12. DELIVERY OF POSSESSION, PUNCH LIST, AND ACCEPTANCE AGREEMENT. As soon as
-------------------------------------------------------------
the
<PAGE>
improvements to be constructed by Landlord are Substantially Completed,
Landlord and Tenant shall together inspect the Tenant Improvements,
Building Shell and Outside Area Improvements. After such inspection has
been completed, each party shall sign an acceptance agreement which shall
(i) include a list of all "punch list" items which the patties agree are to
be corrected by Landlord, and (ii) shall state the Rent Commencement Date.
As soon as such inspection has been completed and such acceptance agreement
executed, Landlord shall deliver possession of the Premises to Tenant.
Landlord shall use reasonable efforts to complete and/or repair such "punch
list" items within thirty (30) days after executing the acceptance
agreement. Landlord shall have no obligation to deliver possession of the
Premises to Tenant until such procedures regarding the preparation of a
punch list and the execution of the acceptance agreement have been
completed. Notwithstanding anything contained herein, Tenant's obligation
to pay the Base Monthly Rent and the Additional Rent shall commence as
provided in the Lease, regardless of whether Tenant completes such
inspection or executes such acceptance agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Exhibit B on the respective
dates they executed the Lease.
TENANT: LANDLORD:
ASK COMPUTER SYSTEMS, INC., ALAMEDA REAL ESTATE INVESTMENTS,
a Delaware corporation a California limited partnership
By: /s/ Signature Unreadable By: Vintage Properties - Alameda
Commercial, a California
Its: VP & General Counsel corporation,
Managing General Partner
By: By: /s/ Signature Unreadable
--------------------------- --------------------------
Its: Its: President
--------------------- --------------------
6
<PAGE>
EXHIBIT C
---------
OUTLINE OF PROJECT
PAGE 1 OF 1
[Graphic Site Plan Omitted]
<PAGE>
EXHIBIT D
---------
EXISTING HAZARDOUS MATERIAL CONDITION
ENVIRONMENTAL REPORTS:
----------------------
A. "Preliminary Site Environmental Review, Portions of Marina Village,
Alameda, California" prepared by Woodward Clyde Consultants, March 1987.
B. "Toxic Hazardous Assessment Marina Village Development, Alameda,
California" prepared by Applied Geosciences, Inc., December 1987.
C. "Toxic Hazard Assessment, Phase II Field Investigation, Marina Village
Development, Alameda, California" prepared by Applied Geosciences, Inc.,
February 1, 1988.
Incorporated into the above "Toxic Hazardous Assessment for Select Portions
of the Marina Village Development, Alameda, California - Draft Report"
prepared by Applied Geosciences Inc., February 26, 1988.
D. "Investigation of Field Area South of Powerhouse, Marina Village, April 25,
1988" prepared by Levine-Fricke.
E. "Removal of Petroleum Affected Soils from the Field Area South of the
Powerhouse, Alameda Marina Village, Alameda, California" prepared by
Levine-Fricke, October 5, 1988.
F. "Investigation of Northwest Area, Marina Village, Alameda, California"
prepared by Levine-Fricke, October 6, 1988.
G. "Phase I Environmental Assessment Report, Vintage Properties/Alameda
Commercial, Alameda, California", prepared by Levine-Fricke, February 16,
1989.
H. "Continued Monitoring and Proposed Remedial Measure in Northwest Study Area
dated June 26, 1989", prepared by Levine-Fricke (Primary Report).
Supplemental to Primary Report: "Continued Soil and Ground-Water
Investigation of Parcel 5 and Implementation of a Ground-Water Monitoring
Program and Proposed Remedial Measures in the Northwest Study Area, Marina
Village, Alameda, California" prepared by Levine-Fricke, June 6, 1989.
I. "Results of Soil Investigation, Parcel 2, Northwest Study Area", prepared
by LevineFricke, dated November 27, 1989.
J. "Results of 3rd Round of Ground Water Sampling, Northwest Area" prepared by
Levine- Fricke, April 13, 1990.
PAGE 1 OF 1
<PAGE>
AMENDMENT NO. 1
TO
MARINA VILLAGE OFFICE LEASE
(1101 MARINA VILLAGE PARKWAY)
THIS AMENDMENT NO. 1 is made and entered into as of March 30, 1993, by and
between, The Ask Group, Inc., formerly named ASK COMPUTER SYSTEMS, INC., a
Delaware corporation ("Tenant"), and ALAMEDA REAL ESTATE INVESTMENTS, a
California limited partnership, ("Landlord").
Landlord and Tenant have entered into that certain Marina Village Lease (1080
Marina Village Parkway) dated June 25, 1992 (the "Lease") with respect to
certain premises within 1101 Marina Village Parkway, Alameda, California.
Landlord and Tenant desire to amend the Lease and therefore do hereby agree as
follows:
1. Amendment of Paragraph 3. The "Target Commencement Date" as set forth in
Paragraph 3.B.(v) of the Lease is hereby amended to November 1, 1993.
2. Amendment of Paragraph 4. Paragraph 4.H. is hereby amended to read as
follows:
H. Rental Abatement. Landlord shall credit an amount equal to one days'
Base Monthly Rent for each day that the Commencement Date is delayed
following December 1, 1993 for reasons other than events under
Tenant's control and other than events of force majeure; i.e., those
not under Landlord's control such as fire, weather, acts of God or of
war, strikes, or the unavailability of materials.
3. Amendment of Paragraph 46. Paragraph 46 of the Lease entitled 'Financing
Contingency' has been previously satisfied and therefore, is hereby deleted
in its entirety.
4. Amendment of Exhibit B, Paragraph 9. The second sentence of Paragraph 9 of
Exhibit B to the Lease is hereby amended to read as follows:
Landlord shall use its reasonable efforts to complete construction of the
Building Shell, Outside Area Improvements and Tenant Improvements to
accommodate a November 1, 1993 occupancy of the Premises by Tenant.
Subparagraph 9(a) of Exhibit B referencing the progress schedule is hereby
amended to read as follows:
<TABLE>
<CAPTION>
Action Date or Time
------ ------------
<S> <C>
a. Delivery of Instructions by Tenant No later than February
to Landlord's architects under 1, 1993
Paragraph 6 above.
</TABLE>
5. Ratification. Landlord and Tenant hereby ratify and confirm all of the
-------------
terms of the Lease as modified by paragraphs 1 through 4 above.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first above written.
TENANT: LANDLORD:
<PAGE>
THE ASK GROUP, INC. ALAMEDA REAL ESTATE INVESTMENTS
a Delaware corporation a California limited partnership
By: Vintage Properties-Alameda
Commercial, a California
corporation,
Managing General Partner
By: /s/ Signature Unreadable By: /s/ Joseph E. McVeigh
Joseph E. McVeigh
Its: VP Its: Vice President
<PAGE>
EXHIBIT B
SECOND FLOOR PLAN
MARINA VILLAGE OFFICE BUILDING #4
[GRAPHIC FLOORPLAN OMITTED]
<PAGE>
EXHIBIT B
FIRST FLOOR PLAN
MARINA VILLAGE OFFICE BUILDING #4
[GRAPHIC FLOORPLAN OMITTED]
<PAGE>
EXHIBIT C
IMPROVEMENT AGREEMENT FOR SUBTENANT IMPROVEMENTS
This Exhibit C (the "Subtenant Improvement Agreement") is incorporated
into that certain Sublease dated for reference purposes October 8, 1993 between
The ASK Group, Inc., a Delaware corporation ("Sublandlord"), and Viewstar
Corporation, a California corporation ("Subtenant"). All of the defined terms
as used in the Sublease and Master Lease shall have the same meanings ascribed
to them by the Sublease and Master Lease when used as a defined term herein.
A. Purpose: Pursuant to Exhibit B to the Master Lease (the "Master
------- ---------
Improvement Agreement"), Master Landlord is obligated to construct the Building
Shell, Outside Area Improvements, and Tenant Improvements (as those terms are
defined in the Master Improvement Agreement) in accordance with certain plans
and specifications. The purpose of this Subtenant Improvement Agreement is to
make arrangements for the construction by Master Landlord of Tenant Improvements
in the Subleased Premises pursuant to the Master Improvement Agreement that are
suitable for Subtenant's use in the Subleased Premises and conform to
Subtenant's reasonable requirements and the outline floor plan attached as
Exhibit C-1 (the "Subtenant Improvements").
B. Building Shell and Outside Area Improvements: Sublandlord shall use
--------------------------------------------
reasonable efforts to enforce the obligations of Master Landlord to construct
the Building Shell and the Outside Area Improvements in accordance with
Paragraph 1 of the Master Improvement Agreement.
C. Payment for Subtenant Improvements: Sublandlord and Subtenant agree as
----------------------------------
follows with respect to the construction of Subtenant Improvements:
(1) Sublandlord shall use reasonable efforts to cause Master Landlord
to construct the Subtenant Improvements required by Subtenant in accordance with
plans and specifications approved by Master Landlord, Sublandlord, and Subtenant
as part of the Tenant Improvements to be constructed by Master Landlord pursuant
to the Master Improvement Agreement, including Paragraph 3 thereof.
(2) Sublandlord and Subtenant acknowledge that Paragraph 4 of the
Master Improvement Agreement provides a description of the obligation of Master
Landlord and Sublandlord with respect to the construction of Tenant
Improvements, and that it is the objective
<PAGE>
of Sublandlord and Subtenant to coordinate the design and construction of the
Subtenant Improvements so that such improvements qualify as Tenant Improvements
that may be constructed and financed by Master Landlord pursuant to the Master
Improvement Agreement. Sublandlord and Subtenant acknowledge that the process
of constructing Tenant Improvements has commenced, and that certain Tenant
Improvement Costs have been or will be paid or incurred to do the work described
on Exhibit C-2 and accordingly the Base TI Allowance
-----------
referred to in the Master Improvement Agreement has been reduced by such amount,
and the remainder is referred to herein as the "Remaining Base TI Allowance".
The parties further agree that the amount that shall be available to pay Tenant
Improvement Costs allocable to the Subtenant Improvements to be constructed in
the initial Subleased Premises (excluding the Expansion Area) shall be the sum
of (i) Subtenant's Initial Share of the Remaining TI Base Allowance, and (ii) so
much of the Excess TI Allowance as Subtenant elects to utilize, but not to
exceed an amount equal to Subtenant's Initial Share of the entire Excess TI
Allowance. As used herein, "Subtenant's Initial Share" shall mean the quotient
obtained by dividing (i) the Rentable Area of the Subleased Premises (not
including the Expansion Area), by (ii) the Rentable Area of the Master Premises.
Sublandlord shall use reasonable efforts to cause Master Landlord to pay Tenant
Improvement Costs allocable to the Subtenant Improvements to the extent of the
amount Sublandlord has agreed may be used for that purpose pursuant to this
subparagraph. In addition to the foregoing, Sublandlord agrees to provide from
its own funds Fifty-Six Thousand and No/100 Dollars ($56,000.00) (provided that
such amount shall be reduced to the extent Sublandlord and Subtenant agree that
Subtenant has been able to obtain the benefit of the amounts previously expended
out of the Base TI Allowance for interior architectural fees and reimbursables
from Burns & Nettle, East Bay Blue Print, tenant improvement permit fees, and
for multiple intertie conduits; provided that if Sublandlord and Subtenant
cannot agree on such amount, the amount of benefit shall be determined by Burns
& Nettle, and such determination shall be binding on Sublandlord and Subtenant)
to pay Tenant Improvement Costs related to the Subtenant Improvements to the
extent such costs are not paid by Master Landlord out of Subtenant's Initial
Share of the Remaining Base TI Allowance, and to the extent Sublandlord's
contribution is not utilized for the Subtenant Improvements installed in the
initial Subleased Premises, it may be used to the extent needed to pay for
Subtenant Improvements installed in the Expansion Area.
(3) To the extent the amount that is to be made available pursuant to
Paragraph C(2) hereof is not sufficient to pay costs incurred by Master Landlord
or Sublandlord for the construction of the Subtenant Improvements, then
Subtenant shall be liable to pay all additional amounts needed to pay such costs
to
-2-
<PAGE>
the extent Sublandlord is obligated to pay the same under the Master Improvement
Agreement. The parties acknowledge that in certain circumstances, Sublandlord
is obligated by Paragraph 4(a) of the Master Improvement Agreement to make
construction cost contributions both during the course of construction and upon
completion of any Tenant Improvements. To the extent such obligation of
Sublandlord is based upon costs incurred to construct the Subtenant
Improvements, Subtenant shall make the payment of Sublandlord as and when
Sublandlord is required to make such payment to Master Landlord pursuant to the
Master Improvement Agreement. In any event, if Subtenant becomes liable to pay
costs related to the Subtenant Improvements because such costs are not covered
by the Remaining Base TI Allowance to be made available to pay Tenant
Improvement Costs related to the Subtenant Improvements, then Subtenant shall
pay such amount if it has become due and owing to a third party, or has been
paid and reimbursement is sought by either Master Landlord or Sublandlord,
within ten (10) days after Subtenant receives a request for payment accompanied
by reasonably sufficient evidence demonstrating that such amount is owed.
(4) The Subtenant Improvements shall not include any improvements,
furniture or personal property which Master Landlord would not be obligated to
construct for Sublandlord as part of the Tenant Improvements pursuant to the
Master Improvement Agreement.
(5) Any part of the Excess TI Allowance that is utilized to pay for
the construction of Subtenant Improvements shall be fully amortized, with
interest of ten percent (10%) per annum, over a sixty (60) month amortization
period, and shall be repaid by Subtenant to Sublandlord as Additional Rent in
sixty (60) equal monthly installments commencing on the first date that Base
Monthly Rent is payable and continuing thereafter on the first day of each
succeeding calendar month during the remainder of the initial Sublease Term (but
not the term of the Extension Option, if exercised by Subtenant). The parties
acknowledge that if a portion of the Excess TI Allowance is utilized to pay for
the construction of Subtenant Improvements, that Subtenant shall have no
obligation to pay Additional Rent to Sublandlord or Master Landlord based
thereon pursuant to Paragraph 4(a) of the Master Improvement Agreement, and
Subtenant's obligation to contribute thereto shall be limited to the amount
Subtenant is required to pay pursuant to the immediately preceding sentence.
D. Design of Subtenant Improvements: The parties agree as follows with
--------------------------------
respect to the design of the Subtenant Improvements:
(1) The Subtenant Improvements shall be designed by an architect
selected by Subtenant and approved by Sublandlord and Master Landlord
("Subtenant's Design Architect"). The development
-3-
<PAGE>
of the final working drawings, plans and specifications for the Subtenant
Improvements shall be done by the architectural firm of Burns & Nettle engaged
by Master Landlord.
(2) The design of the Subtenant Improvements shall be developed in
accordance with Paragraph 6 of the Master Improvement Agreement and in
accordance with the schedule of actions set forth in Exhibit C-3 attached
hereto, and in the event of any inconsistency between the Master Improvement
Agreement and Exhibit C-3, the exhibit shall prevail. Where Sublandlord is
obligated to take action with respect to the design of the Subtenant
Improvements by the Master Improvement Agreement, Subtenant shall have the same
obligation to be performed within the same period of time as is required of
Sublandlord; provided, however, that if such obligation is triggered by a notice
or delivery of documents, then Subtenant's obligation shall be triggered when it
receives such notice or delivery of documents. Any disputes concerning the
development of plans and specifications for the Subtenant Improvements shall be
resolved generally in the manner described in Paragraph 6(b) of the Master
Improvement Agreement, with Subtenant having the right to appear in all meetings
between Master Landlord and Sublandlord.
(3) The parties acknowledge that the award of construction contracts
for the Subtenant Improvements is governed by Paragraph 6(c) of the Master
Improvement Agreement. In this regard, Sublandlord shall not take any action
required or permitted of it pursuant to said Paragraph 6(c) without the prior
written approval of Subtenant; provided, however, that if Sublandlord has
requested in writing that Subtenant approve an action, Subtenant shall be deemed
to have approved such action if it does not respond in writing granting or
denying such approval within three (3) business days after receipt of
Sublandlord's request for approval.
(4) The parties acknowledge that change orders affecting the Subtenant
Improvements are governed by Paragraph 7 of the Master Improvement Agreement.
In this regard, no change order affecting the Subtenant Improvements shall be
made without the consent of Subtenant; provided, however, that such consent
shall be deemed to have been given if Subtenant does not respond to a request
for approval within three (3) business days after it has received such written
request. Subtenant shall have the right to order extra work or change orders
with respect to the Subtenant Improvements in compliance with Paragraph 7 of the
Master Improvement Agreement, but subject to the prior approval of Sublandlord
and Master Landlord. If Sublandlord becomes liable to pay any amount on account
of a change order requested by Subtenant pursuant to Paragraph 7 of the Master
Improvement Agreement, Subtenant shall be responsible for the payment of such
amount.
-4-
<PAGE>
E. Subtenant's Work: To the extent Subtenant intends to engage contractors
----------------
or furniture installers to work in the Subleased Premises prior to the
Commencement Date, it may do so only in compliance with Paragraph 8 of the
Master Improvement Agreement and only after first obtaining the prior written
consent of Master Landlord. Any such work undertaken by Subtenant shall be done
in strict compliance with the provisions of Paragraph 8 of the Master
Improvement Agreement, and to the extent Sublandlord becomes obligated to
perform any act or make any payment as a result of Subtenant's work pursuant to
said Paragraph 8, Subtenant shall perform such act or make such payment within
the time period required of Sublandlord.
F. Schedule for Completion: The parties agree as follows with respect to
-----------------------
the schedule for completion of the Subtenant Improvements:
(1) It is the objective of the parties to cause the Subtenant
Improvements to be Substantially Completed by April 1, 1994, and accordingly the
parties shall use reasonable efforts to achieve that objective.
(2) As used herein, the terms "Substantial Completion" and
"Substantially Completed" shall each mean the date when all of the following
have occurred with respect to the Subtenant Improvements in question: (i) Master
Landlord has caused to be substantially completed all work to be performed by
Master Landlord with respect to the construction of the Subtenant Improvements
in question in accordance with the approved plans and specifications therefor;
(ii) there are no incomplete items or patent defects in construction with
respect to the Subtenant Improvements in question which would materially
interfere with Subtenant's ability to use the Subleased Premises for its
intended purpose; (iii) the City of Alameda has issued a temporary Certificate
of Occupancy which permits Subtenant to legally occupy the Subleased Premises
and to commence the operation of its business therein; (iv) possession of the
Subleased Premises has been tendered by Sublandlord to Subtenant; (v) all
utility services are available for use by Subtenant in the Subleased Premises;
and (vi) the Building and Outside Areas have been substantially completed by
Master Landlord and Subtenant has full use thereof to the extent reasonably
necessary for its use of the Subleased Premises.
(3) In the event the Subtenant Improvements are not Substantially
Completed by April 1, 1994, this Sublease shall not be terminated nor shall
Sublandlord be in default if it has otherwise performed its obligations under
the Sublease, but the obligations of the parties under the Sublease shall
continue until such Subtenant Improvements are Substantially Completed, except
as
-5-
<PAGE>
otherwise specifically set forth in the subparagraphs F(4), (5), (6) and (7)
hereof.
(4) Subtenant shall have the option to terminate the Sublease if by
January 15, 1993 either of the following objectives has not been achieved and
such failure has not been caused by Subtenant: (i) all necessary building
permits for the Subtenant Improvements have been obtained; and (ii) construction
of the Subtenant Improvements has been commenced in good faith. In the event of
such termination, neither party shall have any further rights or obligations
under the Sublease.
(5) If the Subtenant Improvements are not Substantially Completed by
April 1, 1994, then Sublandlord shall be liable for all Real Estate Losses and
Consequential Damages incurred by Subtenant as a result of the delay in
completion of such improvements to the extent such delay is so caused by
Sublandlord's default of its obligations under this Sublease and Sublandlord
shall reimburse Subtenant from time to time within ten (10) days following
Subtenant's demand for all such losses and damages.
(6) If the Subtenant Improvements are not Substantially Completed by
April 1, 1994, then to the extent such delay is caused by the act or omission of
Master Landlord (whether or not a default of its obligation under the Master
Lease), including the failure of Master Landlord to promptly commence and
diligently prosecute to completion the design, contracting for, and construction
of the Subtenant Improvements, then Sublandlord shall reimburse Subtenant for
all Real Estate Losses directly resulting therefrom for the period of delay so
caused thereby and Sublandlord shall reimburse Subtenant from time to time
within ten (10) days following Subtenant's demand for all such losses.
(7) If for any reason it becomes reasonably certain that the Subtenant
Improvements cannot be Substantially Completed by October 1, 1994, then at any
time thereafter either Sublandlord or Subtenant may give a notice to the other
of its determination that completion cannot be achieved by that date. If such
notice is given by either party, then Subtenant shall have ten (10) days within
which to elect to either continue the Sublease in effect or terminate the
Sublease, and its failure to make an election shall deem to be an election to
have the Sublease continue in effect. If Subtenant notifies Sublandlord of its
election to terminate the Sublease within such period of time, then the Sublease
shall terminate and Sublandlord and Subtenant shall each be relieved of any
further rights or obligations against the other except for such obligations that
may have accrued pursuant to subparagraphs F(5) or F(6) hereof.
-6-
<PAGE>
(8) As used herein, the term "Real Estate Losses" shall mean the
following losses or damages incurred or paid by Subtenant as a direct result of
Subtenant being unable to take possession of the Subleased Premises by the date
in question: (i) any incremental increase in rent that Subtenant is required to
pay to its existing Landlord for the space it presently occupies for the period
of time it must hold over beyond the expiration of its existing lease on April
1, 1994 for the Delayed Occupancy Period (as defined herein); (ii) the
reasonable costs incurred by Subtenant in obtaining additional temporary space
for the Delayed Occupancy Period to the extent Subtenant is unable to remain in
its existing premises at reasonable cost and to the extent Subtenant needs to
acquire additional temporary space reasonably necessary to its operations
because its existing space is too small to accommodate Subtenant (but not in any
event to exceed 14,000 square feet of space in addition to the amount of space
contained in Subtenant's existing premises); (iii) reasonable moving costs
incurred by Subtenant to relocate all or part of its operation to temporary
facilities; (iv) the cost of installing necessary telephone service, equipment,
and furniture and the rental cost of moveable partitions and other furniture
needed to make temporary space useable by Subtenant (but not the acquisition
cost of equipment or trade fixtures, or the construction cost of leasehold
improvements installed in any new space occupied by Subtenant); (v) reasonable
attorneys' fees incurred by Subtenant directly related to negotiating a hold-
over agreement with Subtenant's existing lessor and negotiating arrangements for
temporary space; (vi) reasonable space planning and design fees incurred by
Subtenant directly related to preparing any temporary space for its use; and
(vii) parking charges paid by Subtenant to the extent charged for parking
associated with new temporary space. As used herein, the term "Delayed
Occupancy Period" shall mean the period commencing April 1, 1994 and continuing
until the first to occur of the following: (i) the Commencement Date of the
Sublease Term; (ii) the termination of the Sublease. Subtenant shall be under an
obligation to use reasonable efforts to mitigate and minimize Real Estate
Losses.
(9) As used herein, the term "Consequential Damages" shall mean all
foreseeable losses and damages incurred by Subtenant and approximately caused by
Sublandlord's default of its obligations under this Sublease resulting in a
delay in Substantial Completion of the Subtenant Improvements, including lost
profits. Subtenant shall be obligated to use reasonable efforts to mitigate and
minimize any consequential damages.
G. Completion and Rental Commencement Date: Sublandlord and Subtenant
---------------------------------------
agree that the date for commencement of Subtenant's obligation to pay Base
Monthly Rent and Additional Rent shall be advanced by the number of days of
delay in Substantial Completion
-7-
<PAGE>
of the Subtenant Improvements caused by any of the following to the extent such
delay causes Substantial Completion to occur after April 1, 1994: (i)
Subtenant's failure to comply with the time periods and schedule for the design
and construction of the Subtenant Improvement set forth in this Subtenant
Improvement Agreement to the extent Subtenant has received the items and
necessary back-up documents to make the determination; (ii) change orders
requested by Subtenant; (iii) Subtenant's requirement that any contract or
subcontract be re-bid; (iv) hindrance or disruption of the work of Master
Landlord's contractor resulting from any work undertaken by Subtenant or for any
other reason under Subtenant's control; (v) cessation or termination of work in
the Subleased Premises due to Subtenant's failure to pay when due any amount
owed by it pursuant to this Subtenant Improvement Agreement; or (vi) a default
by Subtenant of its obligations under this Sublease. Notwithstanding anything
to the contrary contained herein, Subtenant's obligation to pay rent shall not
be advanced unless within a reasonable period of time after learning of the
occurrence of any delay caused by Subtenant or its contractors, Sublandlord
notifies Subtenant in writing of the fact that such delay has occurred and the
known or anticipated extent of any such delay.
H. Availability of Construction Information: The parties acknowledge that
----------------------------------------
Master Landlord is obligated to provide Sublandlord with certain information
relating to the construction of the Tenant Improvements. All such information
obtained by Sublandlord shall be delivered to Subtenant within a reasonable
period of time after Sublandlord's receipt of the same, and if Subtenant
requests Sublandlord information to which Sublandlord is entitled pursuant to
said Paragraph 10 then Sublandlord shall use reasonable efforts to obtain such
information from Master Landlord.
I. Delivery of Possession, Punch List and Acceptance Agreement: As soon
-----------------------------------------------------------
as the Subtenant Improvements are Substantially Completed, Subtenant shall
inspect them with Sublandlord and Master Landlord. After such inspection has
been completed, each party shall sign an acceptance agreement which shall (i)
include a list of all "punch list" items which the parties agree to be corrected
by Master Landlord, and (ii) shall state the date on which the Subtenant
Improvements have been Substantially Completed. Sublandlord shall use reasonable
efforts to cause Master Landlord to perform its obligations pursuant to
Paragraph 12 of the Master Improvement Agreement.
J. Improvement of Expansion Area: The parties acknowledge that Subtenant
-----------------------------
has an option to lease the Expansion Area pursuant to Section 13 of the
Sublease. The following provisions shall govern the obligations of the parties
concerning the construction
-8-
<PAGE>
of Subtenant Improvements in the Expansion Area to prepare such area for
Subtenant's use:
(1) The parties acknowledge that a portion of the Remaining Base TI
Allowance shall be made available for the construction of Subtenant Improvements
in the Expansion Space, which portion shall be equal to the product obtained by
multiplying (i) the Remaining Base TI Allowance, by (ii) the quotient obtained
by dividing the Rentable Area of the Expansion Area by the Rentable Area of the
Master Premises. The parties acknowledge that no portion of the Excess TI
Allowance shall be made available for the construction of Subtenant Improvements
in the Expansion Area. However, it that part of the Remaining Base TI Allowance
that is allocated by Paragraph C(2) hereof for the construction of Subtenant
Improvements in the initial Subleased Premises is not fully utilized, and if
Master Landlord permits, Sublandlord agrees that such remaining amount may be
utilized to pay Tenant Improvement Costs incurred in connection with the
construction of Subtenant Improvements in the Expansion Area.
(2) The parties acknowledge that Sublandlord intends to cause Tenant
Improvements to be constructed by Master Landlord in the Expansion Area prior to
the Commencement Date of the Sublease Term as part of the overall project of
constructing Subtenant Improvements in the initial Subleased Premises, which
improvements to the Expansion Area will include the following: (i) drop ceiling,
(ii) carpet, (iii) main distribution of HVAC and utilities. The process of
designing, contracting for the construction of, and constructing these
improvements in the Expansion Area shall be incorporated into and become a part
of the process of constructing the Subtenant Improvements in the initial
Subleased Area, and accordingly shall be subject to the approval and
participation of both Subtenant and Sublandlord as to all aspects of the work.
The Tenant Improvement Costs fairly allocable to such improvements installed in
the Expansion Area shall be paid from the amount that is available to finance
improvements to the Expansion Area described in Paragraph J(1), and the
remaining amount shall be utilized to pay for Tenant Improvement Costs incurred
for the construction of all remaining Subtenant Improvements to be constructed
in the Expansion Area if and when Subtenant exercises its option to lease the
Expansion Space pursuant to Section 13 of the Sublease. The design, contracting
for, and construction of such improvements shall be part of the process of
constructing the Subtenant Improvements in the initial Subleased Premises as
stated above.
(3) If Subtenant exercises its option to lease the Expansion space
pursuant to Section 13, Sublandlord and Subtenant shall immediately commence the
process of designing, contracting
-9-
<PAGE>
for, and constructing the remaining Subtenant Improvements that must be
installed in the Expansion Space in accordance with the same procedures
applicable to the construction of the Subtenant Improvements in the initial
Subleased Premises. It shall be the objective to achieve Substantial Completion
of the Subtenant Improvements to be constructed in the Expansion Area as soon as
reasonably practicable, and each party shall use reasonable efforts to achieve
that objective. Notwithstanding the foregoing, the parties agree that the
provisions of Paragraphs F(4), (5), (6), and (7) shall not apply to the
construction of Subtenant Improvements in the Expansion Area. The parties agree
that the final plans, specifications and working drawings for the Subtenant
Improvements to be constructed in the Expansion Area shall be completed and
submitted to the City of Alameda for building permit processing within sixty
(60) days after Subtenant has exercised its option to lease the Expansion Area
and if such objective is not achieved then (i) Subtenant's obligation to pay
rent with respect to the Expansion Area will be advanced in accordance with the
provisions of Paragraph G to the extent such objective is not achieved because
of Subtenant's acts or omissions, and (ii) Subtenant shall be entitled to one
day of abatement of Base Monthly Rent applicable to the Expansion Area for each
day that such objective is not achieved as a result of the failure of
Sublandlord or Master Landlord to perform their respective obligations under the
Master Lease.
K. Approvals: Notwithstanding anything to the contrary set forth herein,
---------
Sublandlord shall not grant consents, give approvals
-10-
<PAGE>
or disapprovals, or otherwise exercise any discretion or make any decisions
required or contemplated to be made by Sublandlord under the Master Improvement
Agreement, without the prior written consent of Subtenant, which shall be deemed
given, if Subtenant does not approve or disapprove the matter or decision or
course of action in question in writing within three (3) business days following
Sublandlord's request, accompanied by such additional information an may be
reasonably necessary to enable Sublandlord to properly review the request.
VIEWSTAR CORPORATION, THE ASK GROUP, INC., A Delaware
a California corporation corporation
By: /s/ Stephen E. Recht By: /s/ [signature unreadable]
<PAGE>
EXHIBIT C-1
FIRST FLOOR PLAN
MARINA VILLAGE OFFICE BUILDING #4
[GRAPHIC FLOORPLAN OMITTED]
<PAGE>
EXHIBIT C-1
SECOND FLOOR PLAN
MARINA VILLAGE OFFICE BUILDING #4
[GRAPHIC FLOORPLAN OMITTED]
<PAGE>
Exhibit C-2
The following list of improvements and their related costs have or will
offset the Thirty Dollar ($30.00) per rentable square foot Base Tenant
Improvement.
1. Added paving at Loading/Trash area. $316
2. Deleted transformer enclosure walls and doors. ($870)
3. Added Loading Dock $12,680
4. Added 1 pair storefront doors @ Col. line A/4. $2,100
5. Added 1 ea. storefront door @ Col. line B/1. $1,300
6. Increased elevator size from 2500 lbs to 4500 lbs. $1,200
7. Architectural fees and reimbursables from LPA. $7,697.63
8. LPA - revise roof framing design. $1,660
9. Landscape architectural fees and reimbursables
from KenKay Associates. $3,950
10. Fees for courtyard and planting revisions from
KenKay Associates. $850
ll. Engineering fees from Luk, Milani & Associates. $5,875
12. Interior Architectural fees and reimbursables
from Burns & Nettle (ASK Interior) TBD
13. EBMUD relocation of hydrant at 1101 MVP
resulting from loading dock changes. $6,975
14. Add underslab floor boxes for electrical. $8,143
15. Structural roof changes and add Curbs. $18,000
16. Fire sprinkler main relocation. $1,765
17. Fire sprinkler design $3,200
<PAGE>
Item 12. Interior Architectural fees and reimbursables
from Burns & Nettle (ASK Interior) TBD
East Bay Blue Print $209.68
City of Alameda, Tenant
Improvement Permit Fee $11,000.00
Add multiple intertie conduits $15,748.00
Item 12 was submitted as part of offset itemization on 10/6/93.
<PAGE>
EXHIBIT C-3
Accommodate Occupancy February 1, 1994
(Not later than April 1, 1994)
ACTION DATE OR TIME
------ ------------
a. Delivery of Instructions No later than November 1, 1993
by Subtenant to Sublandlord and (October 22, 1993)
Master Landlord's Architect
(under Paragraph 6 attached)
b. Approval or disapproval by five days after submission or
Subtenant of drawings and resubmission
specifications after submission
to Subtenant by Sublandlord and
Master Landlord's architect.
c. Approval or disapproval of cost five days after submission or
quotation by Subtenant after resubmission
submission or resubmission to
Subtenant.
<PAGE>
Tenant's instructions to Landlord's architects and engineers shall include all
relevant information, including, without limitation, Tenant's budget, special
floor loadings, floor openings, air conditioning, plumbing and electrical loads,
location and size of telephone equipment, location and size of all of the
functional requirements and the nature of desired finishes, casework, millwork,
lighting, and any special acoustic treatments. Tenant and Landlords shall
diligently pursue preparation of all such drawings and specifications which
shall be subject to the reasonable approval of both Landlords and Tenants. If
information submitted by Tenant is not sufficient for Landlord's purposes,
Landlord shall so notify Tenant within five days after receipt of such
information specifying the required additional information. Within five days
thereafter, Tenant shall provide the additional information to Landlord in a
form sufficient to permit Landlord, its architects and engineers, and general
contractor to proceed with the design and construction of the Tenant
Improvements. Tenant shall approve or disapprove the final drawings and
specifications within the time period provided in paragraph 9 below. If Tenant
disapproves the drawings and specifications submitted by Landlord, the parties
shall meet within five (5) days of such disapproval and confer to develop
drawings and specifications acceptable to both Landlord and Tenant. In the event
Tenant and Landlord do not resolve all of Tenant's objections within five
(5)days after initially conferring to resolve such objections, Landlord and
Tenant shall immediately cause Landlord's architect, or a representative of
Landlord's architect, to meet and confer with Tenant's architect or construction
consultant, who shall apply the standards set forth in this Agreement to resolve
Tenant's objections and incorporate such resolution into the drawings and
specifications for the Tenant's Improvements, which process Landlord and Tenant
shall cause to be completed within five (5) business days after the conclusion
of the five (5) day period referred to in the immediately preceding sentence.
The standards set forth in this Agreement to be applied by Landlord's architect
and Tenant's architect or construction consultant to resolve objections pursuant
to this paragraph shall be (i) any drawings and specifications that have been
previously approved by Landlord and Tenant, (ii) the requirement that at each
stage of development, the drawings and specifications in question are to be the
logical and reasonable evolution and development of drawings and specifications
previously approved by Landlord and Tenant, (iii) Landlord and Tenant are
obliged to act reasonably and in good faith, and (iv) unless there is an
agreement to the contrary, Landlord and Tenant have agreed that the improvement
requirements of each shall be evaluated in accordance with custom prevailing in
Alameda County for the development of comparable facilities.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Agreement between Mark W. Perry (the "Executive") and ViewStar
Corporation, a California corporation (the "Company") is entered into as of May
18, 1994.
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept employment with the Company on the terms and conditions set
forth below;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Executive shall be employed as President
---------------------
and Chief Executive Officer of the Company effective May 18, 1994, reporting to
the Board of Directors of the Company (the "Board"), and assuming and
discharging such responsibilities as are mutually agreed upon by the Executive
and the Board commensurate with such office and position. The Executive shall
perform faithfully the executive duties assigned to him to the best of his
ability. After the Executive commences employment with the Company, the Board
shall nominate the Executive to serve as a director of the Company, and the
Executive shall serve in such capacity without additional compensation.
2. Base Salary. In consideration of the Executive's services, the
-----------
Executive shall be paid a minimum base salary at the rate of $180,000 per year
during the employment term, to be paid in installments in accordance with the
Company's standard payroll practices. This base compensation shall be reviewed
annually by the Board on the same basis as the Board shall review the
compensation of other executive officers of the Company and the Board, in
performing its annual review, shall consider changes in relevant cost of living
indices as well as the Company's performance during the preceding year
including, without limitation, the growth in the Company's revenues, operating
income and overall performance according to the Company's operating plan.
3. Bonus. In addition to base salary, the Executive shall participate in
-----
an annual executive incentive bonus program under which the Executive shall be
entitled to earn incentive bonus compensation of up to a specified percentage of
the Executive's base salary, based upon the satisfaction of certain performance
goals. For the current fiscal year, the specified percentage shall be 40% of
the base salary paid to the Executive during such fiscal year; for fiscal year
1995, the specified percentage will increase to 50%. These performance
objectives will be mutually deter mined and reviewed annually by the Board in
consultation with the Executive, and will concern such matters as revenue, pre-
tax profitability and return on shareholders' equity. To the extent the
Executive's employment is terminated pursuant to Section 7(a) hereof, the
Executive shall be entitled to his pro rata share of any bonus to which he would
have been entitled but for such termination. To the extent the Executive's
employment is terminated pursuant to Section 7(b) hereof, the Executive shall be
entitled to the full amount of any bonus to which he would have been entitled,
including during the Continuation Period, but for such termination.
<PAGE>
4. Benefits; Expenses. The Executive shall be permitted, to the extent
------------------
eligible, to participate in any group medical, dental, life insurance and
disability insurance plans, or similar benefit plans of the Company that are
available to other comparable employees. Participation in any such plan shall
be consistent with the Executive's rate of compensation to the extent that
compensation is a determinative factor with respect to coverage under any such
plan.
The Company shall reimburse the Executive for all reasonable business
and travel expenses actually incurred or paid by the Executive in the
performance of his services on behalf of the Company, in accordance with the
Company's expense reimbursement policy as from time to time in effect.
5. Stock Options.
-------------
(a) Option Grants. Effective upon the commencement date of the
-------------
Executive's employment with the Company (the "Grant Date"), the Executive shall
be granted three stock options (the "Options"): (i) an "incentive stock
option," within the meaning of Section 422 of the Internal Revenue Code (the
"ISO"); and (ii) two "nonqualified stock options" (the "First NQSO" and the
"Second NQSO"). The ISO, the First NQSO and the Second NQSO shall all be
granted under the Company's Senior Executive Stock Plan (the "Plan"). The ISO
and the First NQSO shall permit the Executive to purchase up to 650,000 shares
of the Company's Common Stock (the "ISO and First NQSO Option Shares"). The
Second NQSO shall permit the Executive to purchase up to 50,000 shares of the
Company's Common Stock (the "Second NQSO Option Shares"). The Options shall
have ten (10)-year terms, subject to earlier termination as provided in the Plan
and shall have exercise prices equal to the fair market value of the Common
Stock on the Grant Date, as determined by the Board but which option exercise
prices shall be no greater than $1.50 per share. The ISO and First NQSO Option
Shares shall be allocated to the ISO and to the First NQSO so as to maximize the
number of shares covered by the ISO, subject to the limitation on exercisability
imposed on incentive stock options under Section 422(d) of the Internal Revenue
Code.
(b) Vesting.
-------
(i) ISO and First NQSO Options. Subject to Sections 7(b) and
--------------------------
8, the Executive's right to exercise the Options shall vest cumulatively over a
period of fifty (50) months based upon the Executive's continuous employment
with the Company, with 2% of the Option Shares vesting for each month after the
Grant Date.
(ii) Second NQSO Option. Subject to Sections 7(b) and 8, the
------------------
Executive's right to exercise the Second NQSO shall vest 100% upon the
completion of eight years of employment with the Company. In the event of
either an IPO (defined below) or the Company entering into a strategic corporate
relationship involving an equity investment in the Company of not less than $5
million, the Executive's right to exercise the Second NQSO shall
-2-
<PAGE>
accelerate so that, at the time of either of such events, the Second NQSO shall
become vested in the same percentage as the First NQSO and shall vest going
forward from such time at the same rate as the First NQSO.
(iii) Vesting Upon Termination. Upon termination of the
------------------------
Executive's employment with the Company, the Options shall be exercisable (to
the extent then vested) for a period of ninety (90) days after termination
(twelve (12) months in the event the Executive's employment terminates by reason
of the Executive's death or Disability); provided, however, that in the case of
a termination described in Section 7(b), the Options shall continue to vest in
accordance with that Section and shall remain exercisable for a period of ninety
(90) days after the expiration of the Continuation Period (as defined in that
Section), subject to the option term.
6. Early Exercise. The Executive may, at his election, exercise the
--------------
First and Second NQSO as to option shares that are not yet vested under the
vesting schedule described in Sections 5(a) and 5(b) above (the "Unvested
Shares"). The Executive may purchase option shares, including Unvested Shares,
by delivering to the Company a promissory note (the "Promissory Note"), which
shall be a non-interest bearing full-recourse note that is due and payable in
full upon the earliest of (i) five (5) years, (ii) 18 months following an
initial public offering of the Company's Common Stock to the public registered
under Form S-1 (or any successor form) with the Securities and Exchange
commission under the Securities Act of 1933, as amended (an "IPO"), or (iii) in
the event of a Change of Control (as defined herein) of the Company in which the
Executive receives either cash or marketable securities for his Common Stock,
thirty (30) days after such Change of Control, provided that if the securities
received are subject to restrictions on transfer, thirty (30) days after such
restrictions no longer apply.
Unvested Shares shall be subject to the Company's right to repurchase
such Shares at the Executive's original cost upon the Executive's termination of
employment for any reason (the "Repurchase Right"). Subject to applicable laws,
the Repurchase Right shall be mandatory in the event the fair market value of
the Unvested Shares at the time of the Executive's termination of employment (or
expiration of the Continuation Period, whichever is applicable) is less than the
Executive's original cost therefor. The Repurchase Right shall be exercisable
for a period of twelve (12) months, commencing with the Executive's termination
of employment with the Company; provided, however, that in the case of a
termination described in Section 7(b), the twelve (12)-month period shall
commence upon the expiration of the Continuation Period (as described in that
Section). Subject to Section 8 below (regarding a Change of Control of the
Company), the Repurchase Right shall lapse at the rate specified in Sections
5(a) and 5(b) above, as applicable, with respect to option exercisability.
Unvested Shares shall be issued in the Executive's name but shall be placed in
escrow with the Company pending completion of the vesting periods. Vesting of
the Unvested Shares is dependent upon the Executive's continued employment with
the Company, except as otherwise provided in this Agreement.
-3-
<PAGE>
7. Termination.
-----------
(a) Termination for Cause; Voluntary Resignation. In the event that
--------------------------------------------
(i) the Company terminates the Executive's employment for "Cause" (as defined
herein), or (ii) the Executive terminates his employment with the Company
voluntarily, then the Executive shall not receive any compensation or benefits
under this Agreement on account of such termination. The Executive's rights
under the Company's benefit plans upon such a termination shall be determined
under the provisions of those plans. For purposes of this Agreement, termination
for "Cause" shall mean (i) the willful failure by the Executive to substantially
perform his material duties within 10 days after written demand for substantial
improvement in performance is delivered to the Executive by the Board which
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed his duties, (ii) the Executive's
failure (in a material respect) to follow reasonable policies or directives
established by the Board within 10 days after written notice to the Executive by
the Board that the Executive is not following such policies or directives, (iii)
bad faith conduct that is materially detrimental to the Company, or (iv) the
conviction of the Executive of any crime involving the property or business of
the Company.
(b) Involuntary Termination. In the event that the Company
-----------------------
terminates the Executive's employment other than for Cause or Disability
(pursuant to Section 7(d) below), provided the Executive has not violated the
covenant described in Section 9, the Executive shall be entitled to continuation
of base salary, bonus, benefits and stock vesting for a twelve (12)-month period
(the "Continuation Period"). For this purpose, (A) "benefits" shall mean
continued participation in the Company's group medical, dental and life
insurance coverage for the duration of the Continuation Period; and (B) "stock
vesting" shall mean continued option exercisability with respect to Option
Shares and lapse of the Repurchase Right with respect to Unvested Shares at the
rate described in Sections 5 and 6 above.
(c) Death. The Executive's employment shall terminate in the event
-----
of his death. The Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement on account of the Executive's
death. The Executive's rights under the Company's benefit plans in the event of
the Executive's death shall be determined under the provisions of those plans.
(d) Disability. The Company may terminate the Executive's
----------
employment for Disability by giving the Executive thirty (30) days' advance
notice in writing. For all purposes under this Agreement, "Disability" shall
mean that the Executive, at the time notice is given, has been unable to
substantially perform his duties under this Agreement for a period of not less
than six (6) consecutive months as the result of his incapacity due to physical
or mental illness. In the event that the Executive resumes the performance of
substantially all of his duties hereunder before the termination of his
employment under this subsection (d) becomes effective, the notice of
termination shall automatically be deemed to have been revoked. No compensation
or benefits
-4-
<PAGE>
will be paid or provided to the Executive under this Agreement on account of
termination for Disability. The Executive's rights under the Company's benefit
plans shall be determined under Section 5(d) hereof and the provisions of those
plans.
8. Change of Control.
-----------------
(a) Vesting. Upon any Change of Control (as defined herein) of the
-------
Company, the Options and Unvested Shares shall be accelerated to become
immediately exercisable or vested for 50% of the total number of the then
unvested Option Shares or Unvested Shares, respectively; provided, however, that
in the event the Change of Control occurs within three (3) months after the
Executive's commencement of employment with the Company, then the Options and
Unvested Shares shall be accelerated to become immediately exercisable or vested
for 25% of the total number of the then unvested Option Shares or Unvested
Shares. The Options and Unvested Shares whose vesting shall have been
accelerated pursuant to this Section 8(a) shall be those Options and Unvested
Shares which, but for the accelerated vesting, would have last vested.
(b) Definition. For purposes of the foregoing, a "Change of
----------
Control" of the Company shall be deemed to have occurred if (i) the Company
sells or otherwise disposes of all or substantially all of its assets; (ii)
there is a merger or consolidation of the Company with any other corporation or
corporations, provided that the shareholders of the Company, as a group, do not
hold, immediately after such event, at least 50% of the voting power of the
surviving or successor corporation; or (iii) any person or entity, including any
"person" as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), becomes the "beneficial owner" (as
defined in the Exchange Act) of Common Stock of the Company representing 50% or
more of the combined voting power of the voting securities of the Company
(exclusive of persons who are now officers or directors of the Company).
(c) Notwithstanding Section 7(a) hereof, if there shall have
occurred a Change of Control pursuant to which the Company shall have become a
subsidiary or division of another company and if the Executive elects to
terminate his employment following such a Change of Control, the Executive shall
be entitled upon such termination to receive a lump sum payment equal to 6
months base salary. The Executive shall also be entitled to receive his pro rata
share of any bonus to which he would have been entitled but for such
termination.
9. Covenant Not To Solicit.
-----------------------
Beginning with the Executive's termination of employment with the
Company as described in Section 7(b) and for a period of one (1) year
thereafter, the Executive agrees that he will not
(i) solicit, encourage, or take any other action which is
intended to induce any other employee of the Company to terminate his employment
with the Company, or
-5-
<PAGE>
(ii) interfere in any manner with the contractual or employment
relationship with the Company, or
(iii) interfere in any manner with the contractual or employment
relationship between the Company and any such employee of the Company.
The foregoing shall not prohibit the Executive or any entity with
which the Executive may be affiliated from hiring a former employee of the
Company, provided that such hiring results exclusively from such employee's
affirmative response to a general recruitment effort carried out through a
public solicitation or a general solicitation.
10. Proprietary Information Agreement. Upon commencement of the
---------------------------------
Executive's employment, the Executive will sign the Company's standard employee
proprietary information agreement.
11. Successors. The Company shall require any successor or assignee, in
----------
connection with any sale, transfer or other disposition of all or substantially
all of the Company assets or business, whether by purchase, merger,
consolidation or otherwise, expressly to assume and agree to perform the
Company's obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company," as used in this
Agreement, shall mean the Company as defined above and any successor or assignee
to the business and assets which by reason hereof becomes bound by the terms and
provisions of this Agreement.
12. Confidentiality. Except as required by applicable laws, neither party
---------------
shall disclose the contents of this Agreement without first obtaining the prior
written consent of the other party, provided, however, that the Executive may
disclose this Agreement to his attorney, financial planner and tax advisor if
such persons agree to keep the terms hereof confidential.
13. Arbitration. Any claim, dispute or controversy arising out of this
-----------
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in Santa Clara County,
California; provided, however, that this arbitration provision shall not
preclude the Company from seeking injunctive relief from any court having
jurisdiction with respect to any disputes or claims relating to or arising out
of the misuse or misappropriation of the Company's trade secrets or confidential
and proprietary information. All costs and expenses of arbitration or
litigation, including but not limited to attorneys fees and other costs
reasonably incurred by the Executive, shall be paid by the party who shall not
have prevailed in the arbitration all as conclusively determined by the
arbitrators. Judgment may be entered on the award of the arbitration in any
court having jurisdiction.
-6-
<PAGE>
14. Legal and Accounting Fees. The Company will reimburse the Executive
-------------------------
for his reasonable legal expenses in connection with this Agreement in an amount
not to exceed $3,000.
15. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such state.
16. Integration. This Agreement and any written Company plans that are
-----------
referenced herein represent the entire agreement and understanding between the
parties as to the subject matter hereof and supersede all prior or
contemporaneous agreements, whether written or oral. No waiver, alteration, or
modification, if any, of the provisions of this Agreement shall be binding
unless in writing and signed by duly authorized representatives of the parties
hereto.
17. Voluntary Execution; Conflict Waiver. The Executive has received
------------------------------------
independent legal counsel regarding this Agreement, which was drafted jointly by
the Executive's and the Company's counsel. The Executive is signing this
Agreement knowingly and voluntarily. The Company and the Executive acknowledge
that Wilson, Sonsini, Goodrich & Rosati ("WSGR") has acted as counsel to the
Company in negotiating this Agreement and will continue to serve as the
Company's general counsel in the future, acknowledge that each has received full
disclosure of any potential conflict of interest which may result from such
representation, and knowingly and voluntarily waive any such conflict of
interest.
18. Counterparts. This Agreement may be executed in counterparts, which
------------
together will constitute one instrument.
EXECUTIVE VIEWSTAR CORPORATION
/s/ Mark W. Perry By: /s/ F. Gibson Myers, Jr.
- ------------------------- -------------------------
Mark W. Perry
Title: Director
-----------------------
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<PAGE>
Consent of Spouse: I hereby consent to this Agreement for purposes of any
- -----------------
community property interest I may have in the foregoing arrangements. I have
had the opportunity to seek independent counsel with regard to this consent and
knowingly and voluntarily waive the right to such counsel.
- -------------------------
Signature of Spouse
- -------------------------
Printed Name of Spouse
- -------------------------
Date Signed
-8-
<PAGE>
September 25, 1995
Mr. Mark Perry
2606 Jackson Street
San Francisco, CA 94115
Re: Amendment to Employment Agreement
Dear Mark:
On behalf of the Board of Directors of ViewStar Corporation
("Corporation"), this letter confirms the following amendments to and
clarifications of your existing Employment Agreement dated May 18, 1994, which
amendments and clarifications were mutual agreed to and approved by the Board on
August 25, 1995.
1. As of July 26, 1995, ("Effective Date") your assignment as President
and Chief Executive Officer of the Company has been terminated and you have been
appointed simultaneously Chairman of the Board.
2. Pursuant to (S)7(b) of your Existing Agreement, you are entitled to
continuation of base salary, bonus, benefits and stock vesting for 12 months
from July 26, 1995 ("Continuation Period"), provided you do not violate the non-
solicitation covenant contained in (S)9 of the Existing Agreement. We have
agreed to modify these provisions in the following manner:
(a) Your bonus entitlement pursuant to (S)7(b) of your Existing
Agreement is determined to be $50,000, payable over a ten-month period at the
rate of $5,000 per month, beginning October 1, 1995.
(b) You have agreed that, for the benefit of the Corporation, and
in the event that the Corporation has not entered into a definitive agreement by
October 15, 1995 to sell itself and/or all its assets to a third party, you will
defer the remainder of the base salary (but not bonus) which you are otherwise
entitled to receive between October 16, 1995 and July 25, 1996 until the earlier
of any one of the following: (i) the Corporation is sold; or (ii) the
Corporation enters into a definitive agreement to be sold or for a transaction
resulting in an equity investment in the Corporation of at least $5 million; or
(iii) the Corporation has achieved positive net profit from operations for two
consecutive quarters. When and if either (i) or (ii) or (iii) occurs, then the
Corporation shall resume the payment on a bi-monthly basis of the base salary
which has been deferred pursuant to this Letter Agreement until the full amount
of such deferred salary has been paid.
-9-
<PAGE>
(c) In the event you remain as a director of the Corporation beyond
the termination of the Continuation Period, the corporation may, at its option,
extend the period for your stock vesting beyond the Continuation Period so long
as you continue to serve as a director.
3. In order to clarify the intent of your existing Employment Agreement,
and not as any modification, (S)8(a) of your Existing Agreement is hereby
clarified in its entirety to read as follows:
"(a) Vesting. Upon any Change of Control (as defined herein) of the
-------
Company occurring more than three months after your employment commenced
and occurring within the Continuation Period, 50% of any Options and/or
Shares which remain unvested as of the effective date of the Change of
Control shall accelerate to become immediately exercisable (if Options) or
immediately vested (if Shares). Moreover, the number of shares and options
remaining unvested immediately following the Change of Control shall
continue to vest at the rate of 2% per month (calculated on the original
amount of the grant) for so long as you continue to provide services as a
consultant or employee, which services shall be at the option of the
acquiror following such Change of Control."
This is a clarification and not a modification of (S)8(a) of your Existing
Agreement.
4. We have asked for your active assistance on behalf of the Company
regarding several potential strategic alliances. We fully recognize that your
assistance in this regard is voluntary and not required under the terms of your
existing Employment Agreement. We also consider your active assistance critical
to achieving a transaction. In recognition thereof, and as compensation for
such additional services, we have agreed to pay the following: (a) your
reasonable expenses incurred during the Continuation Period in providing such
services in connection with the sale of the Company, payable promptly and
reasonably upon approved invoicing; plus (b) a fee of $200,000 in the event
that, during the Continuation Period, the Company is either sold or enters the
Continuation Period, the Company is either sold or enters into a definitive
agreement to be sold which transaction yields to the Company proceeds in an
amount greater than $10 million. The fee is payable in full upon closing of the
transaction.
5. For your active assistance regarding several potential strategic
alliances and your continuation as the Company's Chairman and/or to provide
additional assistance as mutually agreed regarding other matters and activities,
the Company agrees to pay you at the rate of $1,000 per day plus reasonable
expenses for such services, with no minimum commitment, payable promptly and
reasonably upon approved invoicing.
6. With respect to the services to be provided pursuant to (S)5 above,
you have agreed to provide up to five (5) days per month between the Effective
Date and December 31, 1995 for such services in the aggregate, and thereafter
for the remainder of the Continuation Period to provide up to two (2) days per
month for such services in the aggregate. There is no minimum commitment
regarding providing any such services.
-10-
<PAGE>
7. You have agreed to execute, simultaneously with execution of this
Letter Amendment, the release attached as Exhibit A.
-11-
<PAGE>
Mark, we are extremely pleased that you have agreed to continue to provide
services to the Company on this basis. Please indicate your agreement with
these amendments and clarifications by signing in the space provided below.
Except as amended or clarified herein, the remaining terms of the existing
Employment Agreement between you and the Company dated May 18, 1994 remain in
full force and effect.
Very truly yours,
/s/ F. Gibson Myers
--------------------------------------------
F. Gibson Myers, Jr.
Chairman, Compensation Committee
Member, Board of Directors
Agreed to and accepted this 25th day of September, 1995.
9/25/95 /s/ Mark W. Perry
- ------------------------ --------------------------------------------
Date Mark W. Perry
cc: Kamran Kheirolomoom
-12-
<PAGE>
EXHIBIT 10.9
May 31, 1994
Gayle Crowell
25205 Palomares Road
Castro Valley, CA 95232
Dear Gayle:
We are very pleased to extend you an offer to join ViewStar Corporation in
the position of Senior Vice President and General Manager, Worldwide Field
Operations, reporting to me. Your start date will be June 6, 1994. At your
request in order to take your accrued vacation you will be granted an unpaid
leave of absence until your first paid day on July 5, 1994. Should your current
employer not provide payment of all or a portion of your accrued vacation then
we will be willing to start you on our payroll prior to July 5th, to cover the
portion of accrued vacation unavailable to you.
Your base salary will be $12,500 per month (which equals to $150,000,
annualized) with equal installments paid on the 15th and the last day of every
month. You are eligible for incentive compensation per the attached
compensation plan. We will guarantee $69,000 of this incentive compensation in
the form of a non-recoverable draw to create a total compensation of $225,000
per year, through December 31, 1995.
In the event that your employment is terminated prior to January 1, 1996
(other than for voluntary resignation, cause, death or disability) then ViewStar
will provide twelve months of pay continuance (paid twice per month at the rate
of $225,000 per year) and twelve months of stock vesting. This twelve month
compensation continuance is effective from the date of termination. Eligibility
for compensation continuance will not extend beyond January 1, 1996, unless your
termination results from a merger or acquisition as discussed in the next
paragraph.
In the event that a merger or acquisition of the company results in either
your termination of employment (as defined above) or a significant reduction in
responsibilities, then ViewStar will provide twelve months of pay continuance
(paid twice per month at the rate of $225,000 per year) and twelve months of
stock vesting. There is no time limitation on this provision. Eligibility
commences from the date of any job impact.
Your benefits will include comprehensive medical, dental and vision
coverage as well as life insurance and long-term disability (a Benefits Summary
is enclosed) which will become effective on your date of hire. We will also
provide you additional life insurance in order to provide total coverage of at
least $300,000.
<PAGE>
The company will also grant you, subject to Board of Directors' approval at
the next Board meeting (scheduled for June 15, 1994), an option to purchase
100,000 shares of stock, per the company's stock option plan, subject to
compliance with federal and state securities laws. This option consists of
common stock at fair market value with an effective 50 month vesting period. The
actual price of the option will be set at the Board meeting following your
employment with ViewStar. After the initial probationary period of six months,
your options will vest at a rate of 2% per month, retroactively to your first
full month of employment. Continued employment is a condition to vesting (except
in the case of a merger or acquisition of the company as referenced above).
The Immigration Reform Act of 1986 requires employers to verify the
citizenship and legal right to work of all new employees within three business
days of the time of hire. To assist us in complying with this requirement, you
will need to complete Part 1 of the enclosed Employee Eligibility Verification
Form (I-9), dating it with the date of your first day at work. You will also
need to be prepared to supply to Human Resources any documents needed to satisfy
the requirements of Part 2 of the I-9 form; either one from list A, OR one from
list B and one from list C. The documents need to be originals, not facsimiles,
and need only meet the minimum requirements.
As a further condition of employment, we require that you read, sign and
return the enclosed Proprietary Information/Employment Agreement and ViewStar's
application form. We have also included a W-4 form (required for payroll
processing) and a direct deposit form (participation is optional) which must be
completed and returned to Human Resources on your first day of employment.
Please do not hesitate to call if you have any additional questions.
Sincerely, Accepted:
/s/ Mark Perry /s/ Gayle Crowell 6/1/94
Mark Perry ------------------------------------
President & CEO Name Date
Enclosures
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<PAGE>
EXHIBIT 10.10
March 10, 1995
Mr. Shirish S. Hardikar
30 Merced Avenue
San Francisco, California 94127
Dear Shirish:
We are very pleased to extend you an offer to join ViewStar Corporation in
the position of Vice President Marketing, reporting to me. As we discussed, you
are free to start with us anytime during the week beginning March 13, 1995, in
order to manage your departure appropriately. Also, I understand that your
availability with us the first week or so may need to be part-time in order for
you to have the flexibility to manage the transition.
Your base salary will be $13,750 per month ($165,000, annualized) with
equal installments paid on the 15th and the last day of every month. You are
eligible for incentive compensation per the attached compensation plan. In
addition, you will be included in the 1995 Management Incentive Plan with a
minimum guarantee of 10% ($16,500). As we discussed, ViewStar will give you a
bonus of $10,000 on your first day of employment to offset the bonus you are
foregoing by joining us now. Your benefits will include comprehensive medical,
dental and vision coverage as well as life insurance and long-term disability (a
Benefits Summary is enclosed), which will become effective on your date of hire.
In the event that a merger or acquisition of the company results in either
your termination of employment (other than for voluntary resignation, cause,
death or disability) or a significant reduction in responsibilities, then
ViewStar will provide twelve months of pay continuance (paid twice per month at
the rate of $165,000 per year) and benefit programs continuance, as well as
twelve months of stock vesting. There is no time limitation on this provision.
Eligibility commences from the date of any job impact. This agreement will also
be considered binding on any successor corporation.
In the event it is determined by the Board of Directors, upon receipt of a
written opinion of the Company's independent public accountants, that the
enforcement of the stock vesting above would preclude accounting for any
proposed business combination of the Company involving a Change of Control as a
pooling of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then the Company
will provide alternate reasonable compensation of equal value to the stock
vesting.
The Immigration Reform Act of 1986 requires employers to verify the
citizenship and legal right to work of all new employees within three business
days of the time of hire. To assist us in
<PAGE>
complying with this requirement, you will need to complete Part 1 of the
enclosed Employee Eligibility Verification Form (I-9), dating it with the date
of your first day at work. You will also need to be prepared to supply to Human
Resources any documents needed to satisfy the requirements of Part 2 of the I-9
form: either one from list A, OR one from list B and one from list C. The
documents need to be originals, not facsimiles, and need only meet the minimum
requirements.
As a further condition of employment, we require that you read, sign and
return the enclosed Proprietary Information/Employment Agreement and ViewStar's
application form. We have also included a W-4 form (required for payroll
processing) and a direct deposit form (participation is optional) which must be
completed and returned to Human Resources on your first day of employment.
Also, as we discussed, I understand that you will take a two-week vacation in
July/August 1995 time period.
Please do not hesitate to call if you have any additional questions.
Sincerely, Accepted:
/s/ Mark Perry
/s/ Shirish S. Hardikar 3/13/95
Mark Perry ---------------------------------------
President & CEO Name Date
Enclosures
-2-
<PAGE>
EXHIBIT 10.11
SECURITY AGREEMENT
This Security Agreement is made as of October 30, 1995, between ViewStar
----------------
Corporation, a California corporation ("Pledgee") and Stephen E. Recht
----------------
("Pledgor").
Recitals
--------
Pledgor has purchased Seventy-four Thousand (74,000) shares of Pledgee's
Common Stock (the "Shares") at a price of Sixty Cents ($.60) per share, for a
total purchase price of Forty-four Thousand Four Hundred Dollars ($44,400)
pursuant to a promissory note dated as of the date of this Agreement (the
"Note").
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Agreement, Pledgor, pursuant to
the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by Certificate Number
_____, duly endorsed in blank or with an executed stock power or powers, and
herewith delivers said certificate to Wilson Sonsini Goodrich & Rosati ("WSGR"),
as the holder of the Securities pledged hereunder ("Pledgeholder"), who shall
hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment or
assignments for use in transferring all or a portion of the Shares to Pledgee
if, as and when required pursuant to this Security Agreement) shall be held by
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Agreement, and Pledgeholder shall not encumber or dispose of such Shares except
in accordance with the provisions of this Security Agreement.
2. Pledgor's Representation and Covenants. To induce Pledgee to enter
--------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, and interest thereon, at the time and in the manner
provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens (other than restrictions on transfer imposed by applicable
securities laws), except for the pledge of the Shares hereunder as security for
payment of the Note, and Pledgor will not further encumber the Shares without
the prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock
------------------
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations
<PAGE>
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may by
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, Subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be under the
terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and
-------
of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in this
Security Agreement for a period of 10 days after written notice thereof from
Pledgee.
In the case of an event of default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
-2-
<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledge.
9. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceedings is instituted by or against it, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
10. Pledgeholder Liability.
----------------------
(a) Pledgeholder shall not be liable to any party for any of its
acts, or omissions to act, as Pledgeholder unless Pledgeholder is proved to have
acted in bad faith. Any act done or omitted pursuant to the advice of legal
counsel, other than an act or omission involving gross or willful negligence,
shall be deemed to be done or omitted in good faith.
(b) Pledgeholder shall be entitled to employ such legal counsel and
other experts as Pledgeholder may deem necessary properly to advise Pledgeholder
in connection with its obligations hereunder, and Pledgeholder may rely upon the
advice of such counsel. Such counsel's reasonable fees and costs shall be borne
50% by Pledger and 50% by Pledgee.
(c) Should any dispute arise with respect to the delivery and/or
ownership or right of possession of the securities held by Pledgeholder
hereunder, Pledgeholder is authorized and directed to retain in Pledgeholder's
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 an arbitrator or of
a court of competent jurisdiction after the time for appeal has expired and no
appeal has been perfected, but Pledgeholder shall be under no duty whatsoever to
institute or defend any such proceedings.
(d) Pledgee and Pledgor acknowledge that to the extent Pledgeholder
serves under this Agreement, it is not acting as counsel to Pledgee. Pledgee
hereby waives any potential conflict of interest which may apply through
Pledgeholder's performance of its duties under this Agreement. Pledgor hereby
consents to WSGR serving as counsel to Pledgee in any manner relating to the
Note of this Agreement.
11. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the unenforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision of provisions herein
contained unenforceable or invalid.
12. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
-3-
<PAGE>
13. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of California.
"PLEDGOR" By: /s/ Stephen E. Recht
-----------------------------
Stephen E. Recht
Address: 33 Monticello Avenue
Piedmont, CA 94611
"PLEDGEE" VIEWSTAR CORPORATION,
a California corporation
By: /s/ Robert I. Pender, Jr.
-----------------------------
Robert I. Pender, Jr.
Chief Financial Officer
-4-
<PAGE>
FULL RECOURSE PROMISSORY NOTE
OCTOBER 30, 1995
$44,400
- -------
For value received, the undersigned (the "Debtor") promises to pay to
ViewStar corporation, a California corporation (the "Company"), or order, at its
principal office, the principal sum of $44,400 with interest at the rate of 0%
------- -
per year. Said principal shall be due on the earlier of (i) the third
anniversary of the date on which this Note is initially executed, (ii) the date
18 months after the date on which the Company closes an initial public offering
of its securities pursuant to a registration statement declared effective by the
Securities and Exchange Commission, (iii) the date 18 months after the ate on
which the Company closes a merger or a sale of all or substantially all of its
assets, or (iv) in the case where the Debtor acquires securities which are or
subsequently become publicly traded by means of a transaction described in (ii)
or (iii) above, the date 30 days after the Debtor sells or otherwise disposes of
such securities.
This Note is secured by a pledge of the Company's Common Stock un der the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
The holder of this Note shall have full recourse against the undersigned
personally for failure to pay the Note as and when due.
The principal is payable n lawful money of the United State of America.
The privilege is reserved to prepay any portion of the Note at any time.
Should suit be commenced to collect this Note or any portion thereof, such
sum as the court may deem reasonable shall be added hereto as attorneys' fees.
The maker waives presentment of payment, protest, notice of protest and notice
of non-payment of this Note. This Note shall be governed by the laws of the
State of California as they apply to contracts entered into and wholly to be
performed within such State.
/s/ Stephen E. Recht
----------------------------
Stephen E. Recht
The undersigned, the spouse of the person executing this Note, hereby
consents to the term of this Note and the related Security Agreement for all
purposes, including but not limited to any community property interest which the
undersigned may have in the shares of Common Stock pledged pursuant to the
Security Agreement.
/s/ Corlyne Recht
----------------------------
Corlyne Recht
<PAGE>
EXHIBIT 10.12
SEPARATION AGREEMENT AND MUTUAL RELEASE
This Separation Agreement and Mutual Release ("Agreement") is made by and
between ViewStar Corporation (the "Company") and Stephen E. Recht ("Employee").
In consideration of the mutual promises made herein, the Company and
Employee (collectively referred to as "the Parties") hereby agree as follows:
1. Severance Pay. The Company will pay Employee Twenty-five Thousand
-------------
Dollars ($25,000.00) as severance pay, subject to normal withholding. This
payment will be deferred until the closing of an initial public offering of
ViewStar securities or a sale of all or substantially all of ViewStar's assets,
or a merger of ViewStar with or into another corporation, if as a result of the
transaction ViewStar's shareholders before the transaction own less than fifty
percent(50%) of the voting securities of the successor entity.
2. Exercise of Stock Options. The Company acknowledges that on October
-------------------------
31, 1995, Employee exercised options to purchase Seventy-four Thousand (74,000)
shares of ViewStar Common Stock. Employee's exercise was through delivery to
the Company of a full recourse promissory note in the amount of Forty-four
Thousand Four Hundred Dollars ($44,400.00), a copy of which is attached hereto
as Exhibit A. This exercise was within thirty (30) days after Employee's
employment terminated.
3. Legal Counsel. Employee has received independent counsel and tax
-------------
advice concerning the consequences of the foregoing actions.
4. Resignation. Employee agreed to resign from his employment with the
-----------
Company effective September 8, 1995, and continued as a consultant through
September 30, 1995.
5. Consideration. The Company agreed to pay Employee the sum of
-------------
Seventeen Thousand Two Hundred Fifty-one and 22/100 Dollars ($17,251.22).
6. Benefits. The Company shall pay for continuation of Employee's
--------
current benefits coverage, including life insurance, medical/dental, and LTD,
through September 30, 1995. Beginning November 1, 1995, and on an as-needed
basis up to a period of six months, the Company will provide medical only
coverage under the provisions of COBRA in the event that Employee is unable to
obtain full health coverage with Employee's new employer. The Company will be
reimbursed for COBRA coverage after April 30, 1996.
Stock options shall continue vesting until September 30, 1995.
7. Confidential Information. Employee shall continue to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the
<PAGE>
terms and conditions of the Proprietary Information/Employment Agreement between
Employee and the Company, attached hereto as Exhibit B and Exhibit C.
8. Non-solicitation. Employee agrees not to hire or attempt, directly or
----------------
indirectly, to recruit any ViewStar employees for a period of six (6) months
after Employee's resignation form his employment with the Company.
9. Payment. Employee acknowledges that he has been paid and is in
-------
receipt of Seventeen Thousand Two Hundred Fifty-one and 22/100 Dollars
($17,251.22) as of October 8, 1995, which represents all compensation due
Employee, including but not limited to, salary, wages, accrued vacation,
compensation, commissions, severance and any and all other benefits due to
Employee. The sum consisted of:
6 days notice 9/1/95 to 9/8/95 @ $557.69/day $3,346.14
Bonus based on 10% of 7/1/95 to 9/8/95 wages $2,751.28
10 Days Vacation @ $557.69/day $5,576.90
10 Days Pay for Projects @ $557.69/day $5,576.90
---------
$ 17,251.22
10. Release of Claims. Employee agrees that the foregoing consideration
-----------------
represents settlement in full of all outstanding obligations owed to Employee by
the Company. Employee, on behalf of himself, his heirs, executors, agents,
administrators and assigns, hereby fully and forever releases the Company and
its officers, directors, employees, investors, shareholders, predecessor and
successor corporations, agents and assigns from, and agrees not to sue
concerning, any claim, duty, obligation, or cause of action relating to any
matters of any kind, whether presently known or unknown, suspected or
unsuspected, that he may possess arising from any omissions, acts, or facts that
have occurred up until and including the Effective Date of this Agreement (as
defined in Paragraph 16 below), including without limitations:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to or arising from Employee's right
to purchase or actual purchase of shares of stock of the Company as of September
30, 1995;
(c) any and all claims for wrongful discharge of employment; breach
of contract, both express and implied; breach of a covenant of good faith and
fair dealings, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including but not limited to, Title VII of the Civil Rights
Act of 1964, the Americans with
-2-
<PAGE>
Disabilities Act of 1991, the Age discrimination in Employment Act of 1967, the
Americans with Disabilities Act of 1990, the Fair Labor Standards Act, and the
California Fair Employment and Housing Act; and
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination.
The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release as
to the matters released. This release does not extend to any obligations
incurred under this Agreement.
11. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges
---------------------------------------------
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights that may arise under ADEA after
the Effective Date of this Agreement. Employee acknowledges that the
consideration given for this waiver and release is in addition to anything of
value to which Employee was already entitled. Employee further acknowledges
that he has been advised by this writing that:
(a) he should consult with an attorney prior to executing this
Agreement;
(b) he has twenty-one (21) days within which to consider this
Agreement;
(c) he has at least seven (7) days following the execution of this
Agreement by the Parties to revoke this Agreement; and
(d) this Agreement shall not be effective until the revocation period
has expired.
12. Civil Code Section 1542. The Parties represent that they are not
-----------------------
aware of any claim by either of them other than the claims that are released by
this Agreement. Employee and the Company acknowledge that they have ben advised
by legal counsel and are familiar with the provisions of California Civil Code
Section 1542, which provides as follows;
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
13. Entire Agreement. This Agreement represents the entire agreement and
----------------
understanding between the Company and Employee concerning Employee's separation
from the
-3-
<PAGE>
Company, and supersedes and replaces any and all prior agreements and
understandings concerning Employee's relationship with the Company and his
compensation by the Company.
14. No Oral Modification. This Agreement may only be amended in writing
--------------------
signed by the Employee and the President of the Company.
15. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California.
16. Effective Date. This Agreement is effective seven (7) days after it
--------------
has been signed by both Parties.
17. Voluntary Execution of Agreement. This Agreement is executed
--------------------------------
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) they have read this Agreement;
(b) they have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) they understand the terms and consequences of this Agreement and
of the releases it contains; and
(d) they are fully aware of the legal and binding effect of this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
VIEWSTAR CORPORATION
Dated: 10/31/95 By: /s/ Robert I. Pender, Jr.
---------------------------- ----------------------------
Its: CFO, VP Finance
----------------------------
STEPHEN E. RECHT, an individual
-4-
<PAGE>
Dated: 10/30/95 /s/ Stephen E. Recht
---------------------------- ----------------------------
-5-
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT BETWEEN
KAMRAN KHEIROLOMOOM AND VIEWSTAR CORPORATION
(Revised July 2, 1996)
This Agreement is entered into between Kamran Kheirolomoom ("Executive")
and Viewstar Corporation ("Company") and is effective as of July 2, 1996
(the "Effective Date"). This Agreement supersedes any and all prior agreements
relating to Executive's employment with the Company except as specifically
provided or incorporated herein.
RECITALS
WHEREAS Executive has been continuously employed by Company since its
founding in 1986, serving previously as President and, from May, 1994, through
July, 1995, as Chairman of the Board of Directors, and returning as President
and Chief Executive Officer at the Board of Directors' request in July, 1995;
WHEREAS Company's Board of Directors (the "Board") desires Executive to
remain actively employed by the Company; and
WHEREAS Executive desires to remain so employed under the terms and
conditions set forth below;
NOW, THEREFORE, the parties mutually agree as follows:
1. Employment. For so long as this Agreement remains in effect (the
----------
"Employment Term"), Executive shall be employed by the Company on a full-time
basis, serving as its President and Chief Executive Officer and reporting to the
Board of Directors. During the Employment Term, the Company shall use
reasonable efforts to cause Executive's continued election to the Board, and he
shall serve as a Director without additional compensation.
2. Salary and Operating Bonus.
--------------------------
(a) General Rule. During the Employment Term, Executive shall be
------------
paid an annual salary (the "Base Salary") of $180,000 per year beginning April
1, 1996, and shall be eligible to receive an operating incentive bonus (the
"Bonus") of up to 40% of his then current base salary based on achievement of
Company performance goals as set forth in the Company's Management Incentive
Plan (the "Plan").
(b) Base Salary. The Board shall review Executive's base salary at
-----------
least annually on the same basis as the Board shall review compensation of other
executive officers. In its review, the Board shall consider changes in relevant
cost of living indices and the Company's performance, including growth in
revenue, operating income and overall performance according to the Company's
Plan.
<PAGE>
(c) Bonus. The performance goals set forth in the Plan shall be
-----
reviewed annually or more frequently, as appropriate, by the Board in
consultation with Executive. Such review shall take into account such matters as
Company revenue, pre-tax profitability and return on shareholders' equity. The
above notwithstanding, until the end of six months following the initial public
offerieng of the Common Stock of the Company that is registered with the
Securities and Exchange Commission, half of the Bonus amount (i.e., 20% of Base
----
Salary) shall be paid twice-monthly pursuant to the Company's regular payroll
practices, regardless of actual Company performance. The remainder of the Bonus
shall be determined on the basis of actual Company performance compared to the
Plan and shall be paid according to Company practice with respect to payment of
executive bonuses.
3. Benefits; Expenses. During the Employment Term, Executive will
------------------
continue to participate in any group medical, dental, life insurance and
disability insurance plans, or similar benefit plans of the Company to the
extent eligible and that are available to comparable employees. The Company
will reimburse Executive for all reasonable business and travel expenses
actually incurred and paid by Executive in the performance of his services in
accordance with the Company's expense reimbursement policies in effect at the
time.
4. Special Bonus. The Company shall pay the Executive a bonus (the
-------------
"Special Bonus") of $60,000 on each of January 1, 1997; January 1, 1998; and
January 1, 1999. The parties agree that the Special Bonus, as set forth above,
shall be full payment of all severance benefits the Executive is entitled to
receive, as of the Effective Date, pursuant to Section 7(b) of the employment
agreement entered into by the Executive and the Company on May 20, 1994 (the
"1994 Employment Agreement"), which agreement terminated effective July 26,
1995. The above notwithstanding, in the event that the Executive voluntarily
resigns as President and Chief Executive Officer of the Company, and as a member
of the Board, no installments of the Special Bonus shall thereafter become
payable.
5. Loan. As of the Effective Date, the Company shall lend the Executive
----
the sum of $153,000. Such loan (the "Loan") shall be full-recourse and shall
bear interest at the minimum rate necessary to avoid the imputation of interest.
The Loan and interest shall become due and payable in three equal installments
on each of January 15, 1997; January 15, 1998; and January 15, 1999. In the
event of Executive's voluntary resignation of both his employment with the
Company and his membership on the Board, the Loan and interest shall immediately
become due and payable.
6. Existing Stock Option Grants.
----------------------------
(a) Repricing. All options to purchase Common Stock of the Company
---------
held by Executive as of the Effective Date (the "Options") shall be "repriced"
so that the per share exercise price of the such Options shall be $ .10.
(b) Vesting. Subject to Section 8 below, the Options shall continue
-------
to vest during the Employment Term and during any subsequent service as a
Director or consultant to the
-2-
<PAGE>
Company, provided that the Executive observes provisions for non-solicitation of
employees of the Company set forth in Section 9 of this Agreement.
(c) Exercise Price Loan. As previously provided under Section 11 of
-------------------
the Executive's employment agreement dated as of May 20, 1994 ("1994 Employment
Agreement"), the Company shall lend Executive the exercise price of the Options
at the time Executive exercises the Options. Such loan (the "Exercise Price
Loan") shall be recourse and shall be secured by the shares purchased. The loan
shall bear interest at the minimum rate necessary to avoid imputation of
interest to the Company. The loan shall be due and payable in full on the
earlier of (a) three years from the date the loan is made or (b) 18 months after
the date the Company completes an initial public offering of the Common Stock of
the Company that is registered with the Securities and Exchange Commission. A
portion of the principal amount of the loan shall be due and payable on the date
of the sale of any portion of the stock securing the loan. The portion of the
loan which becomes due upon each such sale shall equal the initial principal
amount multiplied by (i) the number of shares being sold divided by (ii) the
number of shares which initially secure the loan.
7. Cancellation of 1993 Note. As of the Effective Date, the Company
-------------------------
shall forgive Executive's promissory note to the Company for $59,000, executed
December 8, 1993 (the "1993 Note"), together with interest accrued upon such
1993 Note up to the Effective Date. In addition, at such time as any tax
liability of the Executive becomes due as a result of such forgiveness of the
1993 Note, the Company shall reimburse the Executive a "grossed up" amount equal
to such tax liability and any tax liability upon such reimbursement.
8. Benefits on Termination.
-----------------------
(a) Termination. The Executive's employment with the Company may be
-----------
terminated by either party upon 90 days prior written notice to the other.
(b) Continuation of Vesting. Except in the case of a termination as
-----------------------
a result of a "Change of Control" (as defined below), if the Company terminates
Executive without "Cause" (as defined below) prior to July 1, 1997, following
such termination Executive's Options shall continue to vest through such date.
In the event of a termination as a result of a Change of Control, any such
continued vesting of Executive's Options shall be at the discretion of the
surviving or successor corporation.
(c) Benefits Continuation. If the Company terminates Executive
---------------------
without "Cause" (as defined below), the Executive shall continue to participate
in the Company's group medical, dental, life and disability insurance plans for
twelve (12) months thereafter. If the Executive is not permitted under the terms
of such plans to continue to participate following such termination, the Company
shall reimburse the Executive for the cost of equivalent individual insurance
coverage for such twelve (12) month period.
-3-
<PAGE>
(d) "Cause." For purposes of this Agreement, "Cause" shall mean
-----
(i) the willful failure by the Executive to substantially perform his material
duties for 60 days after written demand for substantial improvement in
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed his duties, (ii) the Executive's failure (in a material
respect) to follow reasonable and lawful policies or directives established by
the Board within 10 days after written notice to the Executive by the Board that
the Executive is not following such policies or directives, (iii) demonstrated
bad faith conduct that is materially detrimental to the Company, or (iv) the
conviction of the Executive of any crime involving the property or business of
the Company.
(e) "Change of Control." For purposes of this Agreement, a "Change of
-----------------
Control" shall be deemed to occur if (i) the Company sells or otherwise disposes
of all or substantially all of its assets; (ii) there is a merger or
consolidation of the Company with any other corporation or corporations,
provided that the shareholders of the Company, as a group, do not hold,
immediately after such event, at least 50% of the voting power of the surviving
or successor corporation; or (iii) any person or entity, including any "person"
as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (exclusive of persons who are now officers or
directors of the Company), becomes the "beneficial owner" (as defined in the
Exchange Act) of Common Stock of the Company representing 50% or more of the
combined voting power of the voting securities of the Company.
9. Non-Solicitation. During Employment Term and for so long after that
----------------
as Executive serves as a director and/or continues to provide consulting
services as mutually agreed, Executive shall not solicit or induce employees to
leave the Company's employ. The foregoing shall not prohibit the Executive or
any entity with which the Executive may be affiliated from hiring a former
employee of the Company who approaches Executive on his/her own initiative or in
response to a general recruitment effort by or through Executive, or if
Executive first communicates with the former Company employee about potential
employment after the employee has left employment with the Company.
10. Transfer of Equipment. On termination of Executive's employment, the
---------------------
Company shall take all action necessary to transfer and assign to Executive the
personal computers, printers, monitors and other computer hardware accessories,
and cellular telephone, actively used by Executive in the course of his duties.
11. Third Party Licenses. On termination of Executive's employment, the
--------------------
Company shall assign to Executive all software then actively used by Executive
in the course of his duties covered by "shrink-wrap" licenses from third parties
which by their terms are assignable to the possessor of the applicable disk and
documentation.
12. Withholding; No Offset. Payments and transfers of salary, bonus and
----------------------
severance payments made during the Employment Term are subject to tax
withholding, to the extent applicable. Payments and transfers of salary
continuation, bonus and severance payments made
-4-
<PAGE>
during the Consulting Term are not subject to tax withholding. Executive is not
required to mitigate the amount of any payment by Company, whether by seeking
new employment or in any other manner, and Company's obligations shall not be
reduced through Executive's employment by or activities on behalf of other
entities or by the absence of such employment or activities.
13. Successors. The Company shall require any successor or assignee, in
----------
connection with any sale, transfer or other disposition of all or substantially
all of the Company assets or business, whether by purchase, merger,
consolidation or otherwise, expressly to assume and agree to perform the
Company's obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company", as used in this
Agreement, shall mean the Company as defined above and any successor or assignee
to the business and assets which by reason hereof becomes bound by the terms and
provisions of this Agreement.
14. Confidentiality. Except as required by applicable laws, neither party
---------------
shall disclose the contents of this Agreement without first obtaining the prior
written consent of the other party, provided, however, that the Executive may
disclose this Agreement to his attorney, financial planner and tax advisor if
such persons agree to keep the terms hereof confidential.
15. Arbitration. Any claim, dispute or controversy arising out of this
-----------
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association in San Mateo County, California; provided, however, that this
arbitration provision shall not preclude the Company from seeking injunctive
relief from any court having jurisdiction with respect to any disputes or claims
relating to or arising out of the misuse or misappropriation of the Company's
trade secrets or confidential and proprietary information. All costs and
expenses of arbitration or litigation, including but not limited to attorneys
fees and other costs reasonably incurred by the Executive, shall be paid by the
party who shall not have prevailed in the arbitration, all as conclusively
determined by the arbitrators. Judgment may be entered on the award of the
arbitration in any court having jurisdiction.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such state.
17. Integration. This Agreement, the Proprietary Information Agreement,
-----------
any Stock Option Agreements (as amended to date), the Stock Restriction
Agreement, the Restricted Stock Purchase Agreement and any written Company plans
that are referenced herein, represent the entire agreement and understanding
between the parties as to the subject matter hereof and supersede all prior or
contemporaneous agreements, whether written or oral. No waiver, alteration, or
modification, if any, of the provisions of this Agreement shall be binding
unless in writing and signed by duly authorized representatives of the parties
hereto.
-5-
<PAGE>
18. Voluntary Execution; Conflict Waiver. The Executive has received
------------------------------------
independent legal counsel regarding this Agreement, which was drafted jointly by
the Executive's and the Company's counsel. The Executive is signing this
Agreement knowingly and voluntarily. The Company and the Executive acknowledge
that Wilson, Sonsini, Goodrich & Rosati ("WSGR") has acted as counsel to the
Company in negotiating this Agreement and may continue to serve as the Company's
general counsel in the future, acknowledge that each has received full
disclosure of any potential conflict of interests which may result from such
representation, and knowingly and voluntarily waive any such conflict of
interest.
19. Independent Advice. In negotiating this Agreement, Executive
------------------
acknowledges that he has been represented by his own counsel and has received
his own independent tax advice. The Company has no responsibility for any tax
consequences which may result from the transactions described in this Agreement.
20. Counterparts. This Agreement may be executed in counterparts, which
------------
together will constitute on instrument.
Agreed to this 2 day of July, 1996.
EXECUTIVE VIEWSTAR CORPORATION
/s/ Kamran Kheirolomoom
- --------------------------- By: /s/ F. Gibson Myers, Jr.
Kamran Kheirolomoom ---------------------------
F. Gibson Myers, Jr.
Director and Member,
Compensation Committee
Each person executing this Employment Agreement represents and warrants that he
has the full authority to enter into this Agreement and to fully bind the party
to be bound.
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
I hereby consent to this Agreement for purposes of any community property
interest I may have in the foregoing arrangements. I have had the opportunity
to seek independent counsel with regard to this consent and knowingly and
voluntarily waive the right to such counsel.
Lia M. Turk Kheirolomoom
Dated: July 2, 1996 /s/ Lia M. Turk Kheirolomoom
__________________________ _______________________________
Printed Name of Spouse
-7-
<PAGE>
EXHIBIT 10.14
PROMISSORY NOTE
$153,000 Alameda, California
- --------
___________________
FOR VALUE RECEIVED, Kamran Kheirolomoom ("Pledgor") promises to pay to
Viewstar Corporation, a California corporation (the "Company"), the principal
sum of One Hundred Fifty-Three Thousand Dollars ($153,000), together with
interest on the unpaid principal thereof from the date hereof at the rate of
five and eighty-eight hundredths percent (5.88%) per annum.
Said principal amount plus interest shall be repaid in three (3) equal
installments of $55,525.93, such installments to be due and payable on each of
January 15, 1997; January 15, 1998; and January 15, 1999.
Principal and interest shall be immediately due and payable on the date of
Pledgor's voluntary resignation of both his employment with the Company and his
membership on the board of directors of the Company. Payments of principal and
interest shall be made in lawful money of the United States of America.
Pledgor may at any time prepay all or any portion of the principal or
interest owing hereunder.
The holder of this Note shall have full recourse against the undersigned.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
Pledgor.
______________________________________
(Signature of Pledgor)
______________________________________
(Typed or Printed Name)
<PAGE>
EXHIBIT 11.1
VIEWSTAR CORPORATION
STATEMENT REGARDING COMPUTATION OF PRO FORMA
NET INCOME (LOSS) PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
YEAR ENDED
DECEMBER 31,
1995 1995 1996
------------ ------- -----
<S> <C> <C> <C>
Net income (loss)................................. $(7,956) $(7,071) $ 403
======= ======= =====
Weighted average of common stock outstanding...... 676 655 1,951
Weighted average of preferred stock outstanding,
on an as-if converted basis...................... 2,666 2,666 3,297
Common stock equivalents--stock options and
warrants......................................... -- -- 689
Staff Accounting Bulletin No. 83 issuances and
grants........................................... 2,468 2,468 920
------- ------- -----
Shares used in per share computation.............. 5,810 5,789 6,857
------- ------- -----
Pro forma net income (loss) per share............. $ (1.37) $ (1.22) $0.06
======= ======= =====
</TABLE>
<PAGE>
EXHIBIT 16.1
[ERNST & YOUNG LLP LETTERHEAD]
July 31, 1996
Securities and Exchange Commission
450 Fifth St, N.W.
Washington, D.C. 70549
Gentlemen:
We have read the disclosure which is to be included in the Form S-1 Registration
Statement to be filed by ViewStar Corporation in connection with its Initial
Public Offering. We are in agreement with the statements contained in the first
sentence of the first paragraph, the statement that our appointment was
terminated, the second paragraph and the third paragraph.
We have no basis to agree or disagree with other statements contained therein.
Ernst & Young LLP
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
ViewStar U.K., Limited England
ViewStar SARL France
