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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended __________.
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from July 1, 1998 to March 31, 1999
Commission File Number: 33-18600-D
QCS.NET CORPORATION
(Name of small business issuer in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
98-0132465
(IRS Employer Identification Number)
______________650 CASTRO STREET, SUITE 210, MOUNTAIN VIEW, CA 94041_____________
(Address of Principal Executive Offices)
_________________________________(650) 966-1214_________________________________
(Issuer's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
$0.001 Par Value per share
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days (X) YES ( ) NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of the Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB ( )
The Issuer's revenues for the nine months of fiscal year ended March 31, 1999
were $740,997.
The aggregate market value of the Common Stock held by non-affiliates of the
Issuer as of June 4, 1999 was $26,961,337.
The number of shares of Common Stock, par value $.001 per share, outstanding as
of June 4, 1999 was 23,010,874.
DOCUMENTS INCORPORATED BY REFERENCE
The Issuer's definitive Proxy Statement will be filed with the Securities and
Exchange Commission on or before June 18, 1999 in connection with the Issuer's
Annual Meeting of Stockholders to be held on July 20, 1999 and is incorporated
by reference into Part III of this Report.
Transitional Small Business Disclosure Format: ( ) YES (X) NO
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TABLE OF CONTENTS
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PART I
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 19
Item 3. Legal Proceedings............................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders........................................... 19
PART II
Item 5. Market For Common Equity and Related Stockholders Matters..................................... 20
Item 6. Management's Discussion and Analysis of Financial Condition and Result of
Operations.................................................................................... 21
Item 7. Financial Statements.......................................................................... 27
Item 8. Changes In And Disagreements With Accountants On Accounting And Financial
Disclosure................................................................................... 28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(A) of the Exchange Act of the Registrant.......................................... 28
Item 10. Executive Compensation........................................................................ 28
Item 11. Security Ownership of Certain Beneficial Owners and Management................................ 28
Item 12. Certain Relationships and Related Transactions................................................ 28
PART IV
Item 13. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K.................. 29
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PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE RELATING
TO FUTURE EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY. PROSPECTIVE INVESTORS
ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT ACTUAL EVENTS
OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE
INVESTORS SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN THIS
REPORT, INCLUDING THE MATTERS SET FORTH BELOW UNDER THE CAPTION "RISK FACTORS,"
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD-LOOKING STATEMENTS.
HISTORY OF THE COMPANY
QCS.net Corporation (the "Company" or "QCS") was founded in 1993 in France
by Marcel van Heesewijk, our Chairman, to develop desktop software that would
enable retailers to manage their preorder merchandise sourcing activities over a
private network. Concurrent with our formation, we established a relationship
with Carrefour, a major world-wide retailer headquartered in France, that
enabled us to develop a thorough knowledge of the systems, processes and forms
required by retailers and their merchandise suppliers to effectively source
merchandise on a global basis. In 1994, we merged with a publicly-held Colorado
corporation as a means of raising capital to further develop our business, and
moved our headquarters from France to California. By the end of 1994, we had
successfully developed a proprietary desktop software solution that enabled
retailers and their merchandise suppliers to transact sourcing activities over a
private network. In late 1996, we entered into a strategic alliance agreement
with IBM for global sales, marketing and infrastructure support, becoming an IBM
partner for eBusiness.
The Company is incorporated in Delaware and its shares of Common Stock are
traded on the OTC Bulletin Board under the symbol QCSC. The Company intends to
change its corporate name to SourcingLink.net, Inc. (See Item 4.) Pending that
change the Company is adopting such name as a fictitious business name. The
Company's principal office is located at 650 Castro Street, Suite 210, Mountain
View, CA 94041 and its telephone number is (650) 966-1214. The Company's home
page on the Internet can be located at www.QCS.net.
TRANSITION TO WEB-ENABLED SOFTWARE
While we were successful in launching the desktop solution to a number of
retailers, the product's relatively high installation and support costs and
private network nature created barriers for wide adoption and restricted the
number of potential users. We also recognized that the Internet would become the
standard for business-to-business eCommerce. In 1997, we began to web-enable our
proprietary software to substantially reduce the connectivity cost and enable
broader distribution of our solution. During 1998, we completed this development
effort and pilot tested our Internet solution with PETsMART, a major U.S.-based
pet food and supply specialty retailer, and Promodes, a leading European
operator of hypermarkets. Based upon the successful completion of these pilots,
we believe we have successfully transitioned from a proprietary desktop software
solution to a secure Internet-based communications system, and are well
positioned to benefit from first-to-market advantages. PETsMART is currently
rolling out our Internet solution to its entire supplier base and Promodes is
rolling out our Internet solution to its central buying organization's
merchandise suppliers. Carrefour is now transitioning from our desktop software
solution to our Internet solution in anticipation of rolling out our solution to
its central buying organization's merchandise suppliers.
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INDUSTRY BACKGROUND
BUSINESS-TO-BUSINESS ECOMMERCE SOLUTIONS FOR THE RETAIL MARKET
The global retail industry is characterized by intense competition,
consolidation and tightening profit margins. Consumers increasingly are more
discerning and demand that retailers offer more value in return for the
consumers' purchasing dollars. To maintain market share and operate profitably,
retailers must offer more desirable products and prices while optimizing factors
such as product variety, inventory carrying costs, retail prices and costs of
goods. The average large department store carries more than one hundred thousand
stock keeping units, or SKUs, at any given time, each unique in terms of product
style, size, color, features and packaging. Retailers need to source these SKUs
from hundreds, or in some cases thousands, of merchandise suppliers globally.
The merchandising workflow activities of the sourcing and procurement of the
retailer's merchandise are divided into three functions: 1) preorder or
"sourcing," 2) order and post-order, and 3) reorder marketing.
In order to locate, qualify, initiate, negotiate, purchase, track, receive
and pay for merchandise, retailers and merchandise suppliers must communicate
and often exchange large amounts of data about products and transactions. In our
global supplier marketplace, this process often occurs over different time
zones, using different methods and many languages. With increasingly competitive
retail markets, where productivity and use of information can affect profit
margins, the ability to capture and manage this information faster and more
efficiently than the competition is crucial to success.
In an effort to increase the efficiency of the order and post-order
functions, the largest retailers were early adopters of electronic procurement
technologies, primarily in the form of EDI managed over private value added
network services, or VANs. While EDI represents an advancement over paper-based
ordering systems, EDI only addresses the order and post-order function of basic
transactional data, and does not support the automation of preorder merchandise
sourcing, which comprises the majority of the work involved in acquiring
merchandise. In addition to addressing only a limited portion of the workflow,
traditional EDI systems are based on closed and proprietary system technologies
and can be expensive to develop, making them cost prohibitive for most retailers
and merchandise suppliers.
Conversely, traditional preorder merchandise sourcing processes have
remained largely unstructured, using paper based processes, telephone calls,
faxes, courier services, travel and personal visits. This error prone,
time-consuming and expensive process makes it difficult for retail merchandise
buyers to easily compare different merchandise and for senior management to
monitor the buying practices of their merchandise buyers. Many retailers and
merchandise suppliers dedicate costly resources to the manual entry of sourcing
information. Retailers spend significant resources in identifying, locating and
qualifying potential merchandise suppliers, while merchandise suppliers spend
significant resources on customer acquisition and sales costs, including the
production and distribution of paper catalogs and samples. In addition to these
inefficiencies, the current sourcing process can also lead to less than optimal
merchandise buying. The result is often a misalignment between what the
consumers want and what is actually on the store shelf, leading to lost sales,
price discounts and unsold merchandise.
Due to these factors, retailers and merchandise suppliers have a compelling
need to automate the preorder merchandise sourcing function. The global reach
and ease of access of the Internet make it an ideal enabling technology to
facilitate this automation. However, retailers and merchandise suppliers have
historically not had the service and software providers who understand the
unique requirements of the retail industry and who can provide a reliable and
secure system which enables them to manage their sourcing transactions over the
Internet. We believe our solution is uniquely positioned to take advantage of
this market opportunity.
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OVERVIEW OF THE QCS.NET SOLUTION
QCS.net has developed a cost-effective, comprehensive Internet-based
solution for business-to-business eCommerce that provides retailers and
merchandise suppliers with a reliable and secure system enabling them to manage
their preorder merchandise sourcing transactions. Our solution uses our
proprietary software to organize and automate a broad range of sourcing
activities, thereby significantly improving productivity and reducing costs. We
believe the ease of use and low cost implementation and maintenance of our
solution brings these capabilities within reach of a large number of retailers
and merchandise suppliers.
FEATURES AND FUNCTIONS OF THE QCS.NET SOLUTION
The QCS.net solution automates and organizes the preorder merchandise
sourcing function of merchandise for retailers and their merchandise suppliers.
Our solution enables the retailers and merchandise suppliers to electronically:
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RETAILER MERCHANDISE SUPPLIER
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- Create their own supply chain - Create their own supply chain
management extranet with their management extranet with their existing
existing merchandise suppliers retailers using our turnkey solution.
using our turnkey solution.
- Publish their company profile, - Publish their company profile, where
where they present themselves to they present themselves to their existing
their existing merchandise retailers as well as all other QCS.net
suppliers as well as all other subscribers. The profile may include:
QCS.net subscribers. The profile name, address, telephone number, annual
may include: name, address, revenues, production capacity, plant
telephone number, annual locations, contact persons, production,
revenues, contact persons, company logo, link to website and other
company logo, link to website general information the merchandise
and other general information supplier wishes to publish.
the retailer wishes to publish.
- Publish company policies and - Publish company policies and procedures
procedures (e.g., EDI (e.g., selling practices, sample and
specifications, warehouse proce- return policies) to all their retailers
dures, insurance requirements) on a one-to- many basis.
to all their merchandise
suppliers on a one-to-many
basis.
- Publish confidential company - Receive on-line updates from their
information on one-to-one or customers for items such as inventory
need to know basis (e.g., status or accounts receivable.
inventory status per
distribution center for
replenishment or accounts
payable per a merchandise
vendor).
- Configure accessibility for - Configure accessibility for their
their buying organization selling organization according to
according to individual settings individual settings and preferences.
and preferences.
- Create their own customized - Create their own customized forms,
forms, which, if desired, will which, if desired, will have the same
have the same look and feel as look and feel as the forms they are
the forms they are used to work used to work with on paper.
with on paper.
- Define mandatory data fields for - Define mandatory data fields for all
all customized forms to ensure customized forms to ensure complete data
complete data submission. submission.
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RETAILER MERCHANDISE SUPPLIER
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- View electronic catalogs, select - Create electronic catalogs to be viewed
products and compare product by one or several merchandise buyers.
specifications and terms among Catalogs include digitized images, full
multiple merchandise suppliers; product description, size and
generate requests for proposals, dimensions, price conditions,
or RFP's. warranties, logistics and shipping
information, manufacturing lead times,
import and tariff information, and
packaging options.
- Transmit RFP's to one or - Receive RFP's from merchandise buyers
multiple merchandise suppliers in a standard format.
in a standard format.
- Receive offers in response to - Respond to RFP's and negotiate with
RFP's and negotiate the offers. merchandise buyers.
- Create internal merchandise - Create internal merchandise catalogs
catalogs for access by other for access by other internal salespeople.
internal merchandisers.
- Create and maintain their own - Import product data from in-house
internal catalogs selected from applications automatically into QCS.net.
the merchandise suppliers'
offers which can be directly
downloaded into their own
product databases.
- Integrate their order management - Enable integration of EDI capabilities
system (EDI-based or manual) to which may be a pre-requisite to
QCS.net and send electronic transact business with the retailer.
orders to their merchandise
suppliers.
- Transmit electronic purchase - Receive electronic purchase orders
orders to all of their without installing EDI software.
merchandise suppliers.
- Receive electronic advance - Transmit electronic advance shipping
shipping notices which can be notices to their buyers.
imported into the retailer's in-
house management information
systems.
- Locate new merchandise suppliers - Locate new merchandise buyers using the
using the search capabilities of search capabilities of QCS.net. Access
QCS.net. Access is provided to is provided to retail company profile
supplier company profile and including supporting merchandise
electronic catalogs. categories.
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The merchandise supplier's information is entered in a standard format and
is "mapped" using proprietary software incorporating virus scanning functions by
the QCS.net solution. The information is then transmitted and displayed to each
retailer in their specified format. Our software resides on a dedicated and
secure server hosted by IBM. This centrally managed clearinghouse approach
enables retailers and merchandise suppliers to transmit information without
customizing their information to meet each other's specific requirements. This
ensures compatibility with a large number of proprietary systems.
The QCS.net solution can be accessed from any PC via the Internet using a
password and user ID and is available 24 hours a day, seven days a week.
Communication on the QCS.net solution is private and secure.
Although it is not our primary business focus, we offer Internet EDI using
IBM's EDI mailbox and EDI-to-Domino translation services. Merchandise suppliers
can access EDI information from a simple web browser and communicate while all
EDI messages are automatically "mapped" to the retailer's in-house EDI system.
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BENEFITS OF OUR SOLUTION FOR RETAILERS AND MERCHANDISE SUPPLIERS
- - LOW IMPLEMENTATION AND MAINTENANCE COSTS
Our solution presents the retailers and merchandise suppliers a turnkey
solution to fully automate their merchandise sourcing processes with minimal
up-front investment. Our solution can be easily integrated with a retailer's
and merchandise supplier's existing in-house management information system
with appropriate "firewalls." In addition, the maintenance expense associated
with the QCS.net solution is included in the fixed monthly subscription fee.
Our solution enables a merchandise supplier to connect with as many retailers
as it desires for the same monthly subscription fee. As a result, the
merchandise supplier is able to leverage its up-front investment for
connecting to the service and the creation of electronic offerings.
- - INCREASED PRODUCTIVITY AND LOWER COSTS OF DOING BUSINESS
Our solution significantly improves the productivity while lowering the costs
of sourcing activities by enabling retailers and merchandise suppliers to
eliminate the current inefficient, time consuming and expensive methods of
sourcing. Retailers and merchandise suppliers are able to more precisely
deliver information and compare merchandise, obtain lower merchandise costs,
expedite negotiations, shorten merchandise development and buying cycles,
reduce errors and conflicts by recording communications, eliminate the need
for manual entry of sourcing data, increase quality assurance, reduce
inventory and reduce communication and travel expenses. Our solution also
allows retailers and merchandise suppliers to transmit requests for proposals,
or RFPs, catalogs and other information at a significantly lower cost than
paper-based methods. In addition, the retailer's senior management is able to
closely monitor and enforce compliance with sourcing policies.
- - MORE EFFECTIVE BUYING DECISION
Our solution enables retailers to make buying decisions more accurately with
more information and closer to the selling season, resulting in improved
inventory turnover and fewer discounts and unsold products. Our solution
enables merchandise suppliers to provide product and pricing information
directly to the merchandise buyer's desktop, reducing miscommunication and
improving customer service. Once retrieved by retail merchandise buyers, data
from participating merchandise suppliers is computer accessible in the
retailer's standard formats, thereby permitting a meaningful and efficient
comparison of products offered by multiple merchandise suppliers.
- - INCREASED RETAILER AND MERCHANDISE SUPPLIER CONNECTIVITY
The global availability of access to the Internet, combined with our fixed
price model and the global support of our strategic partner, IBM, makes
connectivity very affordable and provides a compelling cost effective solution
to the retailer and merchandise supplier. Our solution significantly reduces
the cost, and improves the ease, of communication between retailers and
merchandise suppliers, enabling retailers to communicate electronically for
the first time with substantially all of their merchandise suppliers. If
either party desires, information can be connected into their existing legacy
system or Enterprise Resource Planning applications such as SAP, Peoplesoft or
BAAN. Our solution can also support EDI transactions. Once connected to
QCS.net, a retail buyer can create its supply chain extranet with existing
merchandise suppliers and can also access product information from other
subscribing merchandise suppliers based upon standardized product categories.
In addition, a merchandise supplier is able to electronically communicate with
a broader range of retailers.
- - ENHANCED REVENUE OPPORTUNITIES
Using the QCS.net solution, the merchandise supplier can create an extranet
with all of its retailer customers for the fixed monthly subscription fee. The
merchandise supplier can submit information about itself, its product
offerings and its electronic catalogs to be viewed by all or certain QCS.net
subscribers. The merchandise supplier can send its catalog to any retail
merchandise buyer in the world
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who has an e-mail address that has been registered with QCS.net by the
merchandise supplier or the retailer. The QCS.net solution allows merchandise
suppliers to update their catalogs, send portions of their product catalogs to
global listings and to send confidential customized and detailed offers from
their catalogs to merchandise buyers on a point-to-point mode. As a result,
the merchandise supplier can significantly increase the efficiency of its
selling activities, improve its relationships with buyers and increase its
revenue and profitability. The retailer, by streamlining the sourcing process
and having access to a wider group of merchandise suppliers and information,
is able to improve product selection and availability while reducing costs,
thereby enhancing revenue and profitability.
SALES AND MARKETING AND IBM STRATEGIC ALLIANCE
Our initial strategic alliance agreement with IBM provided that we would
primarily rely upon IBM for our sales effort. As part of our new strategy, we
are currently renegotiating our strategic relationship with IBM in an effort to
reduce our reliance on IBM for the sales and marketing of our solution. As such,
we are establishing an internal sales and marketing force in order to build
direct relationships with our retailer customers allowing a more rapid
penetration of the market and better customer feedback.
We currently anticipate that, under this new agreement, IBM will continue to
provide certain worldwide marketing services for our solution. We further
anticipate that, under a separate agreement, we will continue to purchase our
global infrastructure and customer support from IBM. Our solution will remain a
part of IBM's global supply chain solutions products and services portfolio and
will continue to be marketed under IBM's e-business marketing initiatives for
the retail industry.
We have been and will continue to focus our sales and marketing efforts on
developing flagship reference accounts in selected retail segments. We believe
once retailers adopt our solution, they will strongly encourage their
merchandise suppliers to use our solution for all of the preorder merchandise
sourcing functions including catalog submission, specifications, RFPs,
negotiations and offer sheets. Upon selection of our solution by the retailer,
the retailer will notify its merchandise suppliers and will provide us with a
contact list for our follow-up. We then provide each merchandise supplier with
information regarding our solution, together with the necessary documentation
for subscription to our solution. Through our online help menu and the IBM
global help-desk, we assist the merchandise supplier in initializing our
solution, training its personnel, developing its electronic catalog and
electronically communicating with its retailers. In addition, our solution
enables the merchandise supplier to connect to all of its retail customers for
the same fixed monthly or annual subscription fee. This benefit not only
provides additional value to the merchandise supplier, but also motivates it to
recommend our solution to its other retailer customers. These recommendations
allow us to target these additional retailers and, in turn, their merchandise
suppliers.
TECHNOLOGY AND INFRASTRUCTURE
Since 1997, our development has been focused on our web-enabled solution
which capitalizes on the connectivity, flexibility and low-cost offered by the
Internet. Our solution is available to any supplier or retailer organization
with a standard Internet connection. Access to our solution is achieved through
local Internet Service Providers using TCP/IP protocol over the Internet and
standard web browsers (Netscape Navigator or Microsoft Internet Explorer). The
back-end architecture of our solution is built using IBM's Lotus Domino-TM-
technology, which allows shared database replication, user authentication and
controlled access, messaging and workflow management and offers support of
industry standards such as HTTP, SSL or SMTP.
We maintain our hub servers externally under a facility management agreement
with IBM. Documents exchanged between our subscribers are encrypted using Lotus
Notes-TM- secure protocol and the standard SSL protocol over the Internet. Both
provide the highest level of security permitted by U.S. export laws.
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We are also capable of handling traditional EDI transactions, such as
purchase orders, invoicing, advance shipping notices and shipping tracking data
using IBM's EDI mailbox and EDI-to-Domino translation services. The supplier can
access EDI messages from a simple web browser and carry out trading dialogue
while all EDI communications are automatically "mapped" to the retailer's
in-house EDI system.
DEVELOPMENT
We use a strategy that combines internal development, alliances and
licensing of applications from third parties. New product development and
enhancements of our existing solution are typically performed internally.
Responsibilities include design, development, documentation and quality control.
Contractors and third party companies are involved in non-critical projects.
COMPETITION
The market for business-to-business eCommerce solutions in general, and
supply chain management solutions in particular, is extremely competitive,
evolving and characterized by continuous rapid development of technology.
Competition to capture business users is intense and is expected to increase
dramatically in the future, which will likely result in price reductions,
reduced profit margins and a decrease in our market share, which could have a
serious adverse impact on our business.
We believe we are one of the few companies currently focused on organizing
and automating the preorder merchandise sourcing process over the Internet.
Furthermore, we believe we are the only company addressing preorder merchandise
sourcing with our type of business strategy. We address the preorder and
post-order sourcing and procurement needs of major retailers by offering a
comprehensive, independent, industry standard solution.
Indirect competitors are traditional VAN solution providers that have
extended their VAN connections over the Internet and new Internet companies that
are focused on trading exchanges that allow merchandise buyers and sellers to
access each other on channels within existing portals. Companies which offer EDI
over VANs include General Electric Information Services, Sterling Commerce,
Harbinger Corporation, QRS Inc. and IBM. Companies which offer exchange
solutions include VerticalNet, Wiznet (E.C. Portal), Commerce One, Netscape,
Ariba.com and Cyber Merchants Exchange, Inc. Some of these companies have longer
operating histories, significantly greater financial, technical, marketing and
other resources than us, significantly greater name recognition and a larger
installed base of customers. In addition, many of our competitors have
well-established relationships with certain of our current and potential
retailer or supplier customers and have extensive knowledge of our industry. One
or more of these companies may develop and add preorder merchandise sourcing
capabilities to their existing product offerings, giving them a more
comprehensive solution than our solution, which could adversely affect our
business. We expect that additional established and emerging companies will seek
to enter our market as it continues to develop and expand.
We believe that the primary competitive factors that will influence the
success of companies seeking to provide supply chain management solutions will
be industry knowledge, value-added content, product features, quality and
performance, attractive pricing, global reach and information management
capabilities. Although we believe that our solution effectively addresses these
factors, our market is relatively new and rapidly evolving. We may not be able
to compete successfully against future competitors, especially those with
significantly greater financial, marketing, service, support, technical and
other resources.
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INTELLECTUAL PROPERTY RIGHTS AND OTHER PROPERTY RIGHTS
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade secrets
and copyright and trademark laws.
We require our customers to enter into agreements which impose restrictions
on their ability to utilize our service and prohibit unauthorized use or copying
of the software incorporated in our service. In addition, we seek to avoid
disclosure of our trade secrets, including but not limited to, requiring those
persons with access to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code. We seek to protect
our software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We cannot assure you that
any of our proprietary rights with respect to our solution will be viable or of
value in the future since the validity, enforceability and type of protection of
proprietary rights in Internet-related industries are uncertain and still
evolving.
We may not develop proprietary products or technologies that are patentable
and it is possible that any patent issued to us may not provide us with any
competitive advantages, or that the patents of others will seriously harm our
ability to do business.
We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in our service to
perform key functions. If we are unable to continue to license any of this
software on commercially reasonable terms, we will face delays in releases of
new versions of our service until equivalent technology can be identified,
licensed or developed and integrated into our service. These delays, if they
occur, could seriously harm our business.
We intend to apply for registration of our name and logo as trademarks in
the United States and certain other foreign countries. The trademark
applications will be subject to review by the applicable governmental authority,
may be opposed by private parties and the trademarks may not issue.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our service is
difficult, and while we are unable to determine the extent to which such
unauthorized use or piracy of our software exists, there can be expected to be
persistent problems. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our service or design around patents issued to us or our other
intellectual property.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that providers of
eCommerce solutions will increasingly be subject to infringement claims as the
number of competitors in our industry segment grows and the functionality of
products and services in different industry segments overlaps. Any claims, with
or without merit, could be time-consuming, result in costly litigation, cause
delays in the introduction of new technology or require us to enter into royalty
or licensing agreements. Royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all, which could seriously harm our
business.
EMPLOYEES
The Company currently has 23 full time employees, including three in sales
and marketing, nine in engineering and development, four in field operations,
and seven in management and administrative support functions. As of June 2,
1999, one of these employees was located in Hong Kong and the remaining
employees were located in the United States. Our employees are not represented
by a labor union and we believe that our relations with our employees are good.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THE ACCURACY OF WHICH
IS SUBJECT TO MANY RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY
DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THE FOLLOWING RISK FACTORS.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY. OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT
TO EVALUATE OUR FUTURE PROSPECTS.
We were founded in 1993 and have a limited operating history. Our limited
operating history makes the evaluation of our future prospects difficult or
impossible. Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new, unproven and rapidly evolving
markets. To address these risks, we must, among other things, continue to
upgrade our technology, commercialize products incorporating such technology,
continue to attract, retain and motivate qualified persons and respond to
competitive developments. Since competition for experienced information
technology personnel is intense, we cannot be certain that we will be able to
attract such required personnel. There can be no assurance that we will be
successful in addressing such risks. If we do not successfully address these
risks, our business will be seriously harmed.
The growth of our quarterly revenues is especially subject to fluctuation
because it depends on the adoption of our solution by a small number of
relatively large retailers, who then strongly encourage their merchandise
suppliers to subscribe to our solution. As a result, the growth of our quarterly
revenue may be effected if we are unable to complete one or more substantial
retailer rollouts in any given quarter. Therefore, if we do not attract a
sufficient number of retailers who adopt our solution in a particular quarter,
our revenues in future periods could be lower than expected. See Item 6 for
detailed information on our limited operating history.
THE MARKET FOR OUR SOLUTION IS AT AN EARLY STAGE. WE NEED A CRITICAL MASS OF
RETAILERS AND THEIR MERCHANDISE SUPPLIERS TO IMPLEMENT AND USE OUR SOLUTION.
The market for Internet-based supply chain management solutions and services
is at an early stage of development. Our success depends on a significant number
of large retailers implementing our solution and requiring their merchandise
suppliers to subscribe to our solution. The implementation of our solution by
major retailers and their merchandise suppliers is controlled by multiple
parties in the retail organization. In many cases, these organizations must
change established business practices and conduct business in new ways. Our
ability to attract additional customers for our solution will depend on
leveraging our existing customers as reference accounts. As of May 31, 1999,
only three retailers had adopted our solution and approximately 400 merchandise
suppliers had subscribed to our Internet solution. Accordingly, our solution may
not achieve significant market acceptance. Unless a critical mass of retailers
and their merchandise suppliers implement our solution, our solution may not
achieve widespread market acceptance and our business would be seriously harmed.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We incurred net losses of $2.8 million in fiscal 1998 and $1.5 million in
fiscal 1999. Fiscal 1999 is a nine month accounting period. As of March 31,
1999, we had an accumulated deficit of approximately $14.4 million. The report
of our independent accountants accompanying our consolidated financial
statements notes that our recurring operating losses raise substantial doubt
about our ability to continue as a going concern, however, note 2 to our
consolidated financial statements described management's plan in
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regard to these matters. We expect to derive substantially all of our revenues
for the foreseeable future from subscription fees for our solution, which is
based on an unproven business model. Although these revenues have grown slightly
in the most recent quarter, we may not be able to sustain growth in the future
necessary to achieve profitability. In fact, we may not have any revenue growth,
and our revenues could decline. Moreover, we expect to incur significant sales
and marketing, product development, and general and administrative expenses. As
a result, we expect to incur significant losses for the foreseeable future. See
Item 6 for more detailed information.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results could
fall below the expectations of securities analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our Common Stock.
Our quarterly operating results may vary depending on a number of factors,
including:
- Demand for our solution and services;
- Actions taken by our competitors, including new product introductions and
enhancements;
- Delays or reductions in spending for, or the implementation of, supply
chain management solutions by our potential customers as companies attempt
to stabilize their computer systems prior to January 1, 2000 in order to
reduce the risk of computer system problems associated with the Year 2000;
- Ability to scale our network and operations infrastructure;
- Ability to develop, introduce and market new solutions and enhancements to
our existing solution on a timely basis;
- Changes in our pricing policies or those of our competitors;
- Ability to expand our sales and marketing operations, including hiring
additional sales personnel;
- Size and timing of sales of our solution and services;
- Success in maintaining and enhancing existing relationships and developing
new relationships with strategic partners;
- Ability to control costs;
- Technological changes in our markets;
- Deferrals of customer subscriptions in anticipation of new enhancements or
features of our solution;
- Customer budget cycles and changes in these budget cycles; and
- General economic factors.
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We plan to increase our operating expenses substantially to expand our sales
and marketing operations, fund greater levels of product development, increase
general and administrative support, develop new partnerships, increase our
professional services and support capabilities and improve our operational and
financial systems. If our revenues do not increase along with these expenses,
our business, operating results and financial condition could be seriously
harmed and net losses in a given quarter could be even larger than expected.
In addition, because our expense levels are relatively fixed in the near
term and are based in part on expectations of our future revenues, any decline
in our revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results. See Item 6 for
detailed information on our quarterly operating results.
WE EXPECT TO DEPEND ON OUR SOLUTION FOR SUBSTANTIALLY ALL OF OUR REVENUES FOR
THE FORESEEABLE FUTURE.
Our solution and related services accounted for substantially all of our
revenues in fiscal 1999. We anticipate that revenues from our solution and
related services will continue to constitute substantially all of our revenues
for the foreseeable future. Consequently, a decline in the price of, or demand
for, our solution, or its failure to achieve broad market acceptance, would
seriously harm our business.
IMPLEMENTATION OF OUR SOLUTION BY LARGE RETAILERS IS TIME CONSUMING. WE
FREQUENTLY EXPERIENCE LONG SALES AND IMPLEMENTATION CYCLES.
Our supply chain management solution is an enterprise-wide solution that
must be deployed with many users within a large retailer's sourcing
organization. Its adoption by large retailers is characterized by long sales
cycles beginning with pilot studies and concluding with retailers strongly
encouraging their merchandise suppliers to subscribe to our solution. In many
cases, our customers must change established business practices and conduct
business in new ways. In addition, they must generally consider a wide range of
other issues before committing to purchase our product, including product
benefits, integration, interoperability with existing computer systems,
scalability, functionality, security and reliability. As a result, we must
educate potential customers on the use and benefits of our solution. It
frequently takes several months to finalize a retailer commitment to adopt our
solution and the commitment must often be approved by a number of management
levels within the customer organization. The implementation of our solution
requires a commitment of resources by our customers and third-party and
professional services organizations. Delay of these commitments may adversely
affect our financial results of any particular quarter.
WE CURRENTLY DEPEND ON IBM FOR MARKETING OF OUR SOLUTION AND FOR THE MANAGEMENT
AND SECURITY OF OUR NETWORK INFRASTRUCTURE.
We have an alliance with IBM for co-marketing and customer support. We are
currently dependent on IBM for most of our marketing and support activities.
Therefore, IBM's decisions and performance with respect to these matters have a
material impact on our ability to market our solution. While we are currently
negotiating new agreements to cover our relationship, and our future plans call
for us to take over a substantial portion of our sales and marketing activities,
we may not be able to do so effectively. IBM is under no contractual obligation
to continue to market our solution. A decision by IBM to cease or reduce
substantially its marketing efforts would have an immediate and material adverse
effect on our financial condition and results of operations. There can be no
assurance that, in such an event, we would succeed in alternative sales methods.
In addition, we depend on IBM Global Network, or IGN, for certain services
relating to our infrastructure, including maintenance of communications lines
and management of network data centers. IGN may terminate its performance of
these services for us at any time. If IGN were to terminate these services, we
would have to obtain them from another service provider or perform them
ourselves. There
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can be no assurance that we would be able to obtain or perform these services on
a timely or cost-effective basis. If we were able to obtain such services from a
third party, we would be entirely dependent on them to manage and maintain our
network infrastructure and to provide security for it.
WE FACE INTENSE COMPETITION. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR
BUSINESS WILL BE SERIOUSLY HARMED.
The market for business-to-business eCommerce solutions in general, and
supply chain management solutions in particular, is extremely competitive,
evolving and characterized by continuous rapid development of technology.
Competition to capture business users is intense and is expected to increase
dramatically in the future, which will likely result in price reductions,
reduced profit margins and a decrease in our market share, which could have a
serious adverse impact on our business.
Indirect competitors are traditional VAN solution providers that have
extended their VAN connections over the Internet and new Internet companies that
are focused on trading exchanges that allow merchandise buyers and sellers to
access each other on channels within existing portals. Companies which offer EDI
over VANs include General Electric Information Services, Sterling Commerce,
Harbinger Corporation, QRS Inc. and IBM. Companies which offer exchange
solutions include VerticalNet, Wiznet (E.C. Portal), Commerce One, Netscape,
Ariba.com and Cyber Merchants Exchange, Inc. Some of these companies have longer
operating histories, significantly greater financial, technical, marketing and
other resources than us, significantly greater name recognition and a larger
installed base of customers. In addition, many of our competitors have
well-established relationships with our current and potential customers and have
extensive knowledge of our industry. One or more of these companies may develop
and add preorder merchandise sourcing capabilities to their existing product
offerings, giving them a more comprehensive solution than our solution, which
could adversely affect our business. We expect that additional established and
emerging companies will seek to enter our market as it continues to develop and
expand. We may not be able to compete successfully against future competitors,
especially those with significantly greater financial, marketing, service,
support, technical and other resources.
WE DEPEND ON THE INTRODUCTION OF NEW VERSIONS OF OUR PROPRIETARY SOLUTION AND ON
ENHANCING THE FUNCTIONALITY AND SERVICES OFFERED BY OUR SOLUTION.
If we are unable to develop new software or enhancements to our existing
solution on a timely and cost-effective basis, or if new software or
enhancements do not achieve market acceptance, our business would be seriously
harmed. The life cycle of our solution is difficult to predict because the
market for our solution is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of services employing new technologies and emerging industry
standards could render our existing solution obsolete and unmarketable.
To be successful, our solution must keep pace with technological
developments and emerging industry standards, address the ever-changing and
increasingly sophisticated needs of our customers and achieve market acceptance.
In developing new features of our solution, we may:
- Fail to develop and market features that respond to technological changes
or evolving industry standards in a timely or cost-effective manner;
- Encounter products, capabilities or technologies developed by others that
render our solution obsolete or noncompetitive or that shorten the life
cycles of our existing solution;
- Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new features; or
- Fail to develop new features that adequately meet the requirements of the
marketplace or achieve market acceptance.
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OUR SOFTWARE MAY CONTAIN ERRORS OR DEFECTS.
Our software is complex and, accordingly, may contain undetected errors or
failures when first introduced. This may result in loss of, or delay in, market
acceptance of our solution. We have in the past discovered programming errors in
our new releases after their introduction. We have experienced delays in release
and customer frustration during the period required to correct these errors. We
may in the future discover errors, including Year 2000 errors and additional
scalability limitations, in new versions after release.
WE DEPEND ON OUR KEY PERSONNEL.
Our future performance depends on the continued service of our senior
management, product development and sales personnel, in particular Marcel van
Heesewijk, our Chairman, and Sean Maloy, our President and Chief Executive
Officer. The loss of the services of one or more of our key personnel could
seriously harm our business. Our future success also depends on our continuing
ability to attract, hire, train and retain a substantial number of highly
skilled managerial, technical, sales, marketing and customer support personnel.
We are particularly dependent on hiring additional personnel to increase our
direct
sales and product development organizations. In addition, new hires frequently
require extensive training before they achieve desired levels of productivity.
Competition for qualified personnel is intense, and we may fail to retain our
key employees or to attract or retain other highly qualified personnel.
PROTECTION OF OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATE.
We depend on our ability to develop and maintain the proprietary aspects of
our solution. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.
We do not sell our software and we require our customers to enter into user
agreements, which impose restrictions on their ability to utilize the software.
In addition, we seek to avoid disclosure of our trade secrets, including but not
limited to, requiring those persons with access to our proprietary information
to execute confidentiality agreements with us and restricting access to our
source code. We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. We cannot assure you that any of our proprietary rights with respect
to our solution will be viable or of value in the future because the validity,
enforceability and type of protection of proprietary rights in Internet-related
industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our solution or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our solution is
difficult, and while we are unable to determine the extent to which unauthorized
use exists, can be expected to be a persistent problem. In addition, the laws of
some foreign countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. Our means of protecting our
proprietary rights may not be adequate and our competitors may independently
develop similar technology, duplicate our solution or design around patents
issued to us or our other intellectual property.
There has been a substantial amount of litigation in the Internet industry
regarding intellectual property rights. It is possible that in the future, third
parties may claim that we or our current or potential future solutions infringe
their intellectual property. Any claims, with or without merit, could be time-
consuming, result in costly litigation, cause delays in the introduction of new
versions or features or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may not be available
on terms acceptable to us or at all, which could seriously harm our business.
We must now, and may in the future have to, license or otherwise obtain
access to intellectual property of third parties. For example, we are currently
dependent on licenses of IBM's Lotus Domino
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software for our solution, and may in the future be dependent on developers'
licenses from enterprise resource planning, database and other system software
merchandise suppliers in order to ensure compliance of our solution with their
systems. We may not be able to obtain any required third party intellectual
property in the future.
IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS.
We currently plan to hire a significant number of employees and to expand
the geographic scope of our customer base and operations. This expansion will
result in substantial demands on our management resources. Our ability to
compete effectively and to manage future expansion of our operations, if any,
will require us to continue to improve our financial and management controls,
reporting systems and procedures on a timely basis, and expand, train and manage
our employee work force. We may encounter difficulties in transitioning to new
management information software systems and our personnel, systems, procedures
and controls may be inadequate to support our future operations.
OUR BUSINESS IS SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.
We market our solution to retailers worldwide, and historically have derived
a significant portion of our revenues from international sales. As such, we are
subject to a number of risks associated with international business activities.
These risks generally include:
- Seasonal fluctuations in purchasing patterns;
- Unexpected changes in regulatory requirements;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- Difficulties in managing and staffing international operations;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- The burdens of complying with a wide variety of foreign laws;
- The risks related to global economic turbulence and adverse economic
circumstances;
- Political instability; and
- Currency exchange rate fluctuations.
OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES.
The risks posed by Year 2000 issues could adversely affect our business in a
number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our participating sellers also are heavily dependent on
information technology systems and on their own third-party merchandise supplier
systems. Year 2000 problems experienced by us or any of these third parties
could materially adversely affect our business. Additionally, the Internet could
face serious disruptions arising from the Year 2000 problem.
Many of our customers and potential customers have implemented policies that
prohibit or strongly discourage making changes or additions to their internal
computer systems until after January 1, 2000. We will experience lower net
revenues if potential customers who might otherwise subscribe to our solution
delay such subscriptions until after January 1, 2000 due to the risk of Year
2000 issues. If our potential customers delay subscribing to our solution in
anticipation of the Year 2000 problem, our business would be seriously harmed.
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We cannot guarantee that any of our participating retailers or merchandise
suppliers will be Year 2000 compliant in a timely manner, or that there will not
be significant interoperability problems among information technology systems.
We also cannot guarantee that retailers and merchandise suppliers will be able
to use our solution without serious disruptions arising from the Year 2000
problem. Given the pervasive nature of the Year 2000 problem, we cannot
guarantee that disruptions in other industries and market segments will not
adversely affect our business. Moreover, the costs related to Year 2000
compliance, which thus far have not been material, could ultimately be
significant. In the event that we experience disruptions as a result of the Year
2000 problem, our business could be seriously harmed.
OUR BUSINESS COULD BE AFFECTED AS A RESULT OF ANY FUTURE ACQUISITIONS.
In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash to consummate any acquisition. Acquisition
financing may not be available on favorable terms, or at all. In addition, we
may be required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would seriously harm our
business.
RISKS RELATED TO THE INTERNET INDUSTRY
WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ECOMMERCE. IF
THE USE OF THE INTERNET AND ECOMMERCE DO NOT GROW AS ANTICIPATED, OUR BUSINESS
WILL BE SERIOUSLY HARMED.
Our success depends on the increased acceptance and use of the Internet as a
medium of commerce on a global basis. Rapid growth in the use of the Internet is
a recent phenomenon. As a result, acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products. Our business would be seriously harmed if:
- Use of the Internet, the web and other online services does not continue
to increase or increases more slowly than expected;
- The infrastructure for the Internet, the web and other online services
does not effectively support expansion that may occur; or
- The Internet, the web and other online services do not create a viable
commercial marketplace, inhibiting the development of eCommerce and
reducing the need for our solution.
CAPACITY CONSTRAINTS MAY RESTRICT THE USE OF THE INTERNET AS A COMMERCIAL
MARKETPLACE.
The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons. These include:
- Potentially inadequate development of the necessary communication and
network infrastructure;
- Delayed development of enabling technologies and performance improvements;
- Delays in the development or adoption of new standards and protocols; and
- Increased governmental regulation.
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SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ECOMMERCE.
A significant barrier to eCommerce and communications is the secure
transmission of confidential information over public networks. Advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the web for commerce and communications.
Anyone who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our services or operations. The Internet
is a public network, and data is sent over this network from many sources. In
the past, computer viruses, software programs that disable or impair computers,
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our customers or
merchandise suppliers, which could disrupt our network or make it inaccessible
to customers or merchandise suppliers. We may be required to expend significant
capital and other resources to protect against the threat of security breaches
or to alleviate problems caused by breaches. To the extent that our activities
may involve the storage and transmission of proprietary information, such as
credit card numbers, security breaches, could expose us to a risk of loss or
litigation and possible liability. Our security measures may be inadequate to
prevent security breaches, and our business would be harmed if we do not prevent
them.
OUR SOFTWARE SOLUTION MAY EXPERIENCE DELAYS AS A RESULT OF HIGH VOLUMES OF
TRAFFIC.
Our solution is currently operating on a limited basis. Our software may not
be fully scalable, if the volume of traffic on the website for our solution
significantly increases, our solution may experience slower response times or
other problems. In addition, users will depend on Internet Service Providers,
telecommunications companies and the efficient operation of their computer
networks and other computer equipment for access to our solution. Each of these
has experienced significant outages in the past and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Any delays in response time or performance problems could cause users of our
solution to perceive this service as not functioning properly and therefore
cause them to use other methods to manage their sourcing and procurement
activities.
Even if the Internet infrastructure is adequately developed and maintained,
we may incur substantial expenditures in order to adapt our solution to changing
Internet technologies. Such additional expenses could severely harm our
financial results.
INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES AND
OTHER TAXES ON THE SALE OF OUR SOLUTION AND SERVICES.
As eCommerce evolves, we expect that federal, state or foreign agencies will
adopt regulations covering issues such as user privacy, pricing, content and
quality of products and services. It is possible that legislation could expose
companies involved in eCommerce to liability, which could limit the growth of
eCommerce generally. Legislation could dampen the growth in Internet usage and
decrease its acceptance as a communications and commercial medium. If enacted,
these laws, rules or regulations could limit the market for our solution and
services.
We do not collect sales or other similar taxes in respect of registration
and subscription fees for the use of our solution. However, one or more states
or countries may seek to impose use tax on companies like us. Legislation
limiting the ability of the states to impose taxes on Internet-based
transactions has been adopted by the U.S. Congress. This legislation could
contain a limited time period in which this tax moratorium will apply. In the
event that the tax moratorium is imposed for a limited time period, legislation
could be renewed at the end of this period. Failure to enact or renew this
legislation could allow various states to impose taxes on eCommerce, and the
imposition of these taxes could seriously harm our business.
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ITEM 2. PROPERTIES
The Company maintains one office in Mountain View, California occupying
approximately 2,148 square feet of space. Our operating lease on this facility
expires in September 2000. The employee in Hong Kong is located in an IBM
facility. We believe the facility requirements for our expansion plans will be
readily available.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings were commenced by or against the Company during Fiscal
1999.
The Company is subject to other legal actions arising in the ordinary course
of business. The Company believes that the results of any such actions will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1999.
The following matters will be submitted to a vote of security holders during
the first quarter of the fiscal year ending March 31, 2000 at the 1999 Annual
Meeting of the Stockholders on July 20, 1999:
(1) elect five nominees to serve as directors until the next annual meeting of
stockholders or until their successors are elected and have qualified;
(2) ratify the adoption of the Company's 1999 Stock Option Plan which authorizes
the grant of options to purchase up to 1,000,000 shares of the Company's
Common Stock;
(3) ratify the adoption of the Company's Employee Stock Purchase Plan which
authorizes the sale of up to 500,000 shares of the Company's Common Stock;
(4) consider and approve the Amended and Restated Certificate of Incorporation
which would effect changes to the Company's current Certificate of
Incorporation by: (a) changing the Company's name to SourcingLink.net, Inc.,
(b) increasing the number of authorized shares of Common Stock to 60,000,000
shares, (c) increasing the number of authorized shares of Preferred Stock to
15,000,000 shares, which will provide for 10,000,000 shares of blank check
Preferred Stock, and (d) providing for other technical and clarifying
amendments;
(5) consider and approve a Certificate of Amendment which would effect a 1-for-4
Reverse Stock Split;
(6) ratify the appointment of PricewaterhouseCoopers LLP as independent auditors
of the Company for fiscal year 2000.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "QCSC". The following table indicates the high and low bid prices for the
Company's Common Stock as quoted on the OTC Bulletin Board for the periods
indicated. The prices shown are representative inter-dealer prices, do not
include retail markups, markdowns, or commissions and may not necessarily
reflect actual transactions.
<TABLE>
<CAPTION>
BID PRICES ($)
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
1999
- ---------------------------------------------------------------------------
First Quarter ended 9/30/98................................................ 2.50 0.875
Second Quarter ended 12/31/98.............................................. 6.50 0.875
Third Quarter ended 3/31/99................................................ 5.625 1.625
1998
- ---------------------------------------------------------------------------
First Quarter ended 9/30/97................................................ 1.1875 0.50
Second Quarter ended 12/31/97.............................................. 1.5625 0.4375
Third Quarter ended 3/31/98................................................ 1.625 0.50
Fourth Quarter ended 6/30/98............................................... 3.875 1.50
1997
- ---------------------------------------------------------------------------
First Quarter ended 9/30/96................................................ 5.00 2.50
Second Quarter ended 12/31/96.............................................. 4.50 3.00
Third Quarter ended 3/31/97................................................ 4.125 1.50
Fourth Quarter ended 6/30/97............................................... 1.375 0.625
</TABLE>
As of March 31, 1999, there were approximately 203 holders of record and 427
beneficial holders of the Company's Common Stock and nine holders of the
Company's Series A Convertible Preferred Stock for which no market is
maintained. The Company has never declared nor paid dividends on its Common
Stock and does not anticipate paying dividends on its Common Stock for the
foreseeable future. Quarterly dividends of $0.012875 per share began accruing on
the Company's Series A Convertible Preferred Stock on November 22, 1994 and
began compounding annually on January 1, 1996 (the "Series A Dividend").
Effective June 30, 1998, the Company completed an agreement with the current
holders of shares of Series A Preferred Stock (the "Series A Investors") to
restructure the Series A Dividend, whereby the Series A Investors agreed to
eliminate the Series A Dividend. In place of the Series A Dividend, the Series A
Investors were issued, on a pro rata basis, shares of Series A Preferred Stock.
The number of shares issued to the Series A Investors was determined by dividing
the accrued dividend as of June 30, 1998 by $1.2069, which was 66 2/3% of the
average bid and ask prices of the Company's Common Stock for the prior 20
trading days as reported on the OTC Bulletin Board reporting system. These
shares of Series A Preferred Stock have the same voting and other rights as the
Series A Preferred Stock.
On the date of conversion, the accrued Series A Dividend for the Series A
Investors was $797,377. The Company issued 660,681 shares of Series A Preferred
Stock in payment of the Series A Dividend accrued through June 30, 1998. After
issuance of these shares the remaining Series A Dividend payable in arrears was
$65,051, which amount represents those dividends accrued with respect to shares
of Series A Preferred Stock which were converted to Common Stock prior to June
30, 1998. In September 1998, the Company issued 44,272 shares of Common Stock to
a Series A Investor as payment of $55,804 of the Series A Dividend. After
payment of these shares, the remaining dividend payable in arrears was $9,247.
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RECENT SALES OF UNREGISTERED SECURITIES
As discussed above, the Company issued 44,272 shares of Common Stock to a
Series A investor in September 1998 as payment of $55,804 of the Series A
Dividend. These shares of Common Stock were issued in reliance upon the
exemption provided by Section 4(2) of the Securities Act.
In September 1998, the Company issued 276,091 shares of Common Stock in a
private placement at a price of $1.375 per share for net proceeds of $379,505
(the "September Private Placement"). In November 1998, the Company issued
933,333 equity units at $0.75 per unit, each such unit consisting of one share
of Common Stock and one warrant to purchase an additional share of Common Stock
at an exercise price of $1.00 (the "November Private Placement"). The Company
received net proceeds of $682,500 for the units sold in the November Private
Placement. An additional 1,304,347 units were sold in December 1998 at $1.15 per
unit, the net proceeds of which totaled $1,445,337 (the "December Private
Placement"), each such unit consisting of one share of Common Stock and one
warrant to purchase an additional share of Common Stock at an exercise price of
$1.75. The shares of Common Stock sold in the September Private Placement and
the Units consisting of Common Stock and warrants to purchase Common Stock sold
in the November Private Placement and December Private Placement were issued in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
Additional warrants for 164,330 shares of Common Stock were issued during
fiscal 1999 of which a warrant to purchase 150,000 shares of Common Stock at
$0.87 is exercisable from February 3, 1999 until February 3, 2002, and warrants
to purchase 14,300 shares of Common Stock at prices ranging from $1.14 to $6.65
are exercisable until April 2002. These warrants of Common Stock were issued in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
During fiscal 1999, the Company issued an aggregate of 1,219,000 incentive
stock options and nonqualified stock options to eligible employees, directors
and consultants pursuant to the Company's 1997 Stock Option Plan ("the 1997
Option Plan"). The exercise price for such options ranged from $0.969 to $4.00.
Such options were issued but not sold, in the view of the Company, and
therefore, registration thereof was not required. During the same period, the
Company issued an aggregate of 40,000 shares of Common Stock upon the exercise
of options under the Company's Stock Option Plan to one former employee. Such
shares were issued in reliance upon the exemption provided by Section 4(2) of
the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
REPORT.
CERTAIN STATEMENTS CONTAINED IN THIS REPORT, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND OTHER
WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,
BUT ARE NOT LIMITED TO, THE FACTORS DISCUSSED UNDER THE CAPTION "RISK FACTORS"
IN ITEM 1 OF THIS REPORT. GIVEN THESE UNCERTAINTIES, READERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY
DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR TO ANNOUNCE PUBLICLY THE
RESULTS OF ANY REVISIONS OF THE FORWARD-LOOKING STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
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<PAGE>
OVERVIEW
The Company has developed an Internet-based turnkey solution for
business-to-business eCommerce that enables retailers to organize, automate and
significantly reduce the cost of their preorder merchandise sourcing activities
by connecting directly with their retail merchandise suppliers around the globe.
The Company's revenues are generated principally from network revenues
consisting of fees for access to and use of the Company's solutions. These fees
include initial registration fees, fixed monthly or annual subscription fees or
"pay-as-you-go" transactional fees.
Network revenues in prior years were primarily from customer use of the
Company's desktop solution. In February 1999, the Company began a rollout of its
new Internet solution to selected merchandise suppliers of the Company's
retailer subscribers. In conjunction with the launch of the Internet solution,
the Company is implementing a new sales and marketing strategy under which such
efforts will be conducted internally rather than outsourced to a third party.
Also under the new strategy, effective April 1, 1999, the Company discontinued
offering the pay-as-you-go transaction based subscription fee option for new
subscribers.
Consulting revenue has been received over the last two years under a
contract with IBM. The Company entered into this multi-faceted eCommerce
agreement with IBM in the third quarter of fiscal 1998, as an amendment to an
earlier 1996 agreement under which the Company became an active participant in
IBM's e-commerce group. Under the 1998 contract, referred to as the IBM
Agreement or the Agreement in the discussion below, IBM has provided sales,
marketing, project management and network, server and other infrastructure
support to the Company. Payments to IBM have been based on a percentage of sales
under a revenue sharing provision of the Agreement. In addition, the Company has
periodically assisted IBM with sales and marketing of the Company's solution,
and has billed IBM at cost for such services. These billings to IBM have been
recorded as consulting revenue. As a result of the Company's new strategy and
intent to bring sales, marketing and project management in-house, the Company
does not expect to continue providing or billing these consulting services to
IBM.
Historically, the cost of network revenue consisted primarily of fees paid
under the revenue sharing provision of the IBM Agreement, as well as the costs
of third party software and the internal costs of maintaining the Company's
solution. Payments under the IBM Agreement are for customer support provided by
three IBM international solution centers, hosting the Company's applications on
network servers in an IBM facilities management environment and IBM-provided
sales, marketing and project management services.
The cost of consulting revenue, which equals the revenue received, consists
primarily of payroll related costs of our employees providing those services to
IBM.
Selling, general and administrative expenses consist primarily of
personnel-related costs for the Company's sales, marketing and general
management functions and other administrative support costs such as external
legal and financial services. Product development expenses consist primarily of
personnel-related costs for software developers, product managers and quality
assurance personnel and payments to outside contractors incurred to develop and
enhance the Company's technology.
ACCOUNTING FOR NEW IBM AGREEMENT
The Company is currently in the process of negotiating new agreements to
cover its relationship with IBM. The Company anticipates that the alliance with
IBM will continue to include both co-marketing and infrastructure support to the
Company. Historically, these costs were based primarily on revenue sharing, and
were all included in cost of revenue. If the Agreement is modified effective
October 1, 1999, as expected, payments to IBM will be accounted for as described
below.
For the infrastructure portion of the agreement, which includes housing of
servers in IBM's secure data management center and global help desk and project
management support, the Company will pay
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IBM under a combined fixed and variable price structure, based upon the level of
service. Payments for these services will be accounted for as cost of revenue.
For the co-marketing portion of the agreement, which includes services for
the active promotion of the Company's preorder merchandise sourcing solution,
use of the IBM logo on Company marketing material, including our website, and
participation with IBM at its e-commerce trade show booths, payments will be
made on a revenue sharing basis and will be accounted for as sales and marketing
expense.
ACCUMULATED LOSSES
From its inception in 1993 through March 31, 1999, the Company has generated
an accumulated deficit of $14.4 million. The report of our independent
accountants accompanying our Consolidated Financial Statements notes that our
recurring operating losses raise substantial doubt about our ability to continue
as a going concern. Note 2 to our Consolidated Financial Statements describes
management's plans in regard to these matters. Since inception, the Company has
incurred substantial costs to develop its technology, to create, introduce and
enhance its sourcing solution, to establish marketing and distribution
relationships, to recruit and train a sales and marketing group and to build an
administrative organization. The Company's prospects must be considered in light
of its operating history, and the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new, unproved and rapidly evolving markets. The limited operating
history of the Company makes the prediction of future results of operations
difficult or impossible and, therefore, there can be no assurance that the
Company will grow or that it will be able to achieve or sustain profitability.
The Company's success depends to a significant degree upon the Company's ability
to raise additional capital, and continued contributions of key management,
engineering, sales and marketing, and finance personnel, certain of whom would
be difficult to replace. The loss of the services of any of the key personnel or
the inability to attract or retain qualified management and other personnel in
the future, or delays in hiring required personnel, could have a material
adverse effect on the Company's business, operating results or financial
condition. Also, the Company's success is highly dependent on its ability to
execute in a timely manner its new sales and marketing plan, of which no
assurance can be made. The previous strategy, which included outsourcing the
sales and marketing function to IBM, thus far has produced insignificant
revenues.
As a result of the accumulated losses, the Company has not recorded any
provision for income taxes since inception. As of March 31, 1999, net operating
loss carryforwards for United States federal and state income tax purposes were
approximately $7.7 million. In addition, the Company had net operating loss
carryforwards for tax purposes in France of approximately $4.1 million.
CHANGE IN FISCAL YEAR
In May 1999, the Company's Board of Directors approved a change in the
Company's fiscal year end from June 30 to March 31, commencing April 1, 1999.
Fiscal 1998 represents the twelve months ended June 30, 1998 and fiscal 1999
represents the nine months ended March 31, 1999.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES
Total revenues for fiscal 1999 increased $96,000, or 15%, to $741,000 from
$645,000, in the first nine months of fiscal 1998. This increase was primarily
due to an increase in consulting revenues under the IBM Agreement, primarily for
sales, marketing and project management assistance provided to IBM by the
Company, which amounted to $261,000 in fiscal 1999, as compared with $105,000 in
the same period last year. The agreement with IBM which provided for such
services became effective in the third quarter of fiscal 1998, and therefore was
present for all of fiscal 1999 but only a portion of the comparable prior
23
<PAGE>
period. Consulting revenues from IBM are expected to decline in the future as
the Company intends to reduce both its reliance on, and its assistance to, IBM's
sales and marketing of the Company's solutions. Instead the Company intends to
enhance its own sales and marketing capabilities and bring this function
in-house.
Network revenues in fiscal 1999 decreased by $60,000, or 11%, to $480,000
from $540,000 for the first nine months of fiscal 1998. This decrease is
primarily due to the Company's transition from its desktop solution to its
Internet solution. As part of the transition, the Company has de-emphasized
sales of its desktop solution, and the reduction in these sales has not yet been
offset by revenues from the Internet solution which has only recently begun to
be rolled-out. Sales of the Company's Internet solution generally requires
adoption by retailers and then a roll-out to the retailer's merchandise
suppliers which the Company expects will result in lengthy sales and
implementation cycles.
COST OF REVENUES
In fiscal 1999, the cost of network revenues decreased $155,000, or 44%, to
$201,000 from $356,000 in the first nine months of fiscal 1998. In fiscal 1999,
the cost of network revenues consisted primarily of revenue sharing payments
under the IBM Agreement. Network and other infrastructure support is provided by
IBM under this Agreement. In the first half of fiscal 1998, prior to entering
into the Agreement with IBM, the cost of network revenues was greater as
additional costs were incurred internally for network support, including
internal and external labor to install and support customer sites, and the cost
of third party software and hardware for our solution. The cost of consulting
revenue, which equals the revenues received, was $261,000 in fiscal 1999 and
$105,000 in the first nine months of fiscal 1998. Overall, gross profit in
fiscal 1999 increased $95,000 to $279,000, or 38% of revenues, from $184,000, or
29% of revenues, in fiscal 1998. Under the infrastructure portion of the new
agreement with IBM that is expected to become effective October 1, 1999, network
and other infrastructure support costs will be relatively fixed over varying
levels of activity; accordingly, future fluctuations in revenue may have a
greater impact on gross profit margins than in prior periods.
OPERATING EXPENSES
In fiscal 1999, the Company's selling, general and administrative expenses
decreased by $266,000, or 16%, to $1.4 million from $1.5 million in the first
nine months of fiscal 1998. The decrease in these expenses was primarily due to
the impact of the IBM Agreement, under which certain sales, marketing and
customer support services were charged to IBM beginning in the third quarter of
fiscal 1998, and the reduction in costs from the closure of the France and Hong
Kong offices in December 1997. Fiscal 1999 product development expenses
increased by $197,000, or 70%, to $479,000 from $282,000 in the first nine
months of fiscal 1998. The increase in product development is primarily labor
costs associated with continued enhancement of the Company's Internet solution,
including release of a new version of this Internet solution. The Company
expects that product development and selling, general and administrative
expenses will continue to increase as it expands its operations, brings its
sales and marketing function in-house, and incurs additional labor and other
costs related to the enhancement and sales of its solution.
OTHER INCOME (EXPENSE), NET
The principal component of other income (expense), net, a gain of $62,000
and an expense of $65,000 in fiscal 1999 and the nine months ended March 31,
1998, respectively, consists of exchange gains and losses arising on foreign
currency transactions with the Company's foreign subsidiaries in France and Hong
Kong.
24
<PAGE>
INCOME TAXES
The Company recorded net losses of $1.5, $2.8 and $3.0 million in fiscal
1999, 1998 and 1997, respectively. Accordingly, no provision for income taxes
was recorded in any of these periods. As of March 31, 1999, the Company had net
operating loss carryforwards for United States federal and state income tax
purposes of approximately $7.7 million. These losses expire at various dates
between 2002 and 2019. As of March 31, 1999, the Company also had net operating
loss carryforwards for income tax purposes in France of approximately $4.1
million which expire at various dates between 1999 and 2003. The Internal
Revenue Code of 1986, as amended, contains provisions that limit the use in any
future period of net operating loss and credit carryforwards upon the occurrence
of certain events, including a significant change in ownership interests. At
March 31, 1999, the Company had deferred tax assets, including U.S. net
operating loss carryforwards, totaling approximately $4.6 million. A valuation
allowance has been recorded for the entire deferred tax asset due to the fact
that, as of the present time, it is more likely than not that such asset will
not be realized.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES
Total revenues for fiscal 1998 decreased $383,000, or 30%, to $892,000 from
$1.3 million in fiscal 1997. This decrease is largely attributable to a 46%
reduction in the Company's network revenues, primarily due to the Company's
transition from its desktop solution to its Internet solution. As part of the
transition, the Company de-emphasized sales of its desktop solution. The
resulting reduction in those revenues was not offset by revenue from the
Internet solution, which was introduced only for pilot testing during fiscal
1998. Consulting revenue commenced during the third quarter of fiscal 1998, as
the Company amended its agreement with IBM to include payment to the Company for
certain sales, marketing and project management services provided by the Company
to IBM. Such consulting revenues were $210,000 in fiscal 1998.
COST OF REVENUES
In fiscal 1998, the cost of network revenues decreased by $422,000, or 50%,
to $415,000 from $837,000 in fiscal 1997. This decrease in the cost of network
revenue was primarily due to the Agreement entered into with IBM in the third
quarter of fiscal 1998 under which IBM took on certain network and other support
costs which had previously been incurred by the Company, as well as the
reduction in the overall level of sales. The cost of consulting revenue, which
equals the revenues received, was $210,000 in fiscal 1998. Overall, gross profit
in fiscal 1998 declined $170,000 to $267,000, or 30% of sales, from $437,000, or
34% of sales, in fiscal 1997.
OPERATING EXPENSES
In fiscal 1998, the Company's selling, general and administrative expenses
decreased by $567,000, or 19%, to $2.3 million from $2.9 million in fiscal 1997.
The decrease in these expenses was primarily due to the impact of the IBM
Agreement entered into in the third quarter of fiscal 1998, under which certain
sales, marketing and customer support services began being charged to IBM, as
well as a reduction in travel and consulting expenses. Fiscal 1998 product
development expenses increased by $42,000, or 12%, to $407,000 from $365,000 in
fiscal 1997. The increase in product development is primarily due to increased
investment in internally developed enhancements and consulting services
purchased for the development of back-end administrative features of the
Company's Internet solution.
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<PAGE>
OTHER INCOME (EXPENSE), NET
The principal component of other income (expense), net, an expense of
$44,000 and $36,000 in fiscal 1998 and 1997, respectively, consists of exchange
gains and losses arising on foreign currency transactions with the Company's
foreign subsidiaries in France and Hong Kong.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results could
fall below the expectations of securities analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our Common Stock.
Our quarterly operating results may vary depending on a number of factors,
including: demand for our solution and services; actions taken by our
competitors, including new product introductions and enhancements; delays or
reductions in spending for, or the implementation of, supply chain management
solutions by our potential customers as companies attempt to stabilize their
computer systems prior to January 1, 2000 in order to reduce the risk of
computer system problems associated with the year 2000; ability to scale our
network and operations infrastructure; ability to develop, introduce and market
new solutions and enhancements to our existing solution on a timely basis;
changes in our pricing policies or those of our competitors; ability to expand
our sales and marketing operations, including hiring additional sales personnel;
size and timing of sales of our solution and services; success in maintaining
and enhancing existing relationships and developing new relationships with
strategic partners; ability to control costs; technological changes in our
markets; deferrals of customer subscriptions in anticipation of new enhancements
or features of our solution; customer budget cycles and changes in these budget
cycles; and general economic factors.
We plan to increase our operating expenses substantially to expand our sales
and marketing operations, fund greater levels of product development, increase
general and administrative support, develop new partnerships, increase our
professional services and support capabilities and improve our operational and
financial systems. If our revenues do not increase along with these expenses,
our business, operating results and financial condition could be seriously
harmed and net losses in a given quarter could be even larger than expected. In
addition, because our expense levels are relatively fixed in the near term and
are based in part on expectations of our future revenues, any decline in our
revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 31, 1999 were $1.3 million,
representing an increase of $794,000 from June 30, 1998. Cash used in operating
activities for the nine months ended March 31, 1999 was $1.7 million, compared
to $1.4 million for the nine months ended March 31, 1998. The cash usage was
primarily due to the net losses that occurred in each of the periods and the
payment of certain accounts payable and other current liabilities during fiscal
1999.
During fiscal 1999, the Company received $2.5 million in net proceeds from a
private placement of 2.2 million equity units to 19 investors at prices ranging
from $0.75 to $1.15 per unit, each such unit consisting of one share of Common
Stock and one warrant to purchase an additional share of Common Stock at an
exercise price ranging from $1.00 to $1.75.
At June 30, 1998, cash and cash equivalents were $473,000, representing a
decrease of $801,000 from the $1.3 million at June 30, 1997. Cash used in
operating activities was $1.7 million in fiscal 1998 compared to $2.5 million in
fiscal 1997. This reduction in cash used in operating activities was primarily
due to the
26
<PAGE>
reduction in the net loss (adjusted for non-cash compensation expenses) and an
increase in accounts payable in fiscal 1998.
The Company believes that its current working capital will be sufficient to
meet its working capital requirements through September 1999. The Company is
actively seeking additional equity investment to fund future operations. If such
efforts are unsuccessful, the Company will need to reduce operating spending
significantly, which would materially and adversely affect the Company's
business.
The Company currently does not have a bank credit line. The Company does not
intend to pay cash dividends with respect to capital stock in the foreseeable
future.
RECENT PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The Company is
reviewing the impact of SOP No. 98-1, which will be effective in fiscal year
2000. Currently, we do not anticipate that SOP No. 98-1 will have a material
impact on the Company's financial statements.
YEAR 2000 COMPLIANCE
The "Year 2000" issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As such, computer
programs that have date sensitive software might recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in program failure or
miscalculation causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices, operate equipment
or engage in similar normal business activities.
The Company has reviewed its internal computer systems, its Internet
solution and its desktop software solution that could be affected by the "Year
2000" issue. Within its internal computer systems and its desktop software
solution, the Company has identified some systems and software applications that
will be affected. The Company presently believes, with modification to existing
software and converting to new software, the "Year 2000" issues relating to
internal computer systems and desktop software solution will not cause
significant operational or customer problems. Furthermore, the Company does not
anticipate that the cost of implementing these solutions will be material to its
financial position or results of operations. However, if such modifications and
conversions are not made, or are not completed on a timely basis, "Year 2000"
related problems could have a material adverse effect on the business, financial
condition and results of operations of the Company. Furthermore, the costs of
such conversions and updates are based on management's best estimates, which are
derived utilizing numerous assumptions of future events including such things
as, but not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes and similar
uncertainties. The Company has begun initiating formal communications with its
significant suppliers and large customers in fiscal 1999 to determine the extent
to which the Company is vulnerable to those third parties' failure to remediate
their own "Year 2000" issues. However, there can be no guarantee that the
systems of other companies on which other companies rely will be timely
converted, or a failure to convert by another company, or a conversion that is
incompatible with the Company's systems will not have a material adverse impact
on the Company.
ITEM 7. FINANCIAL STATEMENTS
Financial statements and supplementary data are set forth on pages F-1
through F-21.
27
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT
The information required by this item is included under the captions
entitled "Election of Directors" and "Information Concerning Directors and
Executive Officers" in the Company's Proxy Statement and is incorporated herein
by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is included under the caption entitled
"Executive Compensation" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption entitled
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption entitled
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement and is incorporated herein by reference.
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<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
(a) The following documents are filed as a part of this form:
1. Financial Statements:
Report of Independent Accountants................................................................ F-1
Consolidated Balance Sheets--As of March 31, 1999 and June 30, 1998.............................. F-2
Consolidated Statements of Operations--For the nine months of Fiscal Year ended March 31, 1999
and twelve months of Fiscal Year 1998 and Fiscal Year 1997..................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)--For the nine months of Fiscal Year
ended March 31, 1999 and twelve months of Fiscal Year 1998 and Fiscal Year 1997................ F-4
Consolidated Statements of Cash Flows--For the nine months of Fiscal Year ended March 31, 1999
and twelve months of Fiscal Year 1998 and Fiscal Year 1997..................................... F-5
Notes to Consolidated Financial Statements....................................................... F-6
2. Financial Statement Schedules--For fiscal years ended March 31, 1999 and June 30, 1998:
Schedule II--Valuation and other Qualification Accounts.......................................... F-21
All other schedules are omitted because they are not applicable or the required information is
shown in The consolidated financial statements or notes thereto.
3. Exhibits: The list of exhibits on the Exhibit Index is herein incorporated by reference.
(b) Reports on Form 8-K: none.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, this 18th day of June
1999.
<TABLE>
<S> <C> <C>
QCS.net CORPORATION
(Registrant)
By: /s/ SEAN MALOY
-----------------------------------------
Sean Maloy
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and officers of QCS.net Corporation do hereby
constitute and appoint Sean Maloy with full power of substitution and
resubstitution, our true and lawful attorney and agent, to do any and all acts
and things in our name and behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorney and agent, may deem necessary or advisable
to enable said corporation to comply with the Securities Exchange Act of 1934,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with this Annual Report on Form 10-KSB,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names and in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto; and we do hereby ratify
and confirm all that the said attorney and agent, or either of them, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-KSB has been signed below by the
following persons in the capacities and on the dates indicated this 18th day of
June, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
/s/ SEAN MALOY Officer and Director
- ------------------------------ (Principal Executive
Sean Maloy Officer)
Vice President of Finance
/s/ GARY DAVIDSON and Chief Financial
- ------------------------------ Officer (Principal
Gary Davidson Financial and Accounting
Officer)
/s/ MARCEL VAN HEESEWIJK
- ------------------------------ Chairman of the Board of
Marcel van Heesewijk Directors
/s/ MATTHEUS WEGBRANS
- ------------------------------ Director
Mattheus Wegbrans
/s/ JOHAN VUNDERINK
- ------------------------------ Director
Johan Vunderink
/s/ LOUIS DELMONICO
- ------------------------------ Director
Louis Delmonico
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of QCS.net Corporation (dba SourcingLink.net):
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
QCS.net Corporation and its subsidiaries at March 31, 1999 and June 30, 1998,
and the results of their operations and their cash flows for the nine months
ended March 31, 1999 and the years ended June 30, 1998 and 1997, in conformity
with generally accepted accounting principles. 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 of these consolidated
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has incurred losses from
operations since inception which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
San Jose, California PricewaterhouseCoopers LLP
May 21, 1999
F-1
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 1,266,880 $ 473,170
Accounts receivable (net of allowance for doubtful accounts of $35,121 at March
31, 1999 and $29,657 at June 30, 1998)........................................ 222,769 203,921
Other current assets............................................................ 7,111 5,345
-------------- --------------
Total current assets.......................................................... 1,496,760 682,436
Property and equipment, net....................................................... 185,286 248,871
Security deposits................................................................. 12,839 27,942
-------------- --------------
Total assets.................................................................. $ 1,694,885 $ 959,249
-------------- --------------
-------------- --------------
LIABILITIES
Current liabilities:
Accounts payable................................................................ $ 207,303 $ 344,436
Accrued liabilities............................................................. 534,054 655,577
Capital lease obligations, current portion...................................... 8,201 8,423
-------------- --------------
Total current liabilities..................................................... 749,558 1,008,436
Capital lease obligations, net of current portion................................. -- 6,468
-------------- --------------
Total liabilities............................................................. 749,558 1,014,904
Commitments (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Series A convertible preferred stock, par value $.001 per share: Authorized:
5,000,000 shares; issued and outstanding 3,816,023 and 4,680,102 shares at March
31, 1999 and June 30, 1998, respectively (aggregate liquidation preference:
$3,930,504)..................................................................... 3,816 4,680
Common Stock, par value $.001 per share: Authorized: 40,000,000 shares; issued
issued and outstanding 22,525,437 and 18,831,552 at March 31, 1999 and June 30,
1998, respectively.............................................................. 22,525 18,832
Additional paid-in capital........................................................ 15,298,501 12,898,284
Subscriptions receivable from stockholders........................................ -- (200,100)
Common stock note receivable...................................................... (40,000) --
Accumulated deficit............................................................... (14,420,409) (12,928,630)
Cumulative foreign currency translation adjustments............................... 80,894 151,279
-------------- --------------
Total stockholders' equity (deficit)............................................ 945,327 (55,655)
-------------- --------------
Total liabilities and stockholders' equity (deficit).......................... $ 1,694,885 $ 959,249
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED MARCH ENDED JUNE ENDED JUNE
31, 1999 30, 1998 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Network........................................................ $ 480,082 $ 682,192 $ 1,274,611
Consulting..................................................... 260,915 210,000 --
------------- ------------- -------------
740,997 892,192 1,274,611
Cost of revenue:
Network........................................................ 201,032 414,815 837,131
Consulting..................................................... 260,915 210,000 --
------------- ------------- -------------
461,947 624,815 837,131
Gross profit....................................................... 279,050 267,377 437,480
Operating expenses:
Selling, general and administrative............................ 1,371,269 2,344,971 2,912,498
Product development............................................ 479,416 407,479 364,539
------------- ------------- -------------
Total operating expenses........................................... 1,850,685 2,752,450 3,277,037
Operating loss..................................................... (1,571,635) (2,485,073) (2,839,557)
Other income (expense), net........................................ 62,056 (44,433) (36,458)
Interest income.................................................... 17,800 18,704 98,238
------------- ------------- -------------
Net loss........................................................... (1,491,779) (2,510,802) (2,777,777)
Preferred dividend................................................. -- (256,966) (243,118)
------------- ------------- -------------
Net loss attributed to common stockholders......................... $(1,491,779) $(2,767,768) $(3,020,895)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share (basic and diluted)............................. $ (0.07) $ (0.16) $ (0.18)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of shares used in per share calculation
(basic and diluted).............................................. 20,193,250 17,539,820 17,074,660
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED MARCH 31,1999 AND TWELVE MONTHS ENDED JUNE 30, 1998
AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
---------------------- ---------------------- PAID-IN STOCK OPTION
SHARES AMOUNTS SHARES AMOUNTS CAPITAL COMPENSATION
--------- ----------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1996........................... 4,368,937 $ 4,369 16,692,531 $ 16,693 $9,688,531 $(301,638)
Issuance of common stock in connection with a
private placement................................. 344,000 344 1,031,475
Common stock subscriptions received.................
Write-off of common stock warrants.................. (66,775)
Exercise of stock options........................... 100,000 100
Compensation related to stock options............... 194,388
Preference dividend payable.........................
Translation adjustment..............................
Net loss for the year...............................
--------- ----------- --------- ----------- ---------- -------------
BALANCES AT JUNE 30, 1997........................... 4,368,937 4,369 17,136,531 17,137 10,653,231 (107,250)
Issuance of common stock in connection with a
private placement................................. 1,270,505 1,270 1,076,969
Conversion of preferred stock to common stock....... (349,516) (350) 349,516 350
Exercise of warrants................................ 75,000 75 675
Payment of dividend in preferred stock.............. 660,681 661 796,716
Compensation related to stock options and
warrants.......................................... 370,693 107,250
Preferred dividend payable..........................
Translation adjustment..............................
Net loss for the year...............................
--------- ----------- --------- ----------- ---------- -------------
BALANCES AT JUNE 30, 1998........................... 4,680,102 4,680 18,831,552 18,832 12,898,284 --
Preference dividend payable in Common Stock......... 44,272 44 55,760
Exercise of Options & Warrants...................... 338,463 338 39,662
Proceeds from Private Placements.................... 2,513,771 2,514 2,504,828
Conversion of Preferred to Common stock............. (864,079) (864) 864,079 864
Cancellation of Stock Note.......................... (66,700) (67) (200,033)
Translation adjustment..............................
Net loss for the nine month period..................
--------- ----------- --------- ----------- ---------- -------------
BALANCE AT MARCH 31, 1999........................... 3,816,023 $ 3,816 22,525,437 $ 22,525 $15,298,501 $ --
--------- ----------- --------- ----------- ---------- -------------
--------- ----------- --------- ----------- ---------- -------------
<CAPTION>
CUMULATIVE TOTAL
NOTES FOREIGN STOCK-
RECEIVABLE CURRENCY HOLDERS'
FROM STOCK- ACCUMULATED TRANSLATION EQUITY/
HOLDERS DEFICIT ADJUSTMENTS (DEFICIT)
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1996........................... $(462,584) $(7,139,967) $ 5,004 $1,810,408
Issuance of common stock in connection with a
private placement................................. 1,031,819
Common stock subscriptions received................. 262,484 262,484
Write-off of common stock warrants.................. (66,775)
Exercise of stock options........................... 100
Compensation related to stock options............... 194,388
Preference dividend payable......................... (243,118) (243,118)
Translation adjustment.............................. 114,852 114,852
Net loss for the year............................... (2,777,777) (2,777,777)
----------- ------------ ----------- ---------
BALANCES AT JUNE 30, 1997........................... (200,100) (10,160,862) 119,856 326,381
Issuance of common stock in connection with a
private placement................................. 1,078,239
Conversion of preferred stock to common stock....... 0
Exercise of warrants................................ 750
Payment of dividend in preferred stock.............. 797,377
Compensation related to stock options and
warrants.......................................... 477,943
Preferred dividend payable.......................... (256,966) (256,966)
Translation adjustment.............................. 31,423 31,423
Net loss for the year............................... (2,510,802) (2,510,802)
----------- ------------ ----------- ---------
BALANCES AT JUNE 30, 1998........................... (200,100) (12,928,630) 151,279 (55,655)
Preference dividend payable in Common Stock......... 55,804
Exercise of Options & Warrants...................... (40,000) 0
Proceeds from Private Placements.................... 2,507,342
Conversion of Preferred to Common stock............. 0
Cancellation of Stock Note.......................... 200,100 0
Translation adjustment.............................. (70,385) (70,385)
Net loss for the nine month period.................. (1,491,779) (1,491,779)
----------- ------------ ----------- ---------
BALANCE AT MARCH 31, 1999........................... $ (40,000) ($14,420,409) $ 80,894 $ 945,327
----------- ------------ ----------- ---------
----------- ------------ ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (1,491,779) $ (2,510,802) $ (2,777,777)
Adjustments to reconcile net loss to net cash used in Operating
activities:
Depreciation and amortization expense............................ 81,549 63,536 79,914
Unrealized exchange (gain) loss.................................. (64,329) 39,532 128,992
Loss on disposal of fixed assets................................. 4,809 86,424 13,158
Expense related to stock options and warrants.................... -- 477,943 194,388
Changes in operating assets and liabilities:
Accounts receivable............................................ (18,848) (51,132) 18,638
Other current assets and security deposits..................... 13,337 13,668 14,309
Accounts payable............................................... (137,133) 104,429 (322,698)
Accrued and other liabilities.................................. (65,719) 70,221 126,315
------------- -------------- --------------
Net cash used in operating activities........................ (1,678,113) (1,706,181) (2,524,761)
Cash flows from investing activities:
Purchases of fixed assets........................................ (22,773) (180,406) (100,433)
Proceeds from disposal of fixed assets........................... -- 23,818 --
------------- -------------- --------------
Net cash used in investing activities........................ (22,773) (156,588) (100,433)
Cash flows from financing activities:
Proceeds from issuance of common stock........................... 2,507,342 1,078,239 1,031,919
Common stock subscriptions received.............................. -- -- 262,484
Proceeds from exercise of warrants............................... -- 750 --
Payments on capital leases....................................... (6,690) (9,098) (4,038)
------------- -------------- --------------
Net cash provided by financing activities.................... 2,500,652 1,069,891 1,290,365
Effect of exchange rate changes on cash............................ (6,056) (8,109) 1,868
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents......... 793,710 (800,987) (1,332,961)
Cash and cash equivalents, beginning of the period................. 473,170 1,274,157 2,607,118
------------- -------------- --------------
Cash and cash equivalents, end of the period....................... $ 1,266,880 $ 473,170 $ 1,274,157
------------- -------------- --------------
------------- -------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......................... $ 1,573 $ 4,153 $ 2,331
Cash paid during the period for taxes............................ 800 800 800
Non-cash financing transactions:
Conversion of preference dividend payable to stock............... 55,804 797,377 21,593
Issuance of note receivable for exercise of employee stock
option......................................................... 40,000 -- --
Cancellation of common stock subscription receivable............. 200,100 -- 66,775
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
QCS.net Corporation ("the Company") was incorporated in 1994 as a Delaware
corporation. The Company owns all of the outstanding shares of its subsidiary,
QCS Development Company S.A. The Company maintains its office in Mountain View,
California. During fiscal 1999 the Company liquidated QCS Global Retail
Information Network Asia Pacific Ltd. ("the Hong Kong Subsidiary") in Hong Kong,
and has ceased operations of QCS Development Company S.A. ("the French
Subsidiary") in France. The Company has no other subsidiaries.
The Company has developed an Internet-based turnkey solution for
business-to-business eCommerce that enables retailers to organize, automate and
significantly reduce the cost of their merchandise sourcing activities by
connecting directly with their merchandise suppliers around the globe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
The Company has changed its fiscal year end from June 30th, to March 31st.
Amounts for the nine month period ended March 31, 1999 are defined as Fiscal
1999. Amounts for the years ended June 30, 1998 and 1997 are defined as Fiscal
1998 and 1997, respectively.
BASIS OF PRESENTATION:
These consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses from
operations since its inception. This factor raises substantial doubt about the
Company's ability to continue as a going concern. Management plans to raise
further equity funding to expand operations and in order to fund growth in
revenue. If these fund raising efforts are not successful, the Company would
have to reduce operating spending significantly, which would materially and
adversely effect the Company's business, and raise substantial doubts about its
ability to continue as a going concern. These consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
The consolidated financial statements include the accounts of QCS.net
Corporation and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to makes use of estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of highly liquid instruments with an
original or remaining maturity of 90 days or less as of the date of purchase.
F-6
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets, ranging from one to five years, or over the term of the lease, if
shorter.
The cost of property retired or otherwise disposed of and the related
accumulated depreciation or amortization are removed from the accounts, and the
resulting gains or losses are included in the results of operations.
REVENUE RECOGNITION:
The Company's revenues are generated from fees for access to and use of the
Company's network product. These fees include initial registration fees, fixed
monthly or annual subscription fees or "pay-as-you-go" transactional fees. In
April 1999, the Company suspended the pay as-you-go payment option for new
subscribers. Network revenues are recognized as the services are provided.
Revenues from consulting services are recognized at the time the service is
performed and accepted by the customer.
PRODUCT DEVELOPMENT:
All product development expenditures are expensed as incurred. Software
development costs are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Under this Standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. The
Company begins capitalization upon completion of a working model. In Fiscal
1999, no software development costs were capitalized, as the costs incurred
between technological feasibility and general release were not significant. In
Fiscal 1998, the Company capitalized $141,132 of external costs associated with
the development of its Internet product. These capitalized costs are being
amortized on the straight-line basis over the estimated life of the products or
the ratio of current revenue to the total of current and anticipated future
revenue, whichever amortization expense is greater.
EMPLOYEE STOCK PLANS:
The Company complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". The Company accounts for its
stock-based compensation in accordance with the provisions of Accounting
Principles Board Opinion No. 25. Under APB No. 25 compensation expense is based
on the difference, if any, on the date of grant between fair market value of the
Company's stock and exercise price.
INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to
F-7
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reduce deferred tax assets to the amounts expected to be realized. Income tax
expense is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of capital lease obligations
approximate fair value.
CONCENTRATION OF CREDIT RISK:
The Company performs ongoing credit of its customers, does not require
collateral, and maintains reserves for potential credit losses on customer
accounts when deemed necessary. Financial instruments that are potentially
subject to a concentration of credit risk for the Company consist of cash
equivalents and accounts receivable. Cash and cash equivalents are deposited
with financial institutions in the United States. There were three customers
representing 52%, 25% and 14% of accounts receivable at March 31, 1999 and two
customers representing 43% and 29% of accounts receivable at June 30, 1998.
NET LOSS PER SHARE:
Basic EPS is computed by dividing the income available to common
stockholders by weighted average number of common shares outstanding for the
period. Diluted EPS is computed by giving effect to all dilutive potential
common shares that were outstanding during the period. For the Company, dilutive
potential common shares consist of incremental common shares issuable upon the
exercise of stock options and warrants for all periods.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of the foreign subsidiaries were translated into U.S.
dollars at year-end exchange rates. Revenue and expenses have been translated at
average exchange rates during the year. Local currencies are considered to be
the functional currencies for the Company's foreign subsidiaries. Accordingly,
currency translation adjustments are accumulated as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are included
in other income (expense) in the determination of net loss.
RECENT PRONOUNCEMENTS:
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The Company is
reviewing the impact of SOP No. 98-1, which will be effective in Fiscal 2000.
F-8
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE LOSS:
For the nine month period of Fiscal 1999, twelve month period of Fiscal 1998
and 1997, the comprehensive loss was $1,562,164, $2,479,379 and $2,662,925,
respectively. The principal difference between comprehensive loss and net loss
is the treatment of cumulative foreign translation adjustments.
3. BALANCE SHEET DETAIL
PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
----------- ----------
<S> <C> <C>
Furniture and equipment.............................................. $ 158,145 $ 151,609
Computer software.................................................... 159,727 159,727
Leasehold improvements............................................... 10,559 10,559
----------- ----------
328,431 321,895
Less accumulated depreciation and amortization....................... (143,145) (73,024)
----------- ----------
$ 185,286 $ 248,871
----------- ----------
----------- ----------
</TABLE>
Depreciation and amortization expense for the nine months of Fiscal 1999 was
$81,549, Fiscal 1998 was $63,536 and $79,914 for Fiscal 1997.
Assets acquired under capital leases arrangements included in property and
equipment above are as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
Furniture and equipment............................................... $ 21,593 $ 29,820
Less accumulated amortization......................................... (14,395) (15,853)
---------- ----------
$ 7,198 $ 13,967
---------- ----------
---------- ----------
</TABLE>
ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
Payroll and related taxes............................................. $ 98,594 $ 130,167
Accrued legal and audit expenses...................................... 98,829 114,502
Other accrued expenses................................................ 327,384 345,857
Preference dividend payable........................................... 9,247 65,051
---------- ----------
$ 534,054 $ 655,577
---------- ----------
---------- ----------
</TABLE>
F-9
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENTS:
In June 1998, the Company issued 1,270,505 shares of common stock in a
private placement at prices ranging from $0.75 to $1.375 per share for net
proceeds of $1,078,239.
In September 1998, the Company issued 276,091 shares of common stock in a
private placement at a price of $1.375 per share for net proceeds of $379,505.
In November 1998, the Company issued 933,333 equity "Units" at $0.75 per
unit, each such unit consist of one share of common stock and one warrant to
purchase an additional share of common stock at an exercise price of $1.00. The
Company received net proceeds of $682,500. The warrants are exercisable
immediately and expire in November 2001.
In December 1998, the Company issued 1,304,347 equity "Units" at $1.15 per
unit, each such unit consist of one share of common stock and one warrant to
purchase an additional share of common stock at an exercise price of $1.75. The
Company received net proceeds of $1,445,337. The warrants are exercisable
immediately and expire in December 2002.
PREFERRED STOCK:
The Company issued 4,368,937 shares of Series A convertible preferred stock,
"Series A preferred stock" on November 11, 1994 for a consideration of
$4,580,812. The holders of Series A preferred stock were entitled to receive,
out of funds legally available dividends at 5% per annum on the original issue
price of $1.03 per share. Such dividends were cumulative from November 22, 1994
and began compounding annually on January 1, 1996. Dividends were accrued
whether or not earned or declared. Such dividends were payable upon the earlier
of the liquidation of the Company or, with respect to any shares of Series A
preferred stock that are converted into common stock, such dividends shall be
payable six months following such conversion.
Effective June 30, 1998, the Company completed an agreement with the current
Series A preferred stockholders to restructure the Series A dividend. The
Company and Series A preferred stockholders agreed to eliminate the dividend on
the Series A preferred stock. In satisfaction of the preferred dividend payable,
the Series A preferred stockholder were issued, on a pro rata basis, shares of
preferred stock. The number of shares the Series A preferred stockholders were
issued was determined by dividing the accrued dividend as of June 30, 1998 by
$1.2069, which was 66 2/3% of the average bid and ask prices of the Company's
common stock for the prior 20 trading days as reported on the Over-The-Counter
Bulletin Board reporting system. These shares have the same voting and other
rights as the Series A preferred stock. This agreement, which was approved by
the Company's common stockholders in October 1998, also eliminated the accrual
of future preferred dividends.
At the date of conversion, the accrued dividend for the Series A preferred
stockholders on that date was $797,377. The Company issued 660,681 shares of
preferred stock in payment of the Series A preferred dividend accrued through
June 30, 1998. In September 1998, the Company issued 44,272 shares of common
stock to a Series A preferred shareholder as payment of $55,804 of the Series A
preferred dividend. This was a Series A preferred investor whose shares had been
to common stock. After issuance of these shares, the remaining dividend payable
in arrears was $9,247. This represents dividends accrued on shares of Series A
preferred stock which were converted to common stock prior to June 30, 1998.
F-10
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Upon any liquidation, dissolution, or winding up of the company, whether
voluntary or involuntary, the holders of Series A preferred stock shall be paid
$1.03 per share plus an amount equal to dividends accrued but unpaid thereon,
before any payment shall be made to holders of any other class or series of
stock. If upon liquidation, dissolution or winding up the Company, the assets to
be distributed to the holders of the Series A preferred stock shall be
insufficient to permit payment to such stockholders of full preferential amounts
aforesaid, then the assets of the Company shall be distributed to such holders
of the Series A preferred stock pro rata, so that each holder receives that
portion of assets available for distribution as the liquidation preference
payment amounts of the shares of Series A preferred stock held by such holders
bear to the aggregate liquidation preference payment amounts for all shares of
Series A preferred stock then outstanding.
Each holder of Series A preferred stock has the right to convert the Series
A preferred stock at any time into common shares of the Company on a one to one
ratio. Unless earlier converted, the Series A preferred stock will automatically
convert into common stock upon the earlier of (i) the effective date of a
registration pertaining to, and subject to the consummation of an underwritten
public offering of the Company's common stock at a price of at least $5.00 per
share and, (ii) the first business day following the occurrence of the last of
the three following events (a) the completion of a 36 month period commencing on
the closing date, (b) the completion of six consecutive quarters of sustained
profitability of the Company and; (c) the completion of a 30 consecutive day
period during which the low bid for the Company's common stock shall have been
in excess of $5.00. During Fiscal 1998, 864,079 shares of preferred stock were
converted to common stock. During Fiscal 1999, 349,516 shares of preferred stock
were converted to common stock.
WARRANTS:
At March 31, 1999, there was a warrant outstanding to purchase 145,631
shares of common stock at $0.01 per share, which is exercisable at any time
until November 1999 or upon the automatic conversion of preferred stock to
common stock, whichever is earlier.
During March 1998, the Company issued warrants for 810,000 shares of common
stock, at a price of $1.00 per share. The 810,000 warrants are exercisable until
March 6, 2002.
During March 1998, the Company issued a warrant for 21,000 shares of common
stock, at a price of $0.75 per share. The warrant is exercisable at any time
until February 23, 2001.
During November 1998 the Company issued warrants for 933,333 shares of
common stock, at a price of $1.00 per share as a part of its private placement.
The warrants for 933,333 shares are exercisable at any time until November 13,
2001.
During December 1998 the Company issued warrants for 1,304,347 shares of
common stock, at a price of $1.75 per share as a part of its private placement.
The warrants for 1,304,347 shares are exercisable until December 1, 2002.
Additional warrants for 164,330 shares of common stock were issued during
Fiscal 1999 of which a warrant to purchase 150,000 shares of common stock at
$0.87 is exercisable from February 3,1999 until February 3, 2002, and warrants
to purchase 14,300 shares of common stock at prices ranging from $1.14 to $6.65
are exercisable until April 2002.
F-11
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
All warrants were valued using the Noreen-Woolfson model and an amount of
zero and $370,693 was recognized as expense during Fiscal 1999 and 1998,
respectively. The weighted average fair market value, at grant date of the
warrants issued in Fiscal 1998 was $0.46. Substantially all the warrants granted
in Fiscal 1999 were in connection with the Company's private placements
accordingly, these warrants were treated as a cost of the financings.
All warrants were outstanding at March 31, 1999.
5. STOCK OPTION PLANS
In 1995 and 1997, respectively, the Board of Directors adopted the Stock
Option Plan and the 1997 Stock Option Plan ("the Plans") for employees,
directors and others. A total of 700,000 and 4,000,000 shares of common stock
were authorized under the Stock Option Plan and the 1997 Stock Option Plan,
respectively, for eligible employees, directors and consultants. Options may be
granted at an exercise price of not less than 85% of the estimated fair value of
the common stock, at the date of grant, as determined by the Board of Directors.
Options are exercisable at such times and under such conditions as determined by
the Board of Directors. Options granted under the Plans generally become
exercisable over a four-year period and generally expire ten years from the date
of grant. Unvested options are canceled 90 days after termination of employment
and become available under the Plans.
Activity under the Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
AGGREGATE
SHARES EXERCISE
AVAILABLE SHARES PRICE PER SHARE PRICE
----------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996........... 562,000 810,000 $0.15-$1.00 $ 555,000
Shares authorized................ 3,000,000
Options granted.................. (2,068,077) 2,068,077 $0.001-$3.13 4,103,965
Options exercised................ (100,000) $0.001 (100)
Options canceled................. 130,000 (130,000) $1.00 (130,000)
----------- ---------- --------------- -------------
Balance at June 30, 1997........... 1,623,923 2,648,077 $0.15-$3.13 $ 4,528,865
Options granted.................. (366,000) 366,000 $0.70 256,200
Options canceled................. 28,000 (28,000) $0.75-$3.00 (77,250)
----------- ---------- --------------- -------------
Balance at June 30, 1998........... 1,285,923 2,986,077 $0.15-$3.13 $ 4,707,815
Shares authorized................ 1,000,000
Options granted.................. (1,219,000) 1,219,000 $0.969-$4.00 3,600,171
Options exercised................ (40,000) $1.00 (40,000)
Options canceled................. 580,000 (580,000) $0.50-$3.00 (690,600)
----------- ---------- --------------- -------------
Balance at March 31, 1999.......... 1,646,923 3,585,077 $0.15-$4.00 $ 7,577,386
----------- ---------- --------------- -------------
----------- ---------- --------------- -------------
</TABLE>
F-12
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTION PLANS (CONTINUED)
The following table summarizes information with respect to stock options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE AVERAGE
OUTSTANDING AT CONTRACTUAL EXERCISE NUMBER AT EXERCISE
RANGE OF EXERCISE PRICE MARCH 31, 1999 LIFE (YEARS) PRICE MARCH 31, 1999 PRICE
- ---------------------------------------------- -------------- --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$0.15......................................... 300,000 4.76 $ 0.15 300,000 $ 0.15
$0.70 - $1.00................................. 900000 6.08 $ 0.90 445,500 $ 0.89
$1.88 - $2.27................................. 1,532,077 9.02 $ 2.23 1,432,077 $ 2.25
$3.00 - $4.00................................. 853,000 9.67 $ 3.88 68,667 $ 3.02
-------------- --- ----- -------------- -----
3,585,077 8.76 $ 2.11 2,246,244 $ 1.73
-------------- --- ----- -------------- -----
-------------- --- ----- -------------- -----
</TABLE>
At June 30, 1998, options to purchase 2,352,828 shares of common stock were
exercisable.
For certain options granted, the Company recognized $107,250 in Fiscal 1998
as compensation for the excess of the fair value of the stock at the date of
grant of the common stock issuable upon exercise of such options over the
aggregate exercise price of such options. The compensation expense was charged
to operations as the options vested.
The Company has adopted the disclosure only provisions of SFAS No. 123. Had
compensation cost for the Plan been determined based on the fair market value at
the grant date for the options granted in Fiscal 1999, 1998 and 1997, consistent
with the provisions of SFAS No. 123, the Company's net loss for Fiscal 1999,
1998 and 1997 would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net loss as attributed to common stockholders--as reported.............. $ 1,491,779 $ 2,767,768 $ 3,020,895
------------ ------------ ------------
------------ ------------ ------------
Net loss as attributed to common stockholders--pro forma................ $ 1,724,905 $ 2,868,733 $ 3,065,545
------------ ------------ ------------
------------ ------------ ------------
Loss per share--as reported............................................. $ (0.07) $ (0.16) $ (0.18)
------------ ------------ ------------
------------ ------------ ------------
Loss per share--pro forma............................................... $ (0.09) $ (0.16) $ (0.18)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years because additional
awards in future years are anticipated.
F-13
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTION PLANS (CONTINUED)
The aggregate fair values of each option granted in Fiscal year 1999 ranged
from $0.77 to $3.19 and in Fiscal 1998 and 1997 were $0.56 and $0.58,
respectively. The fair value of each option grant for the Plan is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate........................................ 4.74% 6.06% 6.25%
Expected life.................................................. 4 years 5 years 5 years
Expected volatility............................................ 122% 84% 10%
Expected dividend yield........................................ 0.0% 0.0% 0.0%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair market value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in these subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a single measure of the fair value
of its employee stock options.
6. INCOME TAXES
The Company has paid no income tax to date other than the California minimum
franchise tax. Deferred tax assets arise from both carried forward losses and
differences between the expenses for tax purposes and that for financial
accounting purposes. The components of deferred tax assets consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Miscellaneous accruals........................... $ 56,917 $ 138,559 $ 131,254
Provision for doubtful accounts receivable....... 14,048 2,018 4,000
Set up costs and product development
expenditures................................... 163,480 106,589 52,881
Compensation related to stock options
granted........................................ 190,507 190,508 147,606
Net operating loss carryforwards................. 4,216,102 3,532,888 2,541,491
------------- ------------- -------------
Total deferred tax asset......................... 4,641,054 3,970,562 2,877,232
Valuation allowance.............................. (4,641,054) (3,970,562) (2,877,232)
------------- ------------- -------------
Net deferred tax asset....................... $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A valuation allowance is provided due to the uncertainty surrounding the
realization of the deferred tax assets in view of the Company's not having
achieved profitable operations.
F-14
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Net operating losses of the French Subsidiary are available for offset
against future taxable income of the French Subsidiary and will expire five
years after the year in which they arose, as follows:
<TABLE>
<CAPTION>
FUTURE TAX
BENEFITS ON
FRENCH TAX OPERATING YEAR OF
YEAR IN WHICH LOSS AROSE LOSSES LOSSES EXPIRATION
- ----------------------------------------------- ------------- -------------- ---------------
<S> <C> <C> <C>
1994........................................... $ 403,312 $ 147,854 1999
1995........................................... 2,020,161 740,598 2000
1996........................................... 1,140,162 417,983 2001
1997........................................... 416,040 152,520 2002
1998........................................... 183,018 67,094 2003
--------------
$ 1,526,049(1)
--------------
--------------
</TABLE>
- ------------------------
(1) The deferred tax asset is before the application of the valuation allowance.
Net operating losses of the Hong Kong subsidiary were available for offset
against future taxable income in the Hong Kong operating subsidiary and would
have expired fifteen years after the year-end in which they arose, however, as
the subsidiary has been liquidated the Company will not realize any benefit from
these losses.
Net operating losses of the U.S. are available for offset against future
taxable income in the U.S. and will expire fifteen or twenty years after the
year-end in which they arose, as follows:
<TABLE>
<CAPTION>
FUTURE TAX
BENEFITS ON
U.S. TAX OPERATING YEAR OF
YEAR IN WHICH LOSS AROSE LOSSES LOSSES EXPIRATION
- ------------------------------------------------ ------------ -------------- ---------------
<S> <C> <C> <C>
1987............................................ $ 201 $ 70 2002
1988............................................ 35,896 12,564 2003
1989............................................ 61,333 21,467 2004
1990............................................ 60,480 21,168 2005
1993............................................ 53,731 18,806 2008
1994............................................ 141,598 49,559 2009
1995............................................ 77,446 27,106 2010
1996............................................ 997,417 349,096 2011
1997............................................ 1,520,725 517,045 2012
1998............................................ 2,111,388 717,872 2013
1999............................................ 2,676,160 909,894 2019
--------------
$ 2,644,647(1)
--------------
--------------
</TABLE>
- ------------------------
(1) The deferred tax asset is before the application of the valuation allowance.
Due to changes in the Company's ownership during Fiscal 1997 and prior
fiscal years, the amount of loss and credit carryforwards available to offset
future U.S. federal taxable income or tax may be subject to annual limitations
by IRS Code Section 382. The amount of such limitation, if any, has not been
determined.
F-15
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The difference between the statutory U.S. federal income tax rate on income
(loss) before income taxes and the company's effective tax rate is summarized as
follows:
<TABLE>
<CAPTION>
1999 % 1998 % 1997 %
------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net loss.................................... $ (1,491,779) $ (2,510,802) $ (2,777,777)
Federal tax at statutory rate............... (522,123) 35.0% (853,673) 34.0% (972,222) 35.0%
Foreign taxes--rate differential............ (150,193) 10.0% 21,840 (0.9%) 58,838 (2.1%)
R&D credit.................................. -- -- (40,245) 1.6% -- --
State tax benefit........................... -- -- (221,252) 8.8% -- --
Increase in valuation allowance............. 672,316 (45.0%) 1,093,330 (43.5%) 913,384 (32.9%)
------------- --------- ------------- --------- ------------- ---------
Total provision............................. $ -- -- $ -- -- $ -- --
------------- --------- ------------- --------- ------------- ---------
------------- --------- ------------- --------- ------------- ---------
</TABLE>
7. COMMITMENTS
CAPITAL LEASE OBLIGATIONS:
The Company leases certain office equipment under a lease arrangement
expiring March 2000 with an interest rate of 17%.
Future minimum lease payments under these capital leases is as follows:
<TABLE>
<S> <C>
For Year Ending March 31, 2000...................................... $ 9,004
---------
Total minimum lease payments........................................ 9,004
Less amounts representing interest.................................. (803)
---------
Present value of net minimum lease payments......................... 8,201
Less current obligation............................................. --
---------
Long-term obligation under capital lease............................ $ 8,201
---------
---------
</TABLE>
OPERATING LEASE OBLIGATIONS:
The Company leases its offices, housing for certain employees, and certain
motor vehicles under operating lease agreements expiring in future years. These
agreements require the Company to pay taxes, insurance, and maintenance
expenses. Rental expense was approximately $56,000, $174,000 and $257,000 for
the nine months of Fiscal 1999 and twelve months of Fiscal 1998 and Fiscal 1997,
respectively.
The annual minimum rental commitments under all non-cancelable operating
lease arrangements are as follows:
<TABLE>
<S> <C>
Fiscal year ending March 31,
2000............................................................ $ 74,000
2001............................................................ 38,000
---------
$ 112,000
---------
---------
</TABLE>
F-16
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EARNINGS PER SHARE
Reconciliation of the numerator and denominator of both basic and diluted
EPS is provided as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS
NINE MONTHS ENDED ENDED JUNE
ENDED MARCH JUNE 30, 30,
31, 1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Basic and diluted;
Weighted average shares outstanding.............................. 20,193,250 17,539,820 17,074,660
------------- ------------- -------------
Shares used in calculating per share amounts..................... 20,193,250 17,539,820 17,074,660
------------- ------------- -------------
Net loss attributed to common stockholders....................... $ 1,491,779 $ 2,767,768 $ 3,020,895
------------- ------------- -------------
------------- ------------- -------------
Net loss per share attributed to common stockholders............. $ (0.07) $ (0.16) $ (0.18)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
At March 31, 1999 the Company had 3,585,077 options and 3,378,641 warrants
outstanding to purchase shares of Common Stock compared to 2,986,077 options and
1,267,894 warrants outstanding at June 30, 1998. At June 30, 1997 the Company
had 2,648,077 options and 436,894 warrants outstanding. These were not included
in the computation of diluted earnings per share because inclusion of the
options and warrants was anti-dilutive.
9. BUSINESS SEGMENT, FOREIGN SALES AND OPERATIONS AND MAJOR CUSTOMERS
The Company operates in a single industry segment and sells its products
and services primarily to the retail industry. The Company markets its
products and services in the U.S. and foreign countries (mainly Europe and
Asia) through its sales organizations and distributors.
The geographical distribution of the revenues, operating loss and total
identifiable assets is as follows:
<TABLE>
<CAPTION>
REVENUES
------------------------------------------
TWELVE MONTHS TWELVE MONTHS
NINE MONTHS ENDED JUNE ENDED JUNE
ENDED MARCH 30, 30,
31, 1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
North and South America.............................................. $ 172,418 $ 145,695 $ 137,236
Europe/Africa........................................................ 336,508 428,257 517,324
Asia/Pacific Rim..................................................... 232,071 318,240 620,051
------------ ------------- -------------
$ 740,997 $ 892,192 $ 1,274,611
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
F-17
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. BUSINESS SEGMENT, FOREIGN SALES AND OPERATIONS AND MAJOR CUSTOMERS
(CONTINUED)
<TABLE>
<CAPTION>
OPERATING LOSS
--------------------------------------------
NINE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED MARCH ENDED JUNE 30, ENDED JUNE 30,
31, 1999 1998 1997
------------ -------------- --------------
<S> <C> <C> <C>
North and South America............................................. $1,432,015 $ 2,028,824 $ 2,119,350
Europe/Africa....................................................... 76,349 277,198 112,629
Asia/Pacific Rim.................................................... 63,271 179,051 605,578
------------ -------------- --------------
$1,571,635 $ 2,485,073 $ 2,839,557
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL IDENTIFIABLE ASSETS
--------------------------------------------
MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997
------------ -------------- --------------
<S> <C> <C> <C>
North and South America............................................. $ 423,023 $ 440,165 $ 137,654
Europe/Africa....................................................... 4,983 28,430 114,545
Asia/Pacific Rim.................................................... -- 17,484 189,788
------------ -------------- --------------
$ 428,006 $ 486,079 $ 441,987
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
There were two customers representing 51% and 35% of revenues in Fiscal
1999, two customers representing 48% and 24% of revenues in Fiscal 1998, and one
customer representing 21% of revenues in Fiscal 1997.
10. CONTINGENCIES
The Company is subject to a number of claims arising out of the conduct of
business. The Company believes that the results of the claims will not have a
materially adverse effect on the Company's financial condition.
11. TRANSITION PERIOD COMPARATIVE DATA
The accompanying statements of operations and cash flows for the nine months
ended March 31, 1998 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the period.
F-18
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TRANSITION PERIOD COMPARATIVE DATA (CONTINUED)
The following table presents financial information for the nine months ended
March 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
MARCH 31,
1999 MARCH 31,
------------- 1998
-------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Network....................................................... $ 480,082 $ 539,971
Consulting.................................................... 260,915 105,000
------------- -------------
740,997 644,971
Cost of revenue:
Network....................................................... 201,032 356,357
Consulting.................................................... 260,915 105,000
------------- -------------
461,947 461,357
------------- -------------
Gross profit.................................................... 279,050 183,614
Operating expenses:
Selling, general and administrative........................... 1,371,269 1,480,103
Product development........................................... 479,416 281,910
------------- -------------
Total operating expenses........................................ 1,850,685 1,762,013
------------- -------------
Operating loss.................................................. (1,571,635) (1,578,399)
Other income (expense), net..................................... 62,056 (65,146)
Interest income................................................. 17,800 17,570
------------- -------------
Net loss........................................................ (1,491,779) (1,625,975)
Preferred dividend.............................................. -- (188,503)
------------- -------------
Net loss attributed to common stockholders...................... $ (1,491,779) $ (1,814,478)
------------- -------------
------------- -------------
Net loss per share (basic and diluted).......................... $ (0.07) $ (0.11)
------------- -------------
------------- -------------
Weighted average number of shares used in per share calculation
(basic and diluted)........................................... 20,193,250 17,264,914
------------- -------------
------------- -------------
</TABLE>
F-19
<PAGE>
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TRANSITION PERIOD COMPARATIVE DATA (CONTINUED)
The following table presents cash flow information for the nine months ended
March 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
MARCH 31,
1999 MARCH 31,
------------- 1998
-------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $ (1,491,779) $ (1,625,975)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense......................... 81,549 50,803
Unrealized exchange (gain) loss............................... (64,329) 64,516
Write-off of fixed assets..................................... 4,809 15,181
Compensation related to stock options & warrants.............. -- 107,250
Changes in operating assets and liabilities:
Changes in accounts receivable.............................. (18,848) (97,961)
Changes in other current assets and security deposits....... 13,337 24,904
Changes in accounts payable................................. (137,133) 86,931
Changes in accrued and other liabilities.................... (65,719) (3,601)
------------- -------------
Net cash used in operating activities..................... (1,678,113) (1,377,952)
Cash flows from investing activities:
Purchases of fixed assets..................................... (22,773) (44,034)
Proceeds from sale of fixed assets............................ -- 19,405
------------- -------------
Net cash used in investing activities..................... (22,773) (24,629)
Cash flows from financing activities:
Proceeds from issuance of common stock........................ 2,507,342 611,585
Exercise of stock options..................................... -- 750
Payments on capital leases.................................... (6,690) (6,703)
------------- -------------
Net cash provided by financing activities................. 2,500,652 605,632
Effect of exchange rate changes on cash......................... (6,056) (2,063)
------------- -------------
Net increase (decrease) in cash and cash equivalents...... 793,710 (799,012)
Cash and cash equivalents, beginning of the period.............. 473,170 1,274,157
------------- -------------
Cash and cash equivalents, end of the period.................... $ 1,266,880 $ 475,145
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ 1,573 $ 3,225
Cash paid during the period for taxes......................... 800 --
Non-cash financing transactions:
Conversion of preference dividend payable to common stock..... 55,804 --
Issuance of note receivable for exercise of employee stock
options..................................................... 40,000 --
</TABLE>
F-20
<PAGE>
FINANCIAL STATEMENT SCHEDULE
REQUIRED RULE BY 5-04 OF REGULATION S-X
QCS.NET CORPORATION (DBA SOURCINGLINK.NET)
SCHEDULE II
VALUATION AND QUALIFICATION ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1999
Provision for doubtful accounts
receivable...................... $ 29,657 $ 15,000 $ (9,536) $ 35,121
Deferred tax valuation
allowance....................... 3,970,562 670,492 4,641,054
YEAR ENDED JUNE 30, 1998
Provision for doubtful accounts
receivable...................... 55,036 31,883 -- (57,262) 29,657
Deferred tax valuation
allowance....................... $ 2,877,232 -- $ 1,093,330 -- $ 3,970,562
</TABLE>
F-21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation filed March 26, 1993.
3.2 Certificate of Amendment of Certificate of Incorporation filed July 26, 1994.
3.3 Certificate of Amendment of Certificate of Incorporation filed November 22, 1994. (incorporated herein by
reference to Exhibit 28(ii) to Form 8-K)
3.4 Certificate of Amendment of Certificate of Incorporation filed November 12, 1998.
4.1 Specimen form of stock certificate for Common Stock.
4.2 Series A Convertible Preferred Stock Purchase Agreement by and between QCS and the Series A Purchasers.
(incorporated herein by reference to Exhibit 28(i) to Form 8-K filed on November 22, 1994)
4.3 Registration Rights Agreement by and between QCS and the Series A Purchasers. (incorporated herein by
reference to Exhibit 28(ii) to Form 8-K filed on November 22, 1994)
4.4 Shareholders' Agreement by and between QCS and the Series A Purchasers. (incorporated herein by reference
to Exhibit 28(vi) to Form 8-K filed on November 22, 1994)
4.6 Class U Warrant to Purchase Common Stock by and between QCS and the Series A Purchasers. (incorporated
herein by reference to Exhibit 28(iii) to Form 8-K filed on November 22, 1994)
4.7 Amendment No. 1 to Series A Convertible Preferred Stock Purchase Agreement by and between QCS and the
Series A Purchasers.
4.8 Amended and Restated Shareholders' Agreement by and between QCS and the Series A Purchasers.
4.9 Amended and Restated Class U Warrant to Purchase Common Stock by and between QCS and the Series A
Purchasers.
10.1 Engagement Letter for consulting services from QCS to Het Goede Paard dated August 30, 1997.
10.2 Consulting Agreement by and between QCS and L.A. Delmonico Consulting, Inc. dated May 1, 1998.
10.3 Employment Agreement by and between QCS and Sean Maloy dated January 29, 1999.
10.4 Employment Agreement by and among QCS and John Buckles dated July 6, 1998.
10.5 Stock Option Plan. (the "Stock Option Plan")
10.6 Form of Stock Option Agreement pertaining to the Stock Option Plan.
10.7 1997 Stock Option Plan, as amended. (the "1997 Option Plan")
10.8 Incentive Stock Option Agreement pertaining to the 1997 Option Plan.
10.9 Nonstatutory Stock Option Agreement pertaining to the 1997 Stock Option Plan.
10.10 Form of Indemnification Agreement for Officers and Directors of QCS.
10.11 City Center Office Lease by and between QCS and Eagle Square Partners dated July 20, 1995.
10.12 Services Agreement between International Business Machines Corporation and QCS dated November 23, 1996.*
21.1 Subsidiaries of the Registrant.
23.1 Report of Independent Accountants on Financial Statement Schedule.
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Issuer has sought confidential treatment pursuant to Rule 406 for a portion
of the referenced exhibits.
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
PAGE 1
Office of the Secretary of State
________________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "QCS CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY
OF MARCH, A.D. 1993, AT 4:30 O'CLOCK P.M.
--------------------------------
[SEAL] EDWARD J. FREEL,
SECRETARY OF STATE
2330564 8100 AUTHENTICATION: 9742783
991190924 DATE: 05-13-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 03/26/1993
733085031 - 2330564
CERTIFICATE OF INCORPORATION
OF
QCS CORPORATION
FIRST: The name of the Corporation is QCS Corporation (the
"Corporation").
SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, the City of
Wilmington, County of New Castle 19801. The name of its registered agent at
such address is the Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is Twenty Thousand (20,000) shares of Common
Stock, $0.01 par value per share.
FIFTH: The board of directors ("Board of Directors") is authorized
to make, alter or repeal the by-laws of the Corporation. Election of
directors need not be by written ballot.
SIXTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to authorize the further elimination or
limitation of the liability of directors, then the liability of the directors
of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the
amended Delaware General Corporation Law. Any appeal or modification of this
paragraph by they stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation at the time of such repeal or modification.
2
<PAGE>
SEVENTH: A. Each person who was or is a party or is threatened to
be made a party to or is involved in any threatened, pending or completed
action, suite or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgements, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
actually and reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Paragraph B hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification confrred in this Article SEVENTH
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Article SEVENTH or otherwise. The Corporation may, by
action of its Board of Directors, provide indemnification to employees and
agents of the Corporation with
2
<PAGE>
the same scope and effect as the foregoing indemnification of directors and
officers.
B. If a claim under Paragraph A of this Article SEVENTH is not
paid in full by the Corporation within thirty days after a written claim has
been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to the
Corporation) than the claimant has not met the standards of conduct which
make it permissible under the Delaware General Corporation Law for the
Corporation to indemnify the claimant for the amount claimed, but the burden
of providing such defense shall be on the Corporation. Neither the failure of
the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement
of such action than indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
C. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
D. The Corporation may maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corp or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any such expense, liability
or loss, whether or not the Corporation would have the power t indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
3
<PAGE>
EIGHTH: The names and mailing addresses of the incorporators are:
M. C. Kinnamon 1209 Orange Street
Wilmington, Delaware 19801
J. L. Austin 1209 Orange Street
Wilmington, Delaware 19801
A. S. Wright 1209 Orange Street
Wilmington, Delaware 19801
WE, THE UNDERSIGNED, being the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of Delaware, do make this certificate, hereby declaring and certifying
that this is our act and deed and the facts herein stated are true, and
accordingly have hereunto set our hands this 26th day of March, 1993.
--------------------------------------
M. C. Kinnamon
--------------------------------------
J. L. Austin
--------------------------------------
A. S. Wright
4
<PAGE>
Exhibit 3.2
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "QCS CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY
OF JULY, A.D. 1994, AT 9 CLOCK A.M.
-----------------------------------
Edward J. Freel, Secretary of State
2330564 8100 AUTHENTICATION: 9742782
991190924 DATE: 05-13-99
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
QCS CORPORATION, a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That at a meeting of the Board of Directors of QCS Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to
be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered " Fourth " so that,
as amended said Article shall be and read as follows:
The total number of shares of stock which the corporation shall have
the authority to issue is 40 million shares of common stock with a par
value of $0.001 per share.
SECOND: That thereafter, pursuant to the resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting of the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or reason of said amendment.
IN WITNESS WHEREOF, said QCS CORPORATION has caused its corporate seal
to be hereunto affixed and this certificate to be signed by MARCEL VAN
HEESEWIJK its authorized officer this 27TH day of JUNE, 1994.
-----------------------------------------------------
Authorized Officer, Title
<PAGE>
Exhibit 3.4
STATE OF DELAWARE
PAGE 1
Office of the Secretary of State
________________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "QCS.NET CORPORATION", FILED IN THIS OFFICE ON THE TWELFTH DAY
OF NOVEMBER, A.D. 1998, AT 9:01 O'CLOCK A.M.
-----------------------------------
[SEAL] EDWARD J. FREEL, SECRETARY OF STATE
2330564 8100 AUTHENTICATION: 9742778
991190924 DATE: 05-13-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 11/12/1998
981436133-2330564
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
QCS.NET CORPORATION
QCS.net Corporations, a corporation duly organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"CORPORATION"), does hereby certify as follows:
FIRST: That at a meeting duly called of the Board of Directors of the
Corporation (the "BOARD"), resolutions were duly adopted approving a proposed
amendment of the Certificate of Incorporation of the Corporation, declaring
said amendment to be advisable and calling for the consent of the
stockholders of the Corporation at a meeting duly called for such purpose in
accordance with Section 211 of the Delaware General Corporation Law. The
resolution setting forth the proposed amendment is as follows:
RESOLVED FURTHER, that the Certificate of Incorporation of the
Corporation be amended by changing the Article thereof numbered so
that, as amended said Article shall be read as follows:
(a) The aggregate number of shares which the Corporation shall
have the authority to issue is forty million (40,000,000) shares
of Common Stock with a par value of one-tenth of cent ($.001) per
share; and five million (5,000,000) shares of Series A
Convertible Preferred Stock with a par value of one-tenth of cent
($.001) per share (the "Series A Preferred").
(b) VOTING
1. GENERAL. Except as may be otherwise provided in these
terms of the Series A Preferred or by law, the Series A Preferred
shall vote together with all other classes and series of stock of
the Corporation s a single class on all actions to be taken by
the stockholders of the Corporation. Each share of Series A
Preferred shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of
shares of Common Stock (including fractions of a share) into
which each share of Series A Preferred is then convertible.
<PAGE>
2. BOARD SIZE. Subject to the provisions of paragraph (b)3
below, the Corporation shall not, without the written consent of
affirmative vote of the holders of at least sixty-five percent
(65%) in interest of the then outstanding shares of Series A
Preferred in each case given in writing or by vote at a meeting,
consenting or voting (as the case may be ) together as one class,
increase the maximum number of directors constituting the Board
of Directors to a number in excess of seven (7).
3. BOARD SEATS. The holders of the Series A Preferred,
voting as a separate series, shall be entitled to elect no less
than three (3) directors of the Corporation. At any meeting (or
in a written consent in Lieu thereof) held for the purpose of
electing directors, the presence in person or by proxy (or
written consent) of the holders of at least sixty-five percent
(65%) in interest of the then outstanding shares of Series A
Preferred shall constitute a quorum of the Series A Preferred for
the election of directors to be elected solely by the holders of
the Series A Preferred. A vacancy in any directorship elected by
the holders of the Series A Preferred shall be filled only by
vote or written consent of the holders of at least sixty-five
percent (65%) in interest of the then outstanding Series A
Preferred.
(c) DIVIDENDS. The Series A Preferred shall not be entitled to
any preference in the receipt of dividends. In the event that the
Board of Directors declares a dividend with respect to the Common
Stock, each share of Series A Preferred shall e entitled to
participate in and receive said dividend, out of funds legally
available therefor, based on the number of shares of Common Stock
into which such share of Series A Preferred could be converted as
of the date of such declaration.
(d) LIQUIDATION, DISSOLUTION AND WINDING-UP.
1. LIQUIDATION.
(i) Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, each of the
holders of the shares of Series A Preferred shall be paid an
amount equal to One Dollar and Three Cents ($1.03) per share of
Series A Preferred held by such holder, such amount payable with
respect to one (1) share of Series A Preferred being sometimes
referred to herein as the "Series A Liquidation Preference
Payment," and with respect to all shares of Series A Preferred
being sometimes referred to herein as the "Series A Liquidation
Preference Payments."
<PAGE>
(ii) If upon any liquidation, dissolution, or
winding up of the Corporation, the assets to be distributed to
the holders of the Series A Preferred shall be insufficient to
permit payment to such stockholders of the full preferential
amounts aforesaid, then all or, as the case may be, that portion
of the assets available for distribution as the liquidation
preference payment amounts for the shares of Series A Preferred
held by such holder bear tot he aggregate liquidation preference
payment amounts for all shares of Series A Preferred then
outstanding.
2. RANKING. Upon any liquidation, dissolution or winding
up of the Corporation, immediately after the holders of Series A
Preferred shall have been paid the Series A Liquidation
Preference Payments in full, the remaining net assets of the
Corporation available for distribution shall be distributed among
the holders of Common Stock.
3. NOTICE OF SPECIAL PROVISIONS. Written notice of any
such liquidation, dissolution or winding up, stating a payment
date and the place where said payments shall be made, shall be
given by mail, postage prepaid, or by telex or facsimile
transmission to non-U.S. residents, not less than thirty (30)
days prior to the payment date stated therein, to the holders of
record of Series A Preferred, such notice to be addressed to each
such holder at its address as shown by the records of the
Corporation. The consolidation or merger of the Corporation into
or with any other entity or entitles which results in the
exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof, and the sale or
transfer by the Corporation of more than fifty-five percent (55%)
of its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the
provisions of this paragraph (d)3.
(e) SPECIAL VOTES OF THE SERIES A PREFERRED.
At any time when shares of Series A Preferred are
outstanding and in addition to any other vote required by law or
the Certificate of Incorporation, without the prior consent of
the holders of at least eighty percent (80%) in interest of the
then outstanding Series A
<PAGE>
Preferred given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a series, the
Corporation will not:
(i) Amend, alter or repeal any provision of its
Certificate of Incorporation including, without limitation, any
provision which (a) increases the number of shares of authorized
capital stock of the Corporation;
(ii) Create or authorize the creation of any
additional class or series of shares of stock unless the same
ranks junior to the Series A Preferred as to dividends and the
distribution of assets on the liquidation, dissolution or winding
up of the corporation, or increase the authorized amount of
Series A Preferred or increase the authorized amounts of any
additional class or series of share of stock unless the same
ranks junior to the Series A Preferred as to dividends and the
distribution of assets on the liquidation, dissolution or winding
up of the Corporation, or create or authorize any obligation or
security convertible into shares of Series A Preferred or into
shares of any other class or series of stock unless the same
ranks junior to the Series A Preferred as to dividends and the
distribution of assets on the liquidation, dissolution or winding
up of the Corporation, whether any such creation, authorization,
or increase shall be by means of amendment to the Certificate of
Incorporation or by merger, consolidation or otherwise;
(iii) In any manner amend, alter or change the
designations or the powers, preferences or rights, privileges or
the restrictions of the Series A Preferred materially or
adversely, including the voting rights of such stock;
(iv) Merge or consolidate with or into, or permit
any subsidiary to merge or consolidate with or into, any other
corporation, corporations, entity or entities (except that any
subsidiary may merge into the Corporation or with any other
subsidiary);
(v) Sell, abandon, transfer, lease or otherwise
dispose of mote than fifty-five percent (55%) of its properties
or assets; or
(vi) except as otherwise provided for herein or in
the Series A Convertible Preferred Stock Purchase Agreement dated
November 22, 1994 or in the Exhibits thereto, purchase, redeem or
otherwise acquire (or pay into or set aside for a sinking fund
for such purpose), any of the preferred stock or Common Stock,
provided however, that this restriction shall not apply to the
repurchase of shares
<PAGE>
of Common Stock held by officers or employees of the Corporation
which are subject to restrictive stock purchase agreements under
which the Corporation has the option to repurchase such shares
upon the occurrence of certain events, including the termination
of employment.
(f) CONVERSION. Each holder of shares of Series A Preferred
shall have the right to convert any and all of such shares into
Common Stock at any time pursuant to a Class U Warrant dated
November 22, 1994.
(g) AMENDMENTS. Except where the vote or written consent of the
holders of a greater number of shares of the Series A Preferred
is required by law, the Certificate of Incorporation or any
stockholders' agreement to which the holders of Series A
Preferred one parties, no provision of the terms of the Series A
Preferred may be amended, modified or waived without the prior
written consent or affirmative vote of the holders of at least
eighty percent (80%) in interest of the then outstanding shares
of Series A Preferred.
SECOND: That thereafter pursuant to a resolution of the Corporation's
Board of Directors, a special meeting of the stockholders of the Corporation
was duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statue and the Certificate of
Incorporation of the Corporation were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 211 and 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said QCS.net Corporation, has caused its corporate
seal to be hereunder affixed and this certificate to be signed by its
authorized officer hereunder designated this 29 day of October, 1998.
By:
-----------------------------------
Name: Marcel van Heesewijk
Title: President
<PAGE>
Exhibit 4.1
[CERTIFICATE]
NUMBER SHARES
QCS
QCS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
OTC: QCSC COMMON STOCK
THIS CERTIFIES THAT:
IS OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARE OF COMMON STOCK OF NO PAR VALUE EACH OF
QCS CORPORATION
Transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate
and the shares represented hereby are subject to the laws of the State of
Delaware, and to the Certificate of Incorporation and Bylaws of the
Corporation, as now or hereafter amended. This certificate is not valid
until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
COUNTERSIGNED:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
22 CLARIDGE DRIVE, MIDDLETOWN, NJ 07748
TRANSFER AGENT
DATED:
[SEAL]
BY:
AUTHORIZED SIGNATURE
PRESIDENT
<PAGE>
Exhibit 4.7
AMENDMENT NO. 1
TO
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT (the "Amendment") is made and entered into as of May , 1996, by
and among the parties (the "Parties") to that certain Series A Convertible
Preferred Stock Purchase Agreement dated as of November 22, 1994 (the
"Agreement") with respect to the purchase and sale of 4,368,937 shares of
Series A Preferred Stock of QCS Corporation, a Delaware corporation (the
"Company"). Terms not otherwise defined herein shall have the meanings given
to them in the Agreement.
WHEREAS, the Agreement contains provisions that require the Company to
make certain cash payments and/or issue additional shares of capital stock of
the Company to the Purchasers if the financial results described in Section
2.4 of the Agreement (the "Financial Results") are not achieved;
WHEREAS, the Shareholders' Agreement dated as of November 22, 1994 (the
"Shareholders' Agreement"), among certain parties, including the Founders and
the Purchasers, contains provisions that require the Founders to make certain
cash payments and/or contribute to the Company shares of capital stock of the
Company if the Financial Results are not achieved
WHEREAS, it appears that the Financial Results will not be achieved;
WHEREAS, the Founders have entered into an agreement with the
Purchasers, pursuant to which the Founders have acknowledged that the
Financial Results will not be achieved and have agreed to make certain
payments and/or issue certain shares of capital stock of the Company to the
Purchasers in accordance with the terms thereof; and
WHEREAS, in light of the foregoing, the Parties desire to amend the
Agreement in the manner set forth below;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, the Parties
agree as follows:
1. SECTION 2.1. The seventh sentence of Section 2.1 of the Agreement
(which begins "Unless earlier converted") shall be deleted in its entirety
and replaced with the following sentence:
"Unless earlier converted, all Series A Preferred shall be automatically
converted into Common Stock in accordance with the terms of the Class U
Warrants."
2. AMENDMENT OF CLASS U WARRANTS. The Class U Warrants shall be
amended and restated to read in their entirety as set forth on EXHIBIT A
attached hereto.
1.
<PAGE>
3. SECTION 2.4(d). Section 2.4(d) of the Agreement shall be deleted in
its entirety.
4. SECTION 5.1(i). The following language in Section 5. l(i) of the
Agreement shall be deleted in its entirety: "; PROVIDED THAT such changes and
material deviations shall be subject to the unanimous consent of the Board of
Directors or of the Conseil d' Administration, as the case may be, at their
respective regular quarterly meetings should such changes and material
deviations require extra cash in excess of five hundred thousand Dollars
($500,000) in the aggregate for both Companies for any given quarter."
5. SECTION 5.2(d). Section 5.2(d) of the Agreement shall be deleted
in its entirety.
6. ARTICLE VII. Article VII of the Agreement shall be deleted in its
entirety and replaced with the following Article VII:
"ARTICLE VII
RIGHT OF FIRST REFUSAL
7.1 RIGHT OF FIRST REFUSAL.
(a) Subject to any restrictions contained in the Company's
Certificate of Incorporation, as amended, Bylaws, as amended, or in
any other agreement to which the Company is a party or by which it
is bound, the Company may issue New Securities at any time without
prior notice to the Purchasers. Except as otherwise provided in
Section 7.2(c) below, within 5 days after such issuance, the Company
shall give each Purchaser written notice of the issuance describing
the New Securities and the consideration for and the general terms
upon which they were issued. Except as otherwise provided in Section
7.2(c) below, each Purchaser shall have 20 days (or such longer
period as the Company, in its sole discretion, may determine) from
the date of mailing of any such notice to agree to purchase up to
its Post-Event Pro Rata Participation of such New Securities at the
same price and upon the general terms specified in such notice by
giving written notice to the Company and stating the quantity of New
Securities to be purchased. Such right of first refusal shall
terminate, if not theretofore exercised upon the expiration of such
20 day period.
(b) In lieu of complying with the provisions of Section 7.1
(a) above, the Company may, in its discretion, but shall not be
obligated to, provide the Purchasers with written notice and an
opportunity to acquire their Pro Rata Share of any issuance of New
Securities (except as specifically excluded under Section 7.2(c)
below) before the Company offers such New Securities to others. In
the event the Company elects to proceed under this Section 7.1 (b)'
(i) the Company shall give each Purchaser written notice of the
issuance describing the New Securities and the consideration for and
the general terms upon which they are proposed to be issued; (ii)
each Purchaser shall have 20 days (or such longer
2.
<PAGE>
period as the Company, in its sole discretion, may determine) from
the date of mailing of any such notice to purchase up to its Pro
Rata Share of such New Securities at the same price and upon the
general terms specified in such notice by giving written notice
to the Company and stating the quantity of New Securities to be
purchased; and (iii) the Company shall have 90 days after the
expiration of such 20 day period to sell to others any New
Securities not acquired by the Purchasers, at a price and upon
general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the
Purchasers.
7.2 DEFINITIONS.
(a) "Post-Event Pro Rata Participation" shall mean the
number of New Securities necessary to maintain the Purchaser's Pro
Rata Share, as such existed immediately prior to an Issuance Event.
(b) The "Pro Rata Share" for any Purchaser, for purposes of
this Agreement, is the ratio of (i) the number of shares of Common
Stock then owned or issuable upon conversion of Preferred Stock then
owned by such Purchaser, to (ii) the total number of shares of
Common Stock outstanding immediately prior to the issuance of the
New Securities, assuming full conversion of all outstanding shares
of Preferred Stock and assuming that all outstanding options and
warrants exercisable for Common Stock had been exercised.
(c) "New Securities" shall mean any capital stock of the
Company, whether now authorized or not, and rights, options, or
warrants to purchase said capital stock, and securities of any type
whatsoever that are, or may become, convertible into said capital
stock. Notwithstanding anything to the contrary contained herein,
the fight of first refusal established by this Article VII shall not
apply to any of the following New Securities'
(i) securities issuable upon conversion of Series A
Preferred;
(ii) securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or
similar business combination;
(iii) securities issued pursuant to any fights or
agreements or options or warrants outstanding as of the date
of this Agreement;
(iv) securities issued pursuant to any fights or
agreements or options or warrants granted after the date of
this Agreement, provided that, excepts as otherwise provided
in this Section 7.2(c), the fight of first refusal
established by this Article VII applied with respect to the
initial sale or grant by the Company of such fights or
agreements or options or warrants;
3.
<PAGE>
(v) shares of Common Stock (and/or options,
warrants or other rights to acquire the same) issued or to be
issued to employees, officers or directors of, or consultants
or advisors to, the Company or any subsidiary of the Company,
pursuant to stock option plans or other arrangements that are
approved by the Board of Directors;
(vi) securities issued in connection with any stock
split, stock dividend, or similar recapitalization by the
Company;
(vii) securities issued pursuant to any equipment
leasing arrangement, or bank financing; or
(viii) securities issued in connection with strategic
transactions involving the Company and other entities,
including (A) joint ventures, manufacturing, marketing or
distribution arrangements or (B) technology transfer, license
or development arrangements; provided that such strategic
transactions and the issuance of securities pursuant thereto,
have been approved by the Company's Board of Directors.
(d) "Issuance Event" shall mean any issuance of New
Securities.
7.3 TRANSFERABILITY. The fight of first refusal of each Purchaser
pursuant to this Article VII may be assigned by a Purchaser to a transferee
or assignee of Series A Preferred which (i) is a subsidiary, parent,
general partner, limited partner or retired partner of a Purchaser, or (ii)
is a Purchaser's family member or trust for the benefit of an individual
Purchaser; provided, however, (A) the transferor shall, within 10 days
after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to
which such rights of first refusal are being assigned and (B) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement."
7. SECTION 8.3. For purposes of Section 8.3 of the Agreement, all
notices, requests, demands and other communications to be made to the Company
shall be addressed to'
QCS Corporation
650 Castro Street, 210
Mountain View, CA 94041
Attn: President
Fax: (415) 966-1025
8. DIVIDENDS.
(a) The Parties acknowledge and agree that Article 4, Section (c)
of the Company's Certificate of Incorporation, as amended (entitled
"Dividends"), was intended to have, and shall have, the following meaning:
4.
<PAGE>
"Holders of Series A Preferred, in preference to the holders of any other
stock of the Corporation, shall be entitled to receive only out of funds
that are legally available therefor, dividends at the rate of five percent
(5%) per annum of the original issue price of one Dollar and three Cents
($1.03) per share on each outstanding share of Series A Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares). Such dividends shall be
cumulative beginning November 22, 1994 and shall begin compounding annually
on January 1, 1996. Such dividends shall be payable only upon the first to
occur of the liquidation of the corporation pursuant to Section (d) below
or, with respect to any shares of Series A Preferred that are converted
into shares of Common Stock pursuant to the Class U Warrant, such dividends
shall be payable six months following such conversion to the holder of
record of the Series A Preferred on the date of such conversion; provided,
however, that the Corporation's Board of Directors, in its discretion, may,
but shall not be obligated to, declare and pay any such dividends prior to
the liquidation of the Corporation or the date that is six months after the
conversion of Series A Preferred; and, provided, further, that the
conversion of a share of Series A Preferred shall not cause any dividends
to become payable with respect to any other shares of Series A Preferred
that have not been converted. Dividends payable on the Series A Preferred
shall be paid in cash."
(b) The Parties agree that as soon as practicable after the
effective date of this Amendment, the Parties shall take all reasonable
actions, and execute all documents, instruments and agreements, necessary
or appropriate to cause Article 4, Section (c) of the Company's Certificate
of Incorporation, as amended, to be amended to read as specified in Section
7(a) hereof.
9. EFFECTIVE DATE. This Amendment shall become effective on the date
on which it has been executed and delivered by all parties hereto and all of
the following agreements have been executed and delivered by all parties
thereto, and shall not become effective unless and until all such parties
have so executed and delivered such agreements' (a) the Amended and Restated
Shareholders' Agreement of even date attached hereto as EXHIBIT B; (b) the
Agreement of even date by the Founders in favor of the Purchasers attached
hereto as EXHIBIT C; and (c) the Amended and Restated Class U Warrant
attached hereto as EXHIBIT D.
10. TERMINATION. The Agreement and this Amendment shall terminate and
be of no further force or effect upon the effective date of a registration
statement pertaining to, and subject to the consummation of, an underwritten
public offering of the Company's Common Stock at a price of at least $5.00
per share. In addition to the foregoing, the rights of the Purchasers under
Section 6 hereof (and Article VII of the Agreement) shall terminate and be of
no further force or effect upon the adoption by all of the members of the
Board of Directors of a resolution to that effect.
5.
<PAGE>
11. GOVERNING LAW; JURISDICTION. This Amendment and the legal
relationship between the Parties shall be governed by and construed in
accordance with the internal laws of the State of New York exclusively,
without regard to conflicts of law principles.
12. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by
signing any such counterpart.
13. REMAINDER OF AGREEMENT UNCHANGED. Except as set forth above or in
any other amendment to any exhibit to the Agreement, the Agreement shall
remain in full force and effect as of the date thereof.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
QCS CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
QCS DEVELOPMENT COMPANY S.A.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PURCHASERS:
CARLYLE QCS PARTNERS, L.P.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
STF MANAGEMENT LIMITED, as General Partner
of Sharp Technology Fund I Limited
Partnership
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
7.
<PAGE>
STF MANAGEMENT LIMITED, as General Partner
of Sharp Technology Fund II Limited
Partnership
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
LAGUNITAS PARTNERS, L.P.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PROACTIVE PARTNERS, L.P.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
OAKWOOD HOLDINGS, BVI
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
DE NOYANGE S.A.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
8.
<PAGE>
CANNELL CAPITAL MANAGEMENT
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Mr. Herb Miller
-------------------------------------------
Mr. Robert Zangrillo
-------------------------------------------
Mr. Hans Robben
-------------------------------------------
Mr. Peter Mills
-------------------------------------------
Mr. Peter Anson
-------------------------------------------
Mr. Steven Lebow
-------------------------------------------
9.
<PAGE>
Exhibit 4.8
AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (the "Agreement")
dated as of _______________, 1996, by and among QCS CORPORATION, a Delaware
corporation ("QCS"), the Persons listed on Annex 1 hereto (the "Purchasers")
and the Persons listed on Annex 2 hereto (the "Existing Shareholders"). The
Existing Shareholders and the Purchasers are sometimes hereinafter referred
to collectively as "the Shareholders."
W I T N E S S E T H
WHEREAS, the Shareholders and QCS are parties to the Shareholders'
Agreement dated November 22, 1994 (the "Prior Agreement"); and
WHEREAS, the Existing Shareholders are currently together the legal and
equitable owners of fourteen million sixty-seven thousand one hundred
(14,067,100) shares of Common Stock (as hereinafter defined) of QCS;
WHEREAS, the Purchasers are currently together the legal and equitable
owners of four million three hundred sixty-eight thousand nine hundred
thirty-seven (4,368,937) shares of Series A Preferred of QCS;
WHEREAS, QCS and the Shareholders desire to amend and restate the Prior
Agreement; and
WHEREAS, QCS and the Shareholders intend that this Agreement shall
supersede the Prior Agreement and that the Prior Agreement shall terminate
upon the execution of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
All terms not otherwise defined herein shall have the meanings given or
assigned to them in that certain Stock Purchase Agreement dated as of
November 22, 1994, as amended, among certain of the parties hereto (the
"Stock Purchase Agreement").
1.
<PAGE>
2. BOARD OF DIRECTORS AND CONDUCT OF QCS' AFFAIRS; VOTING RIGHTS.
2.1 BOARD OF DIRECTORS.
2.1.1 The Board of Directors of QCS shall consist at anytime of
no more than seven (7) persons.
2.1.2 The Purchasers acknowledge that the Certificate of
Incorporation of QCS, as amended, entitles the holders of Series A Preferred,
voting as a separate series, to elect no less than three (3) directors of
QCS, Notwithstanding the foregoing, the Purchasers agree that the Purchasers,
voting together, shall elect only two (2) directors to the Board of Directors
of QCS. The parties hereto further acknowledge and agree that the holders of
Common Stock and Series A Preferred, voting together on an as-converted
basis, shall elect all remaining members of the Board of Directors in
accordance with the applicable provisions of the Delaware General Corporation
Law. The Board of Directors shall appoint one (1) of the Directors to be
Chairman of QCS by a vote of the majority of its members. Such Chairman
shall not have a second or casting vote at any meeting of the Board of
Directors.
2.1.3 (a) The Board of directors shall meet at least every
quarter at such time as may be fixed by the Chairman of the Board of
Directors. Special meetings of the Board of Directors may be called by any
Director. Notice of the time and place of regular and/or special meetings of
the Board of Directors shall be effective if delivered to each Director by
hand, facsimile or telex. In case of a regular meeting, such notice must be
delivered at least five (5) business days prior to such meeting, and in the
case of a special meeting, such notice must be delivered at least two (2)
business days prior to such special meeting.
(b) Meetings of the Board of Directors shall be held at
such place as the Board of Directors may from time to time agree upon or in
the absence of agreement at QCS' principal office.
(c) Whenever notice is required to be given under this
Section 2.1.3 hereof a written waiver of notice, signed by the Director
entitled to notice (whether before of after the time of the meeting) shall be
deemed equivalent to notice. A Director's attendance at a meeting shall
constitute a waiver of notice of that meeting, except when the Director
attends a meeting for the express purpose of objecting, and does object, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
2.1.4 To the fullest extent permitted by law, QCS shall
indemnify and hold harmless each and every one of its Directors from all
liabilities incurred by reason of performing their functions. For the
purposes of such indemnification, QCS shall purchase an adequate insurance
policy from an insurance carrier of national reputation and shall modify its
By-laws so as to make this provision fully enforceable.
2.2 ACTION REQUIRING A SUPERMAJORITY VOTE. It is agreed that, in
addition to any other vote required by law or QCS's Certificate of
Incorporation, as amended, the vote or
2.
<PAGE>
consent of the holders of eighty percent (80%) in internet of the Series A
Preferred shall be required:
(i) to amend the Certificate of Incorporation and
By-laws of QCS;
(ii) to sell, lease or exchange all of
substantially all of the property and assets of QCS;
(iii) to merge, reorganize and consolidate QCS with
any other corporation or entity;
(iv) to voluntarily dissolve QCS, or to revoke
voluntary dissolution by QCS; and
(v) to change materially the principal business
conducted by QCS.
3. REPRESENTATION AND WARRANTIES.
3.1 THE EXISTING SHAREHOLDERS. Each of the Existing Shareholders
represents and warrants, as to itself, as follows:
(a) Each of the Existing Shareholders is currently the legal and
equitable owner of the shares of Common Stock of QCS set forth opposite their
respective names in Annex 1 hereto.
(b) The execution and delivery by each of the Existing
Shareholders of this Agreement and the consummation by it of the transactions
contemplated herein will not violate any law or any contract to which such
Existing Shareholder is a party, and no approval , authorization, consent, or
order of, or filing with, any third party, court, administrative agency, or
other governmental authority is required for the execution and delivery by such
Existing Shareholder of this Agreement or the consummation by it of the
transactions contemplated herein.
(c) This Agreement is the valid and binding obligation of each
of the Existing Shareholders enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization and similar laws of general
application affecting the rights and remedies of creditors and subject to
general principles of equity.
3.2 QCS. QCS REPRESENTS AND WARRANTS AS FOLLOWS:
(a) QCS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, United States of America,
with full power and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
3.
<PAGE>
(b) The execution and delivery by QCS of this Agreement and
the consummation by it of the transactions contemplated herein will not
violate any law or any contract to which QCS is a party, and no approval,
authorization, consent, or order of, or filing with, any third party, court,
administrative agency, or other governmental authority is required for the
execution and delivery by QCS of this Agreement or the consummation by it of
the transactions contemplated herein.
(c) This Agreement is the valid binding obligation of QCS
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization and similar laws of general application affecting the rights
and remedies of creditors, and subject to general principles of equity.
(d) Messrs. Marcel van Heesewijk and Matteus Wegbrans are
each duly authorized and empowered to execute this Agreement on behalf of QCS.
3.3 THE PURCHASERS. Each of the Purchasers represents and warrants,
as to itself, as follows:
(a) Each of the Purchasers is currently the legal and
equitable or beneficial owner of the shares of Series A Preferred of QCS set
forth opposite its respective name in Annex 1 hereto.
(b) The execution and delivery by each of the Purchasers of
this Agreement and the consummation by it of the transactions contemplated
herein will not violate any law or any contract to which such Purchaser is a
party, and no approval, authorization, consent or order of, or filing with,
any third party, court, administrative agency, or other governmental
authority is required for the execution and delivery by such Purchaser of
this Agreement or the consummation by it of the transactions contemplated
herein.
(c) This Agreement is the valid binding obligation of each of
the Purchasers enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general
application affecting the rights and remedies of creditors, and subject to
general principles of equity.
4. RESTRICTIONS ON TRANSFERS OF THE SERIES A PREFERRED AND OF THE COMMON
STOCK.
Each Shareholder agrees not to transfer all or any shares of Series A
Preferred or of Common Stock, as the case may be, except in accordance with and
subject to the following restrictions and each Shareholder shall hold its shares
subject hereto and by accepting the same upon original issue, upon stock
dividends or stock distributions or upon subsequent transfer, agrees for itself,
its successors, legal representatives and assigns as follows:
(a) The Series A Preferred or the Common Stock shall not be
sold, transferred, assigned, pledged, hypothecated or otherwise encumbered,
whether voluntarily or
4.
<PAGE>
involuntarily, by operation of law, legal proceedings or otherwise (hereinafter
referred to as a "Transfer") other than as provided in this Section 4.
(b) The Founders, the holders of Series A Preferred and the
holders of Warrants shall not be entitled to dispose of their securities for
a period of twenty-four (24) months from the date of Closing, unless
otherwise agreed upon by unanimous consent of the Board of Directors of QCS;
provided, however, that the Founders, the holders of Series A Preferred and
the holders of Warrants shall be entitled to dispose of their securities
after expiration of a twelve (12) month period from the date of Closing, if,
after the expiration of such twelve (12) month period, the Holders of the
Registrable Securities (as these terms are defined in the Registration Rights
Agreement) request in writing the registration of such Registrable Securities
from QCS pursuant to the Registration Rights Agreement. Subject to the
Registration Rights Agreement in the event that, at any time after the
above-mentioned twenty-four (24) month or twelve (12) month periods, as the
case may be, a Shareholder desires to make a BONA FIDE sale of some or all of
its Series A Preferred or Common Stock to a third party (the "Proposed
Transferee"), such Shareholder (the "Offeror") shall notify the
non-transferring Shareholders (the "Offerees") in writing of such desire,
together with the identity of the Proposed Transferee and the price and terms
offered in good faith at arm's length by such Proposed Transferee and shall
offer to transfer such shares of Series A Preferred or Common Stock to the
Offerees pro rata to their shareholdings of QCS at the time at the same price
and on the same terms. For a period of thirty (30) days after receipt of
such notice, each Offeree shall have the following option:
(i) if the Offeree is a holder of shares of Series A
Preferred or of Converted Shares, to acquire his or its pro rata share of the
shares of Series A Preferred offered for sale, subject to the proposed
Transfer;
(ii) if the Offeree is a holder of Common Stock (except
Converted Shares), to acquire his or its pro rata share of the shares of
Common Stock offered for sale, subject to the proposed Transfer.
In the event an Offeree has not purchased such shares within such
thirty (30) day period, such Offeree shall be deemed to have approved the
sale of the Offeror's shares of Common Stock or Preferred Stock to the
Proposed Transferee.
(c) No disposition to the Proposed Transferee may be made
until such Proposed Transferee agrees to be bound by the terms of this
Agreement.
(d) Notwithstanding the foregoing, the Existing Shareholders
may sell all or part of their shares of Common Stock to other Existing
Shareholders or to the Purchasers, and the Purchasers may sell all or part of
their Shares to other Purchasers or to the Existing Shareholders, at such
price and on such terms as the Purchasers and Existing Shareholders who are
parties to such sale may together agree.
5.
<PAGE>
(e) Each of the Shareholders agrees to be bound by the terms and
provisions of this Section 4.
(f) The provisions restricting the sale of shares contained in
this Section 4 shall automatically terminate upon the happening of any of the
following events: the adjudication of QCS or QCS Development Company S.A. (the
"Subsidiary") as a bankrupt, the execution by QCS or the Subsidiary of any
assignment for the benefit of creditors, the appointment of a receiver for all
or part of its properties, or the voluntary or involuntary dissolution of QCS or
of the Subsidiary.
(g) Each certificate for all classes of Series A Preferred and
of Common Stock of QCS shall bear the following legend prominently stamped,
printed or typed on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE. ANY
SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE OR COMMON STOCK RECEIVED UPON
CONVERSION OF THE SECURITES REPRESENTED BY THIS CERTIFICATE BY BE
MADE ONLY (I) IN A TRANSACTION REGISTERED UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR (II) IF AN EXPEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE AND QCS HAS RECEIVED AN
OPINION OF COUNSEL TO SUCH EFFECT REASONABLY SATISFACTORY TO IT.
QCS WILL FURNISH A FULL STATEMENT OF ALL OF THE SEDIGNATIONS,
PREFERENCES, LIMITATIONS AND RALATIVE RIGHTS OF THE SHARES OF EACH
CLASS OF STOCK OR SERIES THEREOF OF QCS TO ANY SHAREHOLDER WITHOUT
CHARGE UPON WRITTEN REQUEST TO QCS AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE THE TRANSFER OF SHARES REPRESENTED
BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF THAT CERTAIN
SHAREHOLDERS OF QCS, AS WELL AS OF THAT CERTAIN REGISTRATION
RIGHTS AGREEMENT, BOTH DATED AS OF NOVEMBER 22, 1994, WHICH
AGREEMENTS ALSO CONTAIN OTHER IMPORTANT PROVISIONS RELATING TO
SUCH SHARES. COPIES OF THESE AGREEMENTS ARE ON FILE AT QCS'S
PRINCIPAL PLACE OF BUSINESS AND REGISTERED OFFICE AND MAY BE
6.
<PAGE>
OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO QCS AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. BY ACCEPTANCE OF
THIS CERTIFICATE, THE HOLDER HEREOF AGREES TO BE BOUND BY THE
TERMS OF SUCH AGREEMENTS."
5. BOOKS AND RECORDS.
QCS shall maintain its books of account on a accrued basis of accounting
and shall prepare its financial statements in accordance with Generally Accepted
Accounting Principles consistently applied. The year-end balance sheet,
statement of operations and statement of changes in financial position shall be
audited each year by an independent certified public accountant. Mr. Yves
Sisteron and the Carlyle Group, together with their lawful agents, attorneys and
representatives, shall have access to the books and records and facilities of
QCS on behalf of the syndicates of Shareholders they each lead (as indicated in
Exhibit 2.1of the Stock Purchase Agreement) during all normal business hours.
6. NOTICES.
All notices required to be given hereunder shall be in writing and shall
be deemed to have been properly given if sent by registered or certified mail,
postage prepaid, or by telecopy, addressed as follows:
(a) if to the Existing Shareholders:
Mr. Marcel van Heesewijk
QCS Corporation
650 Castro Street, 210
Mountain View, California 94041
Telecopy: (415) 966-1025
(b) if to QCS:
QCS Corporation
650 Castro Street, 210
Mountain View, California 94041
Telecopy: (415) 966-1025
7.
<PAGE>
with a copy to:
Robert L. Jones, Esq.
Cooley Godward Castro Huddleston & Tatum
3000 El Camino Real
Five Palo Alto Square
Palo Alto, California 94306-2155
Telecopy: (415) 857-0663
(c) if to the Purchasers:
Mr. Yves Sisteron
1116 Cory Avenue
Los Angeles, CA 90069
Telecopy: (310) 550-1876
and
Carlyle-QCS Partners, L.P.
1001 Pennsylvania Avenue, N.W.
Suite 480 North
Washington, D.C. 20004
Telecopy: (202) 347-1818
with a copy to:
Arent Fox Kintner Plotkin & Kahn
1675 Broadway
New York, New York 10019-5874
Attention: Jean-Francois Carreras, Esq.
Telecopy: (212) 484-3990
All such notices, requests, demands and other communications shall, when
mailed (which mailing must be accomplished by first class mail, postage prepaid;
express overnight courier service; or registered mail, return receipt requested)
or telegraphed, be effective three (3) days after deposited in the mails or
delivered to the telegraph company, respectively, addressed as aforesaid, unless
otherwise provided herein. All such notices, requests, demands and other
communications shall, when telecopied, be effective immediately upon printing of
the corresponding receipt slip by the sending machine, unless otherwise provided
herein.
7. ASSIGNMENT.
This Agreement shall not be assigned by any Party hereto without the
prior written consent of the other Parties hereto. This Agreement shall incure
to the benefit of the Parties hereto and shall be binding upon the heirs,
administrators, successors (including, witness
8.
<PAGE>
limitation, former partners of any one of the Parties hereto which would be
constituted under the form of a partnership, following the dissolution of
such partnership) and assigns of the Parties hereto.
8. AMENDMENT, MODIFICATION AND WAIVER.
This Agreement may be modified, amended and supplemented only upon the
mutual written agreement of the holders of eighty percent (80%) in interest
of the Series A Preferred. Each Party may waive any term, provision or
condition intended for its, his or her benefit, provided that such waiver be
in writing and be signed by the Party so waiving.
9. SEVERABILITY.
If any one or more of the provisions of this Agreement shall be held
invalid, illegal or unenforceable under applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected
or impaired thereby. Such provision shall be deemed modified to the extent
necessary to render it legal, valid and enforceable, and if no modification
shall render it legal, valid and enforceable, then this Agreement shall be
construed as if not containing the provision held to be invalid, and the
rights and obligations of the parties shall be construed and enforced
accordingly.
10. GOVERNING LAW.
This Agreement and the legal relationships among the Purchasers, the
Existing Shareholders and QCS shall be governed by and construed in
accordance with, the internal laws of the State of New York exclusively,
without regard to conflicts of laws principles. Each of the Parties (i)
hereby irrevocably consents and agrees that any legal or equitable action or
proceeding arising under or in connection with this Agreement shall be
brought exclusively before the federal courts of the State of New York, (ii)
by execution and delivery of this Agreement irrevocably submits to and
accepts, with respect to any such action or proceeding for itself and in
respect of its properties and assets, generally and unconditionally, the
exclusive jurisdiction of the aforesaid courts and irrevocably waives any and
all rights it may have to object to such jurisdiction under the laws of the
State of New York, the laws of France including, without limitation, Articles
14 and 15 of the French Civil Code, the Constitution of the United States of
America, the Constitution of France or otherwise, and (iii) irrevocably
comments that service of process upon it in any such action or proceeding
shall be valid and
9.
<PAGE>
effective against it if made in the manner provided in Section 6 hereof for
delivery of notices hereunder.
12. COUNTERPARTS
This Agreement may be executed by the parties in any number of
counterparts, all of which taken together shall constitute one (1) and the
same instrument.
13. CERTIFICATE OF INCORPORATION AND BYLAWS.
To the extent permissible under Delaware law, the provisions of this
Agreement shall apply notwithstanding any provisions to the contrary in the
Certificate of Incorporation or Bylaws of QCS from time to time being in
force and the Parties shall take such actions as may reasonably be required
to render effective the provisions of this Agreement.
14. EXPIRATION.
This Agreement shall expire on the earlier of (i) the day when the
Purchasers or their heirs, transferees, successors (including, without
limitation, former partners of any one of the Parties hereto which would be
constituted under the form of a partnership, following the dissolution of
such partnership) or assignees shall hold no more than thirty percent (30%)
of the Common Stock in the aggregate or (ii) the effective date of a
registration statement pertaining to, and subject to the consummation of, an
underwritten public offering of QCS' Common Stock at a per share price of at
least five dollars ($5.00) per share. Such percentage shall be computed on
the basis of the total number of shares of Common Stock which would have been
held by the Purchasers on the Closing Date if all of the Series A Preferred
held by the Purchasers on such date had been immediately converted.
15. EFFECTIVE DATE.
This Agreement shall become effective on the date on which it has been
executed and delivered by all parties hereto and all of the following
agreement have been executed and delivered by all parties thereto, and shall
not become effective unless and until all such parties have so executed and
delivered such agreements; (a) the Amendment No. 1 to Series A Convertible
Preferred Stock Purchase Agreement attached hereto as EXHIBIT A; (b) the
Agreement of even date by the Founders in favor of the Purchasers attached
hereto as EXHIBIT B; and (c) the Amended and Restated Class U Warrant
attached hereto as EXHIBIT C.
(Remainder of Page Intentionally Left Blank)
10.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
QCS CORPORATION
By: ______________________________
Name: ______________________________
Title: ______________________________
Marcel Van Heesewijk
________________________________
Matteus Wegbrans
________________________________
Reinhardt Stille
________________________________
Leonardus Klijn
________________________________
CARLYLE QCS PARTNERS, L.P.
By: ______________________________
Name: ______________________________
Title: ______________________________
11.
<PAGE>
STF MANAGEMENT LIMITED, as General
Partner of Sharp Technology Fund I
Limited Partnership
By: _____________________________
Name: _____________________________
Title: ______________________________
STF MANAGEMENT LIMITED, as General
Partner of Sharp Technology Fund II
Limited Partnership
By: _____________________________
Name: _____________________________
Title: _____________________________
LAGUNITAS PARTNERS, L.P.
By: _____________________________
Name: _____________________________
Title: _____________________________
PROACTIVE PARTNERS, L.P.
By: _____________________________
Name: _____________________________
Title: _____________________________
OAKWOOD HOLDINGS, BVI
By: _____________________________
Name: _____________________________
Title: _____________________________
12.
<PAGE>
DE NOYANGE S.A.
By: _____________________________
Name: _____________________________
Title: _____________________________
CANNELL CAPITAL MANAGEMENT
By: _____________________________
Name: _____________________________
Title: _____________________________
Mr. Herb Miller
_______________________________________
Mr. Robert Zangrillo
_______________________________________
Mr. Hans Robben
_______________________________________
Mr. Peter Mills
_______________________________________
Mr. Peter Anson
_______________________________________
Mr. Steven Lebow
________________________________________
13.
<PAGE>
DE NOYANGE S.A.
By: ______________________________
Name: ______________________________
Title: ______________________________
CANNELL CAPITAL MANAGEMENT
By: ______________________________
Name: ______________________________
Title: ______________________________
Mr. Herb Miller
________________________________________
Mr. Robert Zangrillo
________________________________________
Mr. Hans Robben
________________________________________
Mr. Peter Mills
________________________________________
Mr. Peter Anson
________________________________________
Mr. Steven Lebow
________________________________________
14.
<PAGE>
ANNEX 1
PURCHASERS
Carlyle-QCS Partners, L.P.
STF Management Limited, as General Partner of Sharp Technology Fund I Limited
Partnership
STF Management Limited, as General Partner of Sharp Technology Fund II Limited
Partnership
Lagunitas Partners, L.P.
Proactive Partners, L.P.
Oakwood Holdings, BVI
DeNoyange S.A.
Cannell Capital Management
Mr. Herb Miller
Mr. Robert Zangrillo
Mr. Hans Robben
Mr. Peter Mills
Mr. Peter Anson
Mr. Steven Lebow
15.
<PAGE>
ANNEX 2
EXISTING SHAREHOLDERS
Mr. Reinhardt Stille
Mr. Marcel van Heesewijk
Mr. Matteus Wegbrans
Mr. Leonardus Klijn
16.
<PAGE>
Exhibit 4.9
AMENDED AND RESTATED
CLASS U WARRANT TO PURCHASE
COMMON STOCK OF
QCS CORPORATION
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE. ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
WARRANT MAY BE MADE ONLY (I) IN A TRANSACTION REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (II) IF ANY
EXEMFIION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE AND QCS
HAS RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT REASONABLY
SATISFACTORY TO IT. QCS WITH FURNISH A FULL STATEMENT OF ALL OF
THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RESTRICTED RIGHTS
OF THE SHARES OF EACH CLASS OF STOCK OR SERIES THEREOF OF QCS TO
ANY SHAREHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST TO QCS AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. THE TRANSFER OF
THE WARRANT REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE
TERMS OF THAT CERTAIN SHAREHOLDERS AGREEMENT AMONG CERTAIN
SHAREHOLDERS OF QCS, AS WELL AS OF THAT CERTAIN REGISTRATION
RIGHTS AGREEMENT, BOTH DATED AS OF NOVEMBER 22, 1994, AS AMENDED,
WHICH AGREEMENTS ALSO CONTAIN OTHER IMPORTANT PROVISIONS RELATING
TO SUCH WARRANT. COPIES OF THESE AGREEMENTS ARE ON FILE AT QCS'S
PRINCIPAL PLACE OF BUSINESS AND REGISTERED OFFICE AND MAY BE
OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO QCS AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. BY ACCEPTANCE
OF THIS CERTIFICATE, THE HOLDER HEREOF AGREES TO BE BOUND BY THE
TERMS OF SUCH AGREEMENTS.
Void on the first business day following the Termination Date (as hereinafter
defined).
1.
<PAGE>
This is to verify that, FOR VALUE RECEIVED, a Purchaser pursuant to the QCS
Corporation Series A Convertible Preferred Stock Purchase Agreement dated
November 22, 1994 (the "Stock Purchase Agreement"), or his registered assigns
(hereinafter referred to as the "Holder"), is entitled to purchase, subject to
the terms and conditions hereof, from QCS Corporation, a Delaware corporation
("QCS"), _______ shares of Common Stock, par value $.001 per share, of QCS (the
"Common Stock"), at any time during the period commencing at 9:00 a.m., Eastern
Time on November 23, 1994 (the "Commencement Date") and ending upon automatic
conversion of the Series A Preferred into Common Stock (the "Termination Date"),
which automatic conversion shall take place upon the earlier of: (i) the first
business day following the occurrence of the last one of the three (3) following
events: (a) the completion of a thirty-six (36) consecutive month period
commencing on the Closing date, (b) the completion of six (6) consecutive
quarters of sustained profitability of QCS and (c) the completion of a thirty
(30) consecutive day period during which the low bid for the Common Stock shall
have been in excess of five Dollars ($5.00) and (ii) the effective date of a
registration statement pertaining to, and subject to the consummation of, an
underwritten public offering of QCS's Common Stock at a price of at least $5.00
per share, at an exercise price of U.S. $1.03 per share of Common Stock, payable
solely by exchange of shares of Series A Preferred, which are deemed to have a
value of U.S. $1.03 per share. The number of shares of Common Stock purchasable
upon exercise of this warrant (the "Warrant") and the exercise price per share
shall be subject to adjustment from time to time upon the occurrence of certain
events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. DEFINITIONS. All terms not otherwise defined herein shall have the meanings
given or assigned to them in the Stock Purchase Agreement.
2. EXERCISE OF WARRANT; ISSUANCE OF EXERCISE SHARES.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part, at any time after the Commencement Date and until and including the
Termination Date, upon surrender on any business day to QCS at its principal
office, presently located at the address of QCS set forth in Section 10 hereof
(or such other office of QCS, if any, as shall theretofore, have been designated
by QCS by written notice to the Holder), together with: (i) a completed and
executed Notice of Warrant Exercise in the form set forth in Appendix A hereto
and made a part hereof and (ii) payment of the full Exercise Price by surrender
of certificates representing the Series A Preferred, duly endorsed in blank for
transfer to QCS. This Warrant shall be automatically exercised, and all of the
Series A Preferred shall be automatically converted into Common Stock pursuant
to the terms hereof, on the Termination Date at 10:00 A.M.
2.
<PAGE>
No adjustments to the Exercise Price shall be made for any cash dividends
on Exercise Shares issuable upon exercise of the Warrant. QCS shall cancel this
Warrant Certificate surrendered upon exercise of this Warrant.
(b) ISSUANCE OF EXERCISE SHARES; DELIVERY OF WARRANT CERTIFICATE. QCS
shall, within ten (10) business days of the exercise of this Warrant, issue in
the name of and cause to be delivered to the Holder (or such other person or
persons, if any, as the Holder shall have designated in the Notice of Warrant
Exercise) one or more certificates representing the Exercise Shares to which the
Holder (or such other person or persons) shall be entitled upon such exercise
under the terms hereof. Such certificate or certificates shall be deemed to have
been issued and the Holder (or such other person or persons so designated) shall
be deemed to have become the record holder of the Exercise Shares as of the date
of the due exercise of this Warrant.
(c) EXERCISE SHARES FULLY PAID AND NON-ASSESSABLE. QCS agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and non-
assessable and free and clear of all taxes (other than taxes which, pursuant to
Section 3 hereof, QCS shall not be obligated to pay) or liens, charges, and
security interests created by QCS with respect to the issuance thereof.
(d) RESERVATION OF EXERCISE SHARES. At the time of or before taking any
action which would cause an adjustment pursuant to Section 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, QCS will
take any corporate action which may, in the opinion of its counsel, be necessary
in order that QCS have remaining, after such adjustment, a number of shares of
such capital stock unissued and unreserved for other purposes sufficient to
permit the exercise of this Warrant after such adjustment.
At the time of or before taking any action which would cause an adjustment
pursuant to Section 6 hereof, reducing the Exercise Price below the then par
value (if any) of the Exercise Shares issuable upon exercise of this Warrant,
QCS will take any corporate action which may, in the opinion of its counsel, be
necessary in order to ensure that the par value per share of the Exercise Shares
is at all times equal to or less than the Exercise Price per share and so that
QCS may validly and legally issue fully paid and non-assessable Exercise Shares
at the Exercise Price, as so adjusted. QCS will also, from time to time, take
such action if at any time the Exercise Price is below the then par value of the
Exercise Shares.
(e) FRACTIONAL SHARES. QCS shall not be required to issue fractional
shares of capital stock upon the exercise of this Warrant or to deliver Warrant
Certificates which evidence fractional shares of capital stock. In the event
that any fraction of an Exercise Share would, except for the provisions of this
subparagraph (e), be issuable upon the exercise of this Warrant, QCS shall pay
to the Holder exercising the Warrant an amount in cash equal to such fraction
multiplied by the Current Market Value of the Exercise Share. For purposes of
this subparagraph (e), the Current Market Value shall be determined as follows:
3.
<PAGE>
(i) if the Exercise Shares are traded in the over-the-counter
market and not on any national securities exchange and not in the NASDAQ
Reporting System, the average of the mean between the last bid and asked prices
per share, as reported by the National Quotation Bureau, Inc., or an equivalent
generally accepted reporting service, for the last business day prior to the
date on which this Warrant is exercised, of if not so reported, the average of
the closing bid and asked prices for an Exercise Share as furnished to QCS by
any member of the National Association of Securities Dealers, Inc., selected by
QCS for that purpose.
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ Reporting System, the closing price on the
principal national securities exchange on which they are so listed or traded or
in the NASDAQ National Market System, as the case may be, on the last business
day prior to the date of the exercise of this Warrant. The closing price
referred to in this clause (ii) shall be the last reported sales price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices, in either case on the national securities exchange
on which the Exercise Shares are then listed or in the NASDAQ Reporting System;
or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors.
3. PAYMENT OF TAXES. QCS will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that QCS shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the issue
of any Warrant Certificates or any certificates for Exercise Shares in a name
other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of this Warrant, and QCS shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to QCS the amount of such tax or shall have established
to the satisfaction of QCS that such tax has been paid.
4. MUTILATED OR MISSING WARRANT CERTIFICATE. In case this Warrant Certificate
shall be mutilated, lost, stolen or destroyed, QCS may in its discretion issue,
in exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and in substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate or Warrant Certificates of like
tenor and in the same aggregate denomination, but only (i) in the case of loss,
theft or destruction, upon receipt of evidence satisfactory to QCS of such loss,
theft or destruction of such Warrant Certificate and indemnity or bond, if
requested, also satisfactory to them and (ii) in the case of mutilation, upon
surrender of the mutilated Warrant. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as QCS or its counsel may prescribe.
5. REGISTRATION OF TRANSFERS AND EXCHANGES. The Warrant shall be
transferable, subject to the provisions of Section 7 hereof, only upon the books
of QCS, if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to QCS at its principal office accompanied (if so required
by it) by a written instrument or instruments of transfer in form satisfactory
to QCS and duly executed by the Holder thereof or the duly appointed legal
4.
<PAGE>
representative thereof or by a duly authorized attorney and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
In all cases of transfer by an attorney, the original letter of attorney, duly
approved, or an official copy thereof, duly certified, shall be deposited and
remain with QCS. In the case of transfer by executors, administrators, guardians
or other legal representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited and remain with QCS in
its discretion. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee named in such instrument of
transfer, and the surrendered Warrant Certificate shall be cancelled by QCS.
Any Warrant Certificate may be exchanged, at the option of the Holders
thereof and without charge, when surrendered to QCS at its principal office, or
at the office of its transfer agent, if any, for another Warrant Certificate or
other Warrant Certificates of like tenor and representing in the aggregate the
right to purchase from QCS a like number and kind of Exercise Shares as the
warrant Certificate surrendered for exchange or transfer, and the Warrant
Certificate so surrendered shall be canceled by QCS or transfer agent, as the
case may be.
6. ADJUSTMENT OF EXERCISE SHARES AND EXERCISE PRICE. The Exercise Price and
the number and kind of Exercise Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(a) In the case QCS shall (i) pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, (ii) subdivide or classify
its outstanding Common Stock into a greater number of shares, or (iii) combine
or reclassify its outstanding Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionally adjusted so that the Holder of this
Warrant after such date shall be entitled to receive the aggregate number and
kind of shares of Common Stock which, if this Warrant had been exercised by such
Holder immediately prior to such date, the Holder would have owned upon such
exercise and been entitled to receive upon such dividend subdivision,
combination or reclassification. For example, if QCS declares a 2 for 1 stock
dividend or stock split and the Exercise Price immediately prior to such event
was $1.03 per share, the adjusted Exercise Price immediately after such event
would be $0.515 per share. Such adjustment shall be made successively whenever
any event listed above shall occur.
(b) In case QCS shall hereinafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the Current Market Price of the
Common Stock (as defined in subsection (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional
5.
<PAGE>
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such Current Market Price
per share of the Common Stock and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subsection (a) above, the number of Exercise Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Exercise Shares initially issuable upon exercise of
this Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subsection (b) above, the
Current Market Price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for thirty (30) consecutive business
days before such date. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and lowest reported asked prices as reported by
N ASDAQ, or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subsection (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Notwithstanding anything
in this Section 6 to the contrary QCS shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 6, as it, in its sole discretion, shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock, issuance of
warrants to purchase Common Stock or distribution of evidences of Indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Section 6 hereafter made by QCS to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
6.
<PAGE>
(f) Whenever the Exercise Price is adjusted, as herein provided, QCS
shall promptly cause a notice setting forth the adjusted Exercise Price and
adjusted number of Shares issuable upon exercise of each Warrant to be mailed to
the Holders, at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
QCS may retain a firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants employed by QCS) to
make any computation required by this Section 6, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Warrant becomes entitled to
receive any Exercise Shares of QCS, other than Common Stock, the number of such
other shares so receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (e), inclusive above.
(h) Irrespective of any adjustments in the Exercise Price or the number
or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to denominate the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Section, QCS shall forthwith file in the custody of
its Secretary or an Assistant-Secretary at its principal office and with its
stock transfer agent, if any, an officer's certificate showing the adjusted
Exercise Price determined as herein provided, setting forth in reasonable detail
the facts requiring such adjustment, including a statement of the number of
additional shares of Common Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the Holder and QCS shall, forthwith after each such
adjustment, mail a copy by certified mail of such certificate to the Holder.
7. RESTRICTIONS ON TRANSFERABILITY; RESTRICTIVE LEGEND. Neither this Warrant
nor the Exercise Shares shall be transferable except in accordance with the
provisions of this Section.
(a) RESTRICTIONS ON TRANSFER; INDEMNIFICATION. The Holder is aware that
neither the Warrant nor the Exercise Shares are registered under the Securities
Act or under any state securities law.
The Holder agrees to indemnify and hold harmless QCS against any loss,
damage, claim or liability arising from the disposition of this Warrant or any
Exercise Share held by such Holder or any interest therein resulting from the
Holder's violation of the provisions of this Section 7.
(b) The Holder agrees that is shall not offer for sale, sell or
otherwise transfer amount of Exercise Shares in any week which exceeds two
percent (2 %) of the average weekly
7.
<PAGE>
reported volume of trading in Common Stock of QCS on the NASDAQ Reporting System
or such other exchange as such securities may then be listed, during the four
(4) calendar weeks preceding the date of such sale.
(c) RESTRICTIVE LEGENDS.
(i) Unless and until otherwise permitted by this Section 7, this
Warrant Certificate and each Warrant Certificate issued to the Holder or to any
transferee or assignee of this Warrant Certificate, shall bear the following
legend:
"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE. ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
WARRANT MAY BE MADE ONLY (I) IN A TRANSACTION REGISTERED UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (II) IF ANY
EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE AND QCS HAS
RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT REASONABLY
SATISFACTORY TO IT. QCS WILL FURNISH A FULL STATEMENT OF ALL OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE
SHARES OF EACH CLASS OF STOCK OR SERIES THEREOF OF QCS TO ANY
SHAREHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST TO QCS AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. THE TRANSFER OF
THIS WARRANT REPRSENTED BY THIS CERTIFICATE IS RESTRICTED BY THE
TERMS OF THAT CERTAIN SHAREHOLDERS AGREEMENT AMONG CERTAIN
SHAREHOLDERS OF QCS, AS WELL AS OF THAT CERTAIN REGISTRATION RIGHTS
AGREEMENT, BOTH DATED AS OF NOVEMBER 22, 1994, AS AMENDED, WHICH
AGREEMENTS ALSO CONTAIN OTHER IMPORTANT PROVISIONS RELATING TO SUCH
WARRANT. COPIES OF THESE AGREEMENTS ARE ON FILE AT QCS'S PRINCIPAL
PLACE OF BUSINESS AND REGISTERED OFFICE AND MAY BE OBTAINED WITHOUT
CHARGE UPON WRITTEN REQUEST TO QCS AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE. BY ACCEPTANCE OF THIS CERTIFICATE,
THE HOLDER HEREOF AGREES TO BE BOUND BY THE TERMS OF SUCH
AGREEMENTS. "
8.
<PAGE>
(ii) Unless and until otherwise permitted by this Section 7, each
stock certificate representing the Exercise Shares issued to the Holder or to
any transferee or assignee thereof shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE. ANY SALE, TRANSFER,
PLEDGE OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE ONLY (I) IN A TRANSACTION REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (II) IF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE AND QCS HAS
RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT REASONABLY
SATISFACTORY TO IT. QCS WILL FURNISH A FULL STATEMENT OF ALL OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE
SHARES OF EACH CLASS OF STOCK OR SERIES THEREOF OF QCS TO ANY
SHAREHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST TO QCS AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. THE TRANSFER OF
SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF
THAT CERTAIN SHAREHOLDERS AGREEMENT AMONG CERTAIN SHAREHOLDERS OF
QCS, AS WELL AS OF THAT CERTAIN REGISTRATION RIGHTS AGREEMENT, BOTH
DATED AS OF NOVEMBER 22, 1994, AS AMENDED, WHICH AGREEMENTS ALSO
CONTAIN OTHER IMPORTANT PROVISIONS RELATING TO SUCH SHARES. COPIES
OF THESE AGREEMENTS ARE ON FILE AT QCS'S PRINCIPAL PLACE OF
BUSINESSAND REGISTERED OFFICE AND MAY BE OBTAINED WITHOUT CHARGE
UPON WRITTEN REQUEST TO QCS AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE. BY ACCEPTANCE OF THIS CERTIFICATE, THE HOLDER
HEREOF AGREES TO BE BOUND BY THE TERMS OF SUCH AGREEMENTS."
(d) NOTICE OF PROPOSED TRANSFERS. Prior to any transfer, offer to
transfer or attempted transfer of this Warrant or any Exercise Share, the Holder
of such security shall give written notice to QCS of such Holder's intention of
effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer.
9.
<PAGE>
8. REGISTRATION RIGHTS. This Warrant and the Exercise Shares may be registered
pursuant to the Registration Rights Agreement dated November 22, 1994 which
Agreement is expressly incorporated herein by reference.
9. NOTICES. Any notice, request, instruction or other document to be given
hereunder by any Party hereto shall be in writing and shall be delivered and
shall be effective as set forth in Section 8.3 of the Stock Purchase Agreement.
10. SUPPLEMENTS AND AMENDMENTS. QCS may, from time to time, supplement or amend
this Warrant Certificate without the approval of the Holders of Warrants in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision, or to
make any other provisions in regard to matters or question herein arising
hereunder which QCS may deem necessary or desirable and which shall not
materially adversely affect the interests of the Holder.
11. SUCCESSORS AND ASSIGNS. This Warrant shall insure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and QCS.
12. SEVERABILITY. If for any reason any provision, Section or term of this
Warrant Certificate is held to be invalid or unenforceable, all other valid
provision herein shall remain in full force and effect and all terms, provisions
and paragraphs of this Warrant shall be deemed to be severable.
13. GOVERNING LAW. This Warrant shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of said State.
14. HEADINGS. Paragraph and subparagraph headings, used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
IN WITNESS WHEREOF, QCS has caused these presents to be duly executed the
day and year defined herein as the 'Commencement Date."
QCS CORPORATION
By.____________________________
Executive Officer
10.
<PAGE>
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and QCS Corporation, a
Delaware corporation (the "QCS"), dated as of November 22, 1994, (the "Warrant")
the undersigned hereby irrevocably elects to exercise its warrant to the extent
of purchasing _______ shares of Common Stock (the "Warrant Shares") of QCS as
provided for therein. All capitalized terms used herein shall have the meanings
assigned to such terms in the Warrant.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Exercise Price of the Exercise Shares is enclosed
herewith, in the form of certificates for the Series A Preferred, duly endorsed
in blank for transfer to QCS.
The undersigned request that a certificate for the Exercise Shares be
issued in the name of:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
(Please print name, address and social security number)
Dated: ________________________________, 199________
Address: _____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Signature:
_____________________________________________
11.
<PAGE>
Exhibit 10.1
QUALIFIED COLLABORATION SOLUTIONS for RETAIL
August 12, 1997
Her Goede Paard b.v.
Wijchenseweg 112
6538 SX Nijmegen
P.O. Box 6641
6503 GC Nijmegen
The Netherlands
Dear Johan Vunderink:
The purpose of this letter is to establish an agreement between Het
Goede Paard (the "Finder") and QCS Corporation (the "Company") for the
purpose of arranging for prospective investors introduced to the Company by
the Finder to acquire equity interests in the Company with a value of $1.50
per share or greater (a "Placement") and to assist with the marketing of the
Company. The terms of this Agreement are as follows:
1. On the date of this Agreement, and from time to time thereafter,
the Finder shall submit a list of prospective investors to the Company.
Within five days after receipt of such list, the Company shall identify in
writing to the Finder the prospective investors which meet its approval and
which have not already been contacted by the Company regarding the Placement
(the "Prospects"). The Finder shall only be entitled to a fee hereunder with
respect to the Prospects which have been so approved by the Company.
2. Thereafter, the Finder shall a) contact the Prospects and
determine their interest in entered into discussions with the Company
regarding the Placement; b) inform such Prospects of the requirements of the
Company as to the Placement; c) ascertain, as to the Prospects interested in
entering into discussions with the Company regarding the Placement, the terms
and conditions under which such Prospects would proceed with negotiations and
inform the Company of such terms and conditions; d) fully inform the
Prospects of the Copy's technology and its business; and e) act as a liaison
between the Company and the interested Prospects to arrange all necessary
meetings between the parties and act as advisor to the Company at such
meetings.
3. a. During the term of this Agreement, upon the closing of the
Placement involving an equity investment made by one or more of the Prospects
in the Company, the Finder shall be entitled to a "finder's fee" of 5% of
aggregate amount of the equity investments in the Placement by the Prospects
to be paid in the following manner: 70% in the form of warrants to purchase
shares of capital stock of the Company on the same terms and conditions as
the Placement (the "Warrants") and 30% in cash.
[LETTERHEAD]
<PAGE>
b. The Finder's reasonable travel and accommodation expenses
will be reimbursed by the Company.
c. The Warrants shall be issued to the Finder on the closing
date of the Placement and shall expire three years following such closing
date. The value of the Warrants shall be equal to the aggregate exercise
price of the Warrants. The cash portion of the finder's fee and expenses
shall be paid within 15 days of the closing date of the Placement
4. The Finder shall assist the Company with investor relations
including introducing the Company to investment bankers. The Finder shall
also assist the Company in preparing its financial presentations and
strategies for investors.
5. This Agreement shall be non-exclusive to the Finder. The Company
may employ other finders or seek an equity investment on its own initiative,
utilizing its own or their contacts and sources, without obligation to the
Finder hereunder.
6. This Agreement shall have a term of six months from the date it
is signed by both parties, unless extended by mutual written agreement of the
parties. Either party may terminate this Agreement at any time effective upon
delivery of written notice to the other party. Should the Company continue in
active discussions with the Prospects after any termination date, the
finder's fee shall be paid by the Company for any Placement that is completed
with a Prospect within six months of the termination date. The Finder shall
have no claim to any fee or override for any agreement entered into between
the Company and any Prospect more than six months after the date of
termination.
7. The Finder will treat all information which it receives from the
Company in a confidential manner (other than information that is or becomes
publicly available other than as a result of the wrongful or unlawful
disclosure by the Finder) and will use the same degree of care to prevent
inappropriate dissemination of such information as it would employ in the
protection and preservation of confidential information about its own
business. The Finder specifically agrees that it will not (except as required
by applicable law, regulation or legal process) disclose to any third party
any information received from the Company which is confidential and is not
publicly available. The Finder further agrees that monetary damages would not
be an adequate remedy for breach of the covenants contained in this paragraph
and that the Company will be entitled to injunctive relief for any such
breach.
8. This Agreement constitutes the final, complete and exclusive
understanding and agreement between the parties hereto with respect to the
subject matter hereof. This Agreement cannot be modified or amended except by
a writing executed by the party to be charged therewith.
[LETTERHEAD]
<PAGE>
9. This Agreement shall be deemed to have been made in, and shall be
construed pursuant to, the substantive and procedural laws of the State of
California. The parries hereby consent to the judicial jurisdiction of the
court and arbitrators of the State of California, County of Santa Clara, as
to any action instituted by either party arising out of or related to this
Agreement.
10. The Finder represents that he does not engage either for all or
part of his time, directly or indirectly, as agent, broker or principal, in
the business of offering, buying, selling, or otherwise dealing or trading in
securities issued by another person.
11. The Finder shall not provide any Prospect with any written
material related to the Company unless such written material has previously
been approved by the Company and shall not make any other representation on
behalf of the Company. Further, the Finder agrees to indemnify, defend and
hold the Company harmless for any claim based upon any representation by the
Finder or written material provided by the Finder which is not previously
approved by the Company.
If the terms of the engagement as set forth in this letter arc
satisfactory, please sign this letter agreement and return it to the
undersigned.
Sincerely yours,
QCS CORPORATION
Marcel van Heesewijk
President & CEO
AGREED AND ACCEPTED THIS ___ DAY OF AUGUST, 1997:
Het Goede Paard b.v. QCS Corporation
- --------------------------------- ------------------------------------
Represented by Johan Vunderink Marcel van Heesewijk
[LETTERHEAD]
<PAGE>
Exhibit 10.2
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered
into as of this 1st day of May 1998, by and between L.A. DELMONICO
CONSULTING, INC. ("Consultant") AND QCS CORPORATION (the "Company").
1. CONSULTING SERVICES. Consultant will provide to the Company
the consulting and advisory services (the "Consulting Services") more
particularly described in the Description of Consulting Activities attached
as Exhibit A to this Agreement.
2. CONSULTING FEES. In consideration of the Consulting Services,
the Company agrees to pay Consultant consulting fees at the rates and in
accordance with the terms specified in the Fee Schedule attached as Exhibit B
to this Agreement.
3. TERMS. The term of this Agreement shall commence as of the
date of this Agreement and shall terminate ninety (90) days receipt by a
party of the other party's written election to terminate this Agreement.
Either party may elect at any time and in its discretion to terminate this
Agreement, with or without cause.
4. EXPENSES. The Company shall reimburse Consultant for all
actual out-of-pocket expenses incurred by Consultant in the performance of
the Consulting Services. Travel by private automobile will be reimbursed at
the rate of Thirty-One Cents ($0.31) per mile. Expenses for out-of-town
travel must be approved in advance by the Company. Consultant shall prepare
and submit to the Company itemized expense reports (which shall include where
available receipts and comparable documentation) concurrent with Consultant's
monthly fee statements. The Company shall reimburse Consultant for such
expenses within ten (10) days after receipt of each expense report.
5. CONFIDENTIALITY. Consultant agrees to hold in confidence and
not disclose to any third party any of the Company's trade secrets or
proprietary information both during and after the term of this Agreement.
6. OWNERSHIP. The work product resulting from the Consulting
Services shall be and remain the property of the Company unless otherwise
agreed in writing by both parties.
7. INDEPENDENT CONTRACTOR. The parties intend that an
independent contractor relationship is created by this Agreement and that
Consultant is being retained by the Company only for the purposes and to the
extent set forth herein. Consultant shall not be considered an agent or
employee of the Company for any purpose and shall not be eligible to
participate or receive any type or form of insurance or benefits provided by
the Company to its employees. Consultant is free to provide consulting and
advisory services to others during the term of this Agreement.
8. RESPONSIBILITY FOR TAXES. As an independent contractor,
Consultant agrees that it is solely responsible for the payment of any taxes
and assessments imposed on account of the payment of compensation to
Consultant under this Agreement, including without limitation any
unemployment insurance tax, federal, state and foreign income taxes, federal
Social Security (FICA) payments, and state disability insurance taxes.
Consultant agrees to indemnify
<PAGE>
and hold the Company and its employees harmless from any and all liability,
penalties and judgments arising out of Consultant's failure to make any
payment of taxes required to be paid by Consultant under this Paragraph 8.
9. NO AUTHORITY TO BIND. Consultant is not by this Agreement
granted any right or authority, express or implied, on behalf of or in the
name of the Company to bind the Company in any manner whatsoever unless
specifically requested by the Company. Similarly, Consultant shall not be
liable for or be deemed to have assumed any liability or obligation of the
Company, and the Company agrees to indemnify and hold Consultant and its
employees harmless from any and all liability, loss, damage, penalties and
judgments arising out of the Company's business and its operations.
10. MISCELLANEOUS.
(a) NO ASSIGNMENT. Neither party may assign this Agreement
without the prior written consent of the other.
(b) COMPLETE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all previous oral and written agreements and all contemporaneous
oral negotiations, commitments, writings and understandings.
(c) GOVERNING LAW/JURISDICTION. This Agreement shall be governed
by, and construed in accordance with, the internal laws of the State of
California. Each party consents to the jurisdiction and proper venue of the
California State Courts and the Federal Court for the Central District of
California.
(d) NO WARRANTY/LIMITATIONS. No warranty is made by Consultant as
to the results of the Consulting Services to be provided hereunder and
Consultant and its employees shall have no liability as a result of such
Consulting Services or the Company's use thereof. In no event shall
Consultant, together with its employees, be liable for any amount under any
circumstances greater than the aggregate consulting fees actually paid to
Consultant by the Company during the term of this Agreement.
(e) MODIFICATIONS AND WAIVERS. No waiver or modification of this
Agreement shall be binding unless it is in a writing signed by both parties
hereto.
(f) SEVERABILITY. In the event any provision or provisions of
this Agreement is or are to be held invalid, the remaining provisions of this
Agreement shall not be affected thereby.
(g) LEGAL FEES. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of
any alleged dispute, breach or default in connection with this Agreement, the
successful or prevailing party shall be entitled to recover all of its costs
incurred in such action or proceeding, including without limitation its
attorneys' fees and disbursements, in addition to any other relief to which
it may be entitled.
(h) CONSTRUCTION. The language of this Agreement shall be
construed simply and according to its fair meaning, and shall not be
construed for or against any party hereto as a result of the source of its
draftsmanship.
2
<PAGE>
(i) NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing, served personally on, or
mailed by certified or registered United States mail to, the party to be
charged with receipt hereof. Notices and other communications served by mail
shall be deemed given hereunder seventy-two (72) hours after deposit of such
notice or communication in the United States Post Office as certified or
registered mail with postage prepaid and duly addressed to the receiving
party at the address set below such party's signature hereon, or at such
other address as such party has designated in a written notice given as
provided herein.
(j) EXHIBITS. The Exhibits to this Agreement are hereby
incorporated into and are an integral part of this Agreement as though fully
set forth herein.
L.A. DELMONICO CONSULTING, INC. QCS CORPORATION
- ---------------------------------- ---------------------------------
BY: LOUIS A. DELMONICO BY: MARCEL VAN HEESEWIJK
TITLE: PRESIDENT TITLE: PRESIDENT & CEO
ADDRESS: 6907 AVENIDA DE SANTIAGO ADDRESS: 650 CASTRO STREET, SUITE 210
ANAHEIM HILLS, CA 92807 MOUNTAIN VIEW, CA 94041
ATTN: LOUIS A. DELMONICO, PH.D. ATTN: MARCEL VAN HEESEWIJK
3
<PAGE>
EXHIBIT A
DESCRIPTION OF CONSULTING SERVICES
STATEMENT OF WORK
Consultant's efforts and work shall be primarily focused on the
following tasks and subject areas:
-Business and organizational planning
-Partnering relations
-Company positioning
-Marketing and sales planning
-General business matters
Consultant's efforts and work, in connection with this agreement,
shall be exclusive of consultant's work as an outside director of the Company.
LOCATION
Unless otherwise directed by the Company, all Consulting Services
will be conducted and performed either at Consultant's offices or the Company's
offices.
REPORTING
Consultant shall report to the following Company officer:
Marcel Van Heesewijk
President & CEO
4
<PAGE>
EXHIBIT B
FEE SCHEDULE
<TABLE>
<CAPTION>
SCHEDULE OF FEES
----------------
<S> <C>
Full Day: $1,500
Per Hour: $ 200
</TABLE>
Agreed to by:
L.A. DELMONICO CONSULTING, INC. QCS CORPORATION
-------------------------------- --------------------------------
By: Louis A. Delmonico By: Marcel Van Heesewijk
Title: President Title: President & CEO
FEDERAL ID#: 33-0619554
5
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of January 29, 1999 by and between SEAN MALOY ("Executive"), and QCS.net
CORPORATION, a Delaware corporation (the "Company").
WHEREAS, Executive and the Company deem it to be in their respective
best interests to enter into an agreement providing for the employment of
Executive with the Company pursuant to the terms herein stated, which terms
include provisions for salary payments and death, disability, retirement and
severance and other benefits to be paid by the Company to Executive or his
designated beneficiaries; and
WHEREAS, Executive and the Company mutually desire that Executive's
employment with the Company will commence as of the date the Board of Directors
shall approve this Agreement (the "Effective Date"), except that for salary,
bonus and benefits purposes his employment will be effective as of February 15,
1999 (the "Salary Effective Date");
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, Executive and the Company have agreed
and do hereby agree as follows:
1. DUTIES.
(a) Commencing as of the Effective Date, the Company does hereby
employ, engage and hire Executive as President and Chief Executive Officer of
the Company, and Executive does hereby accept and agree to such hiring,
engagement and employment. Executive shall be responsible for the business and
operations of the Company and for worldwide marketing, sales and business
development efforts on behalf of Company and shall do and perform all services
and acts necessary or advisable to fulfill the duties and responsibilities of
his position and shall render such services on the terms set forth herein.
Executive shall report to and be subject to the supervision and control of the
Board of Directors of the Company. In addition, Executive shall have such other
executive and managerial powers and duties with respect to the Company and its
subsidiaries as may reasonably be assigned to him by the Board, to the extent
consistent with his position and status as President and Chief Executive Officer
of the Company. It is understood and agreed that Executive's initial duties
shall include, without limitation, the preparation of a business plan for the
Company relating to the location of corporate facilities and personnel
functions, functions of management, sales and marketing and business operations,
to be approved by the Board of Directors, and, subject to such approval, the
Company agrees to use all reasonable effort to obtain the reasonable and
necessary capital investment for such plan which is
1
<PAGE>
Exhibit 10.3
expected to be funded by outside investor capital from among existing
investors in the Company.
(b) Executive agrees that he may be appointed on or after the
Effective Date to serve on the Board of Directors of the Company. If
elected, Executive agrees to serve as a director of the Company upon such
appointment and to resign such directorship upon the termination of his
employment with the Company for any reason.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue indefinitely unless
Executive's employment hereunder is terminated in accordance with the terms of
this Agreement.
3. COMPENSATION.
(a) BASE SALARY. Effective from and after the Salary
Effective Date, the Company shall pay Executive an annual base salary at the
rate of $300,000 per year or such higher amount as the Company may from time
to time determine (the "Base Salary"), payable in equal biweekly installments
in accordance with the normal payroll procedures of the Company or at such
other time or times as Executive and the Company shall agree. Executive
shall receive an annual performance review no less frequently than on each
anniversary of the Effective Date during his employment hereunder and shall
be entitled to such merit increases in his Base Salary at the Board of
Directors in their discretion may determine. The Base Salary, once
increased, shall not subsequently be decreased, and the term "Base Salary,"
as used herein, shall include any such increases. Except as otherwise
provided herein, the Company's obligation to pay Executive's Base Salary
under this Agreement shall cease as of the date of termination of Executive's
employment.
(b) BONUS. Executive shall be eligible to receive an annual
bonus of up to 60% of Executive's Base Salary payable after the conclusion of
each fiscal year of the Company. Such bonus shall be determined by the Board
of Directors contingent on and subject to the achievement by Executive of
certain mutually agreed objectives relating to the Company as approved by the
Chairman of the Company's Compensation Committee, which objectives are to be
defined and agreed within thirty (30) days after the Effective Date and
yearly thereafter prior to the commencement of each fiscal year of the
Company. Executive may also receive a discretionary bonus in excess of 60%
of Base Salary to be determined and approved by the Board of Directors in
their discretion in the event that Executive substantially and materially
exceeds the mutually agreed objectives for the Company in the reasonable
judgment of the Board of Directors. Such bonus as determined and approved by
the Board of Directors will be paid annually within ninety (90) days of the
end of the fiscal year of the Company to which it relates. To be eligible
for such bonus, Executive must be on the Company's payroll when the bonus is
paid, and no payment of such bonus will be paid if Executive is not employed
by the Company; provided that, if Executive's employment is terminated during
the second half of a fiscal year of the Company, he shall be entitled to
receive a pro rata portion of such bonus for the period of service during
such year to the extent that the agreed objectives had been achieved prior to
the date of termination.
2
<PAGE>
Exhibit 10.3
(c) BENEFITS. From and after the Salary Effective Date,
Executive shall be entitled to participate in employee benefit programs
adopted from time to time by the Company for the benefit of its employees,
including, but not limited to, reimbursement of business expenses and medical
and health insurance in accordance with the Company's existing policies.
(d) STOCK OPTIONS. As of the Effective Date of this
Agreement, the Company shall grant Executive options (the "Options") to
purchase 750,000 shares of Common Stock of the Company, pursuant to and all
of the terms and conditions of the Company's existing Stock Option Plan, and
at an exercise price equal to the fair market value of the Common Stock on
the date of grant. The Options shall be incentive stock options except for
any portion thereof which shall not meet all of the requirements of incentive
stock options under applicable law.
(e) WARRANTS. The Company agrees to grant Executive Warrants
(the "Warrants") to purchase up to 250,000 shares of the Company's Common Stock
at an exercise price equal to the fair market value of the Company's Common
Stock on the date of issuance of the Warrants in two tranches of 125,000 shares
each. The issuance of the Warrants shall be contingent on and subject to the
achievement by Executive of certain mutually agreed objectives relating to an
increase in the share value of the Company as approved by the Chairman of the
Company's Compensation Committee, which objectives are to be mutually defined
and agreed within thirty (30) days after the Effective Date.
(f) LOAN. As of the Salary Effective Date, the Company shall
make a loan (the "Loan") to Executive in the amount of $100,000 bearing
interest at the rate of 7% and due and payable on February 15, 2000;
provided, however, that the Loan shall be forgiven and discharged by the
Company as additional compensation to Executive hereunder in the event that
Executive shall have been continuously employed by the Company from and after
the Effective Date to and including February 15, 2000. In the event that
Executive should leave the employ of the Company for any reason prior to
February 15, 2000, the Loan shall be due and payable by Executive in
accordance with its terms unless Executive is terminated by the Company
without Cause in which case the Loan shall be forgiven and discharged
effective on the date of termination. The Loan shall be evidenced by a
Promissory Note from Executive containing these terms and other usual and
customary terms.
4. TERMINATION OF EXECUTIVE'S EMPLOYMENT.
(a) DEATH. In the event Executive's employment hereunder is
terminated by reason of Executive's death, the Executive's employment shall
terminate without further obligation of the Company.
(b) DISABILITY. If, as a result of Executive's incapacity
due to physical or mental illness ("Disability"), Executive shall have been
absent from the full-time performance of his duties with the Company for
ninety (90) days during any eighteen (18) month period, and, within thirty
(30) days after written notice is provided to his by the Company, he shall
not have returned to the full-time performance of his duties, Executive's
3
<PAGE>
Exhibit 10.3
employment under this Agreement may be terminated by the Company for
Disability. During any period prior to such termination during which
Executive is absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay Executive his
Base Salary at the rate in effect at the commencement of such period of
Disability. Following termination for Disability, Executive's Base Salary
shall terminate and Executive's benefits shall be determined under the
Company's retirement insurance, and other compensation and benefit plans and
programs then in effect, in accordance with the terms of such programs.
(c) TERMINATION FOR CAUSE. The Company may terminate
Executive's employment under this Agreement for "Cause," at any time, but
only in the event of (i) Executive's conviction of a felony (provided,
however, that following indictment for a felony, and prior to conviction, the
Company may, without limiting or modifying in any other way its obligations
under this Agreement, suspend Executive from the performance of his duties
hereunder), or (ii) a determination by the Board, acting reasonably and in
good faith, that Executive has (A) failed to meet annual performance
standards established by the Board and agreed by Executive, (B) habitually
neglected his duties or performed his duties in a grossly incompetent manner
despite adequate warnings from the Board, (C) committed materially fraudulent
or dishonest actions with respect to the Company, or (D) deliberately injured
or attempted to injure the Company so as to cause or attempt to cause
material adverse consequences for the Company; provided, however, that
Executive shall not be deemed to have been terminated for Cause unless the
Board of Directors has delivered to the Executive a written warning with
indicating the matter(s) prompting the notice and required remedial action to
be taken by the Executive. If the matter(s) indicated in the notice are not
remedied by the Executive within thirty (30) days after delivery of the
notice, and then there shall have been delivered to him a copy of a
resolution duly adopted by the affirmative vote of not less than two-thirds
of the entire membership of the Board of Directors of the Company, finding
that, in the good faith opinion of such board, he failed to perform in a
manner, was guilty of, or had engaged in conduct constituting, Cause as set
forth herein and specifying the particulars thereof in detail. In the event
of termination of Executive's employment for Cause, this Agreement shall
terminate without further obligation of the Company.
(d) TERMINATION FOLLOWING CHANGE IN CONTROL. In the event
that fifty percent (50%) or more of the securities of the Company are
acquired by a party not holding fifty percent (50%) or more of the securities
of the Company as of the Effective Date (a "Change in Control") and Executive
is not retained by the Company in a comparable executive role for a period of
two (2) year thereafter or is terminated by the Company within such period,
the Company shall, for the two (2) year period commencing on the date of such
termination or diminished role, (i) continue to pay Executive his then Base
Salary and benefits (as set forth in Sections 3(a) and 3(c) respectively),
(ii) pay Executive in each year the average bonus paid to Executive in the
prior three or fewer years of service under Section 3(b) hereof, and (iii)
cause all of Executive's Options which have not yet vested to immediately
vest as of the date of termination and provide Executive ninety (90) days
from the date of termination to exercise all or any portion of his Options.
4
<PAGE>
Exhibit 10.3
(e) TERMINATION BY THE COMPANY OTHER THAN BY REASON OF DEATH,
DISABILITY OR CHANGE IN CONTROL. If Executive's employment is terminated by
the Company for any reason other than Executive's death, Disability, for
Cause or on a Change in Control, the Company shall continue to pay Executive
his then Base Salary and benefits (as set forth in Sections 3(a) and 3(c)
respectively) and the bonus under Section 3(b) hereof, which in the first
year hereunder shall be 60% of Base Salary pro rata for the number of days
served in such fiscal year and in any subsequent year shall be the average of
Executive's bonus for the last three or fewer years pro rata for the number
of says served in such fiscal year, until the expiration of the one (1) year
period commencing on the date of such termination, and all of Executive's
Options which have not yet vested shall immediately vest as of the date of
termination and Executive shall have ninety (90) days from the date of
termination to exercise all or any portion of his Options. This shall be the
entire obligation of the Company to Executive for termination hereunder.
5. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS.
(a) DEFINITION OF "INVENTIONS." As used herein, the term
"Inventions" shall mean all inventions, discoveries, improvements, trade
secrets, formulas, techniques, data, programs, systems, specifications,
documentation, algorithms, flow charts, logic diagrams, source codes,
processes and other information, including works-in-progress, whether or not
subject to patent, trademark, copyright, trade secret or mask work
protection, and whether or not reduced to practice, which are made, created,
authored, conceived or reduced to practice by Executive, either alone or
jointly with others, during the period of employment with the Company, which
(A) relate to the actual or anticipated business, activities, research or
investigations of the Company or (B) result from or is suggested by work
performed by Executive for the Company (whether or not made or conceived
during normal working hours or on the premises of the Company), or (C) which
result, to any extent, from use of the Company's premises or property.
(b) WORK FOR HIRE. Executive expressly acknowledges that all
copyrightable aspects of the Inventions (as defined below) are to be
considered "works made for hire" within the meaning the Copyright Act of
1976, as amended (the "Act"), and that the Company is to be "author" within
the meaning of such Act for all purposes. All such copyrightable works, as
well as all copies of such works in whatever medium fixed or embodied, shall
be owned exclusively by the Company as of its creation, and Executive hereby
expressly disclaims any and al interest in any of such copyrightable works
and waives any right of DROIT MORALE or similar rights.
(c) ASSIGNMENT. Executive acknowledges and agrees that all
Inventions constitute trade secrets of the Company and shall be the sole
property of the Company or any other entity designated by the Company. In
the event that title to any or all of the Inventions or any part or element
thereof, may not, by operation of law, vest in the Company or such Inventions
may be found as a matter of law not to be "works made for hire" within the
meaning of the Act, Executive hereby conveys and irrevocably assigns to the
Company, without further consideration, all his right, title and interest,
throughout the universe and in perpetuity, in all Inventions and all copies
of them, in whatever medium fixed
5
<PAGE>
Exhibit 10.3
or embodied, and in all written records, graphics, diagrams, notes or reports
relating thereto in Executive's possession or under his control, including,
with respect to any of the foregoing, all rights of copyright, patent,
trademark, trade secret, mask work and any and all other proprietary rights
therein, the right to modify and create derivative works, the right to invoke
the benefit of any priority under any international convention and all rights
to register and renew same.
(d) PROPRIETARY NOTICES; NO FILINGS; WAIVER OF MORAL RIGHTS.
Executive acknowledges that all Inventions shall at the sole option of the
Company bear the Company's patent, copyright, trademark, trade secret and
mask work notices.
Executive agrees not to file any patent, copyright or
trademark applications relating to any Invention, except with prior written
consent of an authorized representative of the Company.
Executive hereby expressly disclaims any and all interest in
any Inventions and waives any right of DROIT MORALE or similar rights, such
as rights of integrity or the right to be attributed as the creator of the
Invention.
(e) FURTHER ASSURANCES. Executive agrees to assist the
Company, or any party designated by the Company, promptly on the Company's
request, whether before or after the termination of employment however such
termination may occur, in perfecting, registering, maintaining and enforcing,
in any jurisdiction, the Company's rights in the Inventions by performing all
acts and executing all documents and instruments deemed necessary or
convenient by the Company, including, by way of illustration and not
limitation:
i) Executing assignments, applications and other
documents and instruments in connection with (A) obtaining patents,
copyrights, trademarks, mask works or other proprietary protections for
the Inventions and (B) confirming the assignment to the Company of all
right, title and interest in the Inventions or otherwise establishing the
Company's exclusive ownership rights therein.
ii) Cooperating in the prosecution of patent, copyright,
trademark and mask work applications, as well as in the enforcement of the
Company's rights in the Inventions, including, but not limited to,
testifying in court or before any patent, copyright, trademark or mask
work registry office or any other administrative body.
Executive will be reimbursed for all out-of-pocket costs
incurred in connection with the foregoing, if such assistance is requested by
the Company after the termination of employment. In addition, to the extent
that, after the termination of employment for whatever reason, Executive's
technical expertise shall be required in connection with the fulfillment of
the aforementioned obligations, the Company will compensate Executive at a
reasonable rate for the time actually spent by Executive at the Company's
request rendering such assistance.
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Exhibit 10.3
(f) POWER OF ATTORNEY. Executive hereby irrevocably appoints
the Company to be his Attorney-in-Fact in his name and on his behalf to
execute any document and to take any action and to generally use his name for
the purpose of giving to the Company the full benefit of the assignment
provisions set forth in this Section 5.
(g) CONSENT TO USE OF NAME. The Company reserves the right
(but shall not have the obligation) to publicize Executive's name and
background in connection with the marketing of the Inventions or the
enforcement of the Company's rights therein. Executive is responsible for
supplying to the Company his resume or curriculum vitae for such purposes.
Executive agrees that the Company shall have the sole control over the type
style, type size or placement of his name on any materials, or over the final
content of any biography used in said material.
(h) DISCLOSURE OF INVENTIONS. Executive will make full and
prompt disclosure to the Company of all Inventions subject to assignment to
the Company, and all information relating thereto in Executive's possession
or under his control as to possible applications and use thereof, to an
authorized representative of the Company.
(i) NO VIOLATION OF THIRD PARTY RIGHTS. Executive represents,
warrants and covenants that he:
i) will not, in the course of employment, knowingly
infringe upon or violate any proprietary rights of any third party
(including, without limitation, any third party confidential
relationships, patents, copyrights, mask works, trade secrets or other
proprietary rights);
ii) is not a party to any conflicting agreements with
third parties which will prevent his from fulfilling the terms of
employment and the obligations of this Agreement;
iii) does not have in his possession any confidential or
proprietary information or documents belonging to any other person in
competition with the Company and will not disclose to the Company, use, or
induce the Company to use, any confidential or proprietary information or
documents of any other person; and
iv) agrees to respect any and all valid obligations which
he may now have to prior employers or to others relating to confidential
information, inventions or discoveries which are the property of those
prior employers or others, as the case may be.
Executive has supplied or shall promptly supply to the Company a
copy of each written agreement to which Executive is subject (other than any
agreement to which the Company is a party) which includes any obligation of
confidentiality, assignment of Inventions or non-competition.
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Exhibit 10.3
Executive agrees to indemnify and save harmless the Company
from any loss, claim, damage, costs or expenses of any kind (including
without limitation, reasonable attorney's fees) to which the Company may be
subjected by virtue of an actual breach by Executive of the foregoing
representations, warranties and covenants.
(j) OBLIGATIONS UPON TERMINATION. In the event of any
termination of his employment, for whatever reason, Executive will promptly
(A) deliver to the Company all physical property, discs, documents, notes,
printouts and all copies thereof and other materials in Executive's
possession or under Executive's control pertaining to the business of the
Company, including, but not limited to, those embodying or relating to the
Inventions and the Confidential Information (as defined herein), (B) deliver
to the Company's patent department or legal department or other person
designated by the Company all notebooks and other data relating to research
or experiments or other work conducted by Executive in the scope of
employment or any Inventions made, created, authored, conceived or reduced to
practice by Executive, either alone or jointly with others, and (C) make full
disclosure relating to any Inventions.
If Executive would like to keep certain property, such as
material relating to professional societies or other non-confidential
material, upon the termination of employment with the Company, he agrees to
discuss such issues with the Company. Where such a request does not put
Confidential Information of the Company at risk, the Company will customarily
grant the request.
Upon termination of employment with the Company, Executive
shall, if requested by the Company, reaffirm Executive's recognition of the
importance of maintaining the confidentiality of the Company's Confidential
Information and reaffirm all of the Executive's obligations set forth in this
Section 5.
6. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
(a) CONFIDENTIALITY. Executive acknowledges that in his
employment hereunder he will occupy a position of trust and confidence.
Executive shall not, except as may be required to perform his duties
hereunder or as required by applicable law, without limitation in time or
until such information shall have become public other than by Executive's
unauthorized disclosure, disclose to others or use, whether directly or
indirectly, any Confidential Information regarding the Company.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that
is not disclosed by the Company for financial reporting purposes and that was
learned by Executive in the course of his employment by the Company,
including (without limitation) any proprietary knowledge, trade secrets,
data, formulae, information and client and customer lists and all papers,
resumes and records (including computer records) of the documents containing
such Confidential Information. Executive acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the
Company, and that such information gives the Company a competitive advantage.
Executive agrees to deliver or return to the Company, at the Company's
request at any time or upon termination or
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Exhibit 10.3
expiration of his employment or as soon as possible thereafter, all
documents, computer tapes and disks, records, lists, data, drawings, prints,
notes and written information (and all copies thereof) furnished by the
Company or prepared by the Executive during the term of his employment by the
Company.
(b) NON-COMPETITION. During the period of Executive's
employment hereunder, Executive shall not, directly or indirectly, without
the prior written consent of the Company, provide consultative services or
otherwise provide services to (whether as an employee or a consultant, with
or without pay), own, manage, operate, join, control, participate in or be
connected with (as a stockholder, partner or otherwise), any business,
individual, partner, firm corporation or other entity that is then a
competitor of the Company, including any entity engaged in the design,
manufacture and/or distribution of network service systems or software that
have substantially the same features or functionality to or otherwise
competes with the systems that are designed, manufactured or distributed by
the Company or any direct or indirect subsidiary of Company (each such
competitor a "Competitor of the Company"); provided, however, that the
"beneficial ownership" by Executive, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of not more than five percent (5%) of the voting stock of
any publicly held corporation shall not alone constitute a violation of this
Agreement. It is further expressly agreed that the Company will or would
suffer irreparable injury if Executive were to compete with the Company or
any subsidiary or affiliate of the Company in violation of this Agreement and
that the Company would by reason of such competition be entitled to
injunctive relief in a court of appropriate jurisdiction, and, the provisions
of Section 11 notwithstanding, Executive further consents and stipulates to
the entry of such injunctive relief in such a court prohibiting Executive
from competing with the Company or any subsidiary or affiliate of the Company
in violation of this Agreement. Notwithstanding the foregoing and providing
that such service does not interfere in any material way with the performance
of Executive's duties under this Agreement and the operations of the Company,
Executive shall be permitted to perform consulting services for his prior
employer Maxwell up to one day per month through July 1999 and to serve as a
director of PurePulse and Dynabil.
(c) NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the
period of Executive's employment hereunder, Executive shall not, directly or
indirectly, influence or attempt to influence customers or suppliers of the
Company or any of its subsidiaries or affiliates, to divert their business to
any Competitor of the Company.
(d) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that
he possesses and will possess confidential information about other employees
of the Company relating to their education, experience, skills, abilities,
compensation and benefits and interpersonal relationships with customers of
the Company. Executive recognizes that the information he possesses and will
possess about these other employees is not generally known, is of substantial
value to the Company in developing its business and in securing and retaining
customers, and has been and will be acquired by him because of his business
position with the Company. Executive agrees that, during the period of
Executive's employment hereunder and for a period of one (1) year thereafter,
he will not, directly or indirectly, solicit or recruit any
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Exhibit 10.3
employee of the Company for the purpose of being employed by him or by any
Competitor of the Company on whose behalf he is acting as an agent,
representative or employee and that he will not convey any such confidential
information or trade secrets about other employees of the Company to any
other person.
(e) SURVIVAL OF PROVISIONS. The obligations contained in
this Section 6 shall survive the termination or expiration of Executive's
employment with the Company and shall be fully enforceable thereafter in
accordance with their terms. If it is determined by a court of competent
jurisdiction in any state that any restriction in this Section 6 is excessive
in duration or scope or is unreasonable or unenforceable under the laws of
that state, it is the intention of the parties that such restriction may be
modified or amended by the court to render it enforceable to the maximum
extent permitted by the law of that state.
7. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile, e-mail or
first-class mail, certified or registered with return receipt requested, and
shall be deemed to have been duly given three (3) days after mailing or
twenty-four (24) hours after transmission of an e-mail facsimile to the
respective persons named below:
If to Company: QCS.net CORPORATION
650 Castro Street, Suite 210
Mountain View, California 94041
Attention: Chairman
Facsimile: (415) 966-1025
If to Executive: SEAN MALOY
10065 Rue Chantemar
San Diego, California 92131
E-mail: [email protected]
Either party may change such party's address for notices by notice duly given
pursuant hereto.
8. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to Executive's employment and compensation by the
Company.
9. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer
or sale of all or substantially all of the assets of the Company with or to
any other individual or entity, this Agreement shall, subject to the
provisions thereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder.
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Exhibit 10.3
10. DISPUTE RESOLUTION; GOVERNING LAW. In the event of any
dispute regarding the terms of employment of Executive, including, but not
limited to, any dispute regarding the negotiation and entering into of the
terms of employment, any termination or employment or the interpretation or
performance of the terms and conditions hereof, Executive and Company hereby
agree that such dispute shall be subject to and shall be determined
exclusively by binding arbitration in accordance with the rules of the
American Arbitration Association. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under
and in accordance with the laws of the State of California, without giving
effect to provisions thereof regarding conflict of laws.
11. WITHHOLDING. The Company shall make such deductions and
withhold such amounts from each payment made to the Executive hereunder as
may be required from time to time by law, governmental regulation or order.
12. INDEMNIFICATION. The Company will defend and indemnify
Executive from any action or claim brought against Executive or the Company
which arises out of the performance of Executive's duties as an officer or
director of the Company to the fullest extent permitted under Section 145 of
the Delaware General Corporation Law.
13. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and
may be modified only in writing. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
14. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall not be
deemed a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any
right or power hereunder at any one or more times to be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed
by each party hereto.
15. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portion of this Agreement that
violates such statute or public policy shall be stricken. All portions of
this Agreement that do not violate any statute or public policy shall
continue in full force and effect. Further, any court order striking any
portion of this Agreement shall modify the stricken terms as narrowly as
possible to give as much effect as possible to the intentions of the parties
under this Agreement.
16. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
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Exhibit 10.3
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has hereunto
signed this Agreement, effective as of the date first above written.
QCS.net CORPORATION
By: /s/Marcel van Heesewijk
-----------------------
Its: Chairman of the Board of Directors
-----------------------------------
/s/Sean Maloy
------------------------
SEAN MALOY
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of July 6,
1998 ("Effective Date"), is entered into by and between John F. Buckles
("Executive"), and QCS CORPORATION, a Delaware corporation (the "Company").
WHEREAS, Executive and the Company deem it to be in their
respective best interests to enter into an agreement providing for the
employment of Executive with the Company pursuant to the terms herein stated,
which terms include provisions for salary payments and death, disability,
retirement, and severance and other benefits to be paid by the Company to
Executive or his designated beneficiaries.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, Executive and the Company have
agreed and do hereby agree as follows:
1. DUTIES.
(a) The Company does hereby employ, engage, and hire
Executive as Vice President of Strategic Alliances of the Company, and
Executive does hereby accept and agree to such hiring, engagement, and
employment. Executive shall be responsible for the achievement of the sales
plan for North America through the identified strategic business partners -
IBM and QRS; and then to be expanded to the achievement of the world wide
sales plan through the strategic alliances. Refer to the position description
in Exhibit A. Executive will be based in Cincinnati, Ohio and will report to
the CEO of the Company.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue indefinitely unless
Executive's employment hereunder is terminated in accordance with the terms
of this Agreement. The Company has an at will employment relationship which
can be terminated by you or the Company with or without cause and with or
without notice.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay Executive an annual
base salary at the rate of $130,000 per year or such higher amount as the
Company may from time to time determine ("Base Salary"), payable in equal
biweekly installments in accordance with the normal payroll procedures of the
Company or at such other time or times as Executive and the Company shall
agree. Executive shall receive an annual performance review no less
frequently than on each anniversary of the Effective Date during his
employment hereunder
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and shall be entitled to such merit increases in his Base Salary at the CEO
in his discretion may determine.
(b) BONUS. Executive will participate in establishing a
sales plan with the strategic alliances. The performance will be measured as
a percentage of the achievement of the sales plan. Executive can earn, as a
bonus, 30% of the annual base salary if the sales plan is achieved at 100%.
If the sales plan is underachieved or overachieved, then the bonus will be
proportionately adjusted, but will not exceed 50% of the annual base salary.
(c) CORPORATE OFFICERS INCENTIVE PLAN. Executive shall be
entitled to participate in the Corporate Officers Incentive Compensation
Plan, which will be defined on a yearly basis by the compensation committee
of the board of directors of the Company.
(d) FRINGE BENEFITS. Executive shall be entitled to
participate in any fringe and other benefit programs adopted from time to
time by the Company for the benefit of its executive employees, including,
but not limited to, reimbursement of business expenses and medical and health
insurance in accordance with the Company's existing policies.
(i) VACATION. Executive shall be entitled to five (5)
weeks paid vacation each year. Any accrued but unused vacation may be carried
over into the following year; provided that Executive may not accrue more
than six (6) weeks paid vacation at any time.
(ii) MEDICAL/DENTAL INSURANCE. Executive will
continue his existing medical/dental program, from his previous employer,
under the Federal COBRA provisions for a period not to exceed 18 months from
the start of employment with the Company. During such time Executive will
bill the Company for the cost of such coverage. It is understood that during
this 18-month period Executive shall seek a suitable PPO (Preferred Provider
Option) replacement program, which provides for similar coverage and
provisions to the COBRA plan. At the time this replacement plan is enacted,
the COBRA plan will be dropped. Executive will continue to bill the Company
for the replacement medical/dental insurance program.
(iii) INTERNATIONAL MEDICAL COVERAGE. During
Executives international travel (outside the United States) the Company
agrees to pay any difference between the actual cost of treatment/care
overseas and the actual coverage provided by the insurance company should an
injury/illness occur during such business travel for the Company.
(iv) LIFE INSURANCE COVERAGE. The Company agrees to
reimburse Executive for the cost of Life Insurance in the amount of one times
(1x) the base salary.
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(v) AUTO ALLOWANCE. Executive will receive an auto
allowance of $500 per month in accordance with the Company's expense policy.
(e) STOCK OPTIONS. Subject to the terms and conditions set
forth the Company's standard Stock Option Agreement, which is attached as
Exhibit B to this Agreement, the Company hereby agrees that, as of the
Effective Date of this Agreement, it shall grant Executive options (the
"Options") to purchase 150,000 shares of common stock of the Company at such
price and on the terms set forth in Exhibit B attached hereto.
4. TERMINATION OF EXECUTIVE'S EMPLOYMENT.
(a) DEATH. In the event Executive's employment hereunder is
terminated by reason of Executive's death, the Executive's employment shall
terminate without further obligation of the Company.
(b) DISABILITY. If, as a result of Executive's incapacity
due to physical or mental illness ("Disability'), Executive shall have been
absent from the full-time performance of his duties with the Company for
ninety (90) days during any eighteen (18) month period, and, within thirty
(30) days after written notice is provided to his by the Company, he shall
not have returned to the full-time performance of his duties, Executive's
employment under this Agreement may be terminated by the Company for
Disability. During any period prior to such termination during which
Executive is absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay Executive his
Base Salary at the rate in effect at the commencement of such period of
Disability. Following termination for Disability, Executive's Base Salary
shall terminate and Executive's benefits shall be determined under the
Company's retirement insurance, and other compensation and benefit plans and
programs then in effect, in accordance with the terms of such programs.
(c) TERMINATION FOR CAUSE. The Company may terminate
Executive's employment under this Agreement for "Cause," at any time, but
only in the event of (i) Executive's conviction of a felony (provided,
however, that following indictment for a felony, and prior to conviction, the
Company may, without limiting or modifying in any other way its obligations
under this Agreement, suspend Executive from the performance of his duties
hereunder), or (ii) a determination by the Board, acting reasonably and in
good faith, that Executive has (A) failed to meet annual performance
standards established by the Board and agreed by Executive, (B) habitually
neglected his duties or performed his duties in a grossly incompetent manner
despite adequate warnings from the Board, (C) committed materially fraudulent
or dishonest actions with respect to the Company, or (D) deliberately injured
or attempted to injure the Company so as to cause or attempt to cause
material adverse consequences for the Company; provided, however, that
Executive shall not be deemed to have been terminated for Cause unless the
Board of Directors has delivered to the Executive a written warning
indicating the matter(s) prompting the notice and required remedial action to
be taken by the Executive. If the matter(s) indicated in the notice is(are)
not remedied by the
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Executive within 30 days after delivery of the notice, then there shall have
been delivered to him a copy of a resolution duly adopted by the affirmative
vote of not less than two-thirds of the entire membership of the Board of
Directors of the Company, finding that, in the good faith opinion of such
board, he failed to perform in a manner, was guilty of, or had engaged in
conduct constituting Cause as set forth herein and specifying the particulars
thereof in detail. In the event of termination of Executive's employment for
Cause, this Agreement shall terminate without further obligation of the
Company.
5. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS.
(a) DEFINITION OF "INVENTIONS." As used herein, the term
"Inventions" shall mean all inventions, discoveries, improvements, trade
secrets, formulas, techniques, data, programs, systems, specifications,
documentation, algorithms, flow charts, logic diagrams, source codes,
processes, and other information, including works-in-progress, whether or not
subject to patent, trademark, copyright, trade secret, or mask work
protection, and whether or not reduced to practice, which are made, created,
authored, conceived, or reduced to practice by Executive, either alone or
jointly with others, during the period of employment with the Company and for
one year following the termination of Executive's employment with the Company
which (B) relate to the actual or anticipated business, activities, research,
or investigations of the Company or (C) result from or is suggested by work
performed by Executive for the Company (whether or not made or conceived
during normal working hours or on the premises of the Company), or (D) which
result, to any extent, from use of the Company's premises or property.
(b) WORK FOR HIRE. Executive expressly acknowledges that all
copyrightable aspects of the Inventions (as defined below) are to be
considered "works made for hire" within the meaning the Copyright Act of
1976, as amended (the "Act"), and that the Company is to be "author" within
the meaning of such Act for all purposes. All such copyrightable works, as
well as all copies of such works in whatever medium fixed or embodied, shall
be owned exclusively by the Company as of its creation, and Executive hereby
expressly disclaims any and al interest in any of such copyrightable works
and waives any right of DROIT MORALE or similar rights.
(c) ASSIGNMENT. Executive acknowledges and agrees that all
Inventions constitute trade secrets of the Company and shall be the sole
property of the Company or any other entity designated by the Company. In the
event that title to any or all of the Inventions or any part or element
thereof, may not, by operation of law, vest in the Company or such Inventions
may be found as a matter of law not to be "works made for hire" within the
meaning of the Act, Executive hereby conveys and irrevocably assigns to the
Company, without further consideration, all his right, title and interest,
throughout the universe and in perpetuity, in all Inventions and all copies
of them, in whatever medium fixed or embodied, and in all written records,
graphics, diagrams, notes, or reports relating thereto in Executive's
possession or under his control, including, with respect to any of the
foregoing, all rights of copyright, patent, trademark, trade secret, mask
work, and any and all other
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proprietary rights therein, the right to modify and create derivative works,
the right to invoke the benefit of any priority under any international
convention and all rights to register and renew same.
(d) PROPRIETARY NOTICES; NO FILINGS; WAIVER OF MORAL RIGHTS.
Executive acknowledges that all Inventions shall at the sole option of the
Company bear the Company's patent, copyright, trademark, trade secret, and
mask work notices.
Executive agrees not to file any patent, copyright, or
trademark applications relating to any Invention, except with prior written
consent of an authorized representative of the Company.
Executive hereby expressly disclaims any and all interest in
any Inventions and waives any right of DROIT MORALE or similar rights, such
as rights of integrity or the right to be attributed as the creator of the
Invention.
(e) FURTHER ASSURANCES. Executive agrees to assist the
Company, or any party designated by the Company, promptly on the Company's
request, whether before or after the termination of employment however such
termination may occur, in perfecting, registering, maintaining, and
enforcing, in any jurisdiction, the Company's rights in the Inventions by
performing all acts and executing all documents and instruments deemed
necessary or convenient by the Company, including, by way of illustration and
not limitation:
i) Executing assignments, applications, and other
documents and instruments in connection with (A) obtaining patents,
copyrights, trademarks, mask works, or other proprietary protections for
the Inventions and (B) confirming the assignment to the Company of all
right, title, and interest in the Inventions or otherwise establishing the
Company's exclusive ownership rights therein.
ii) Cooperating in the prosecution of patent, copyright,
trademark and mask work applications, as well as in the enforcement of the
Company's rights in the Inventions, including, but not limited to,
testifying in court or before any patent, copyright, trademark or mask work
registry office, or any other administrative body.
Executive will be reimbursed for all out-of-pocket costs incurred
in connection with the foregoing, if such assistance is requested by the Company
after the termination of employment. In addition, to the extent that, after the
termination of employment for whatever reason, Executive's technical expertise
shall be required in connection with the fulfillment of the aforementioned
obligations, the Company will compensate Executive at a reasonable rate for the
time actually spent by Executive at the Company's request rendering such
assistance.
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(f) CONSENT TO USE OF NAME. The Company reserves the right
(but shall not have the obligation) to publicize Executive's name and
background in connection with the marketing of the Inventions or the
enforcement of the Company's rights therein. Executive is responsible for
supplying to the Company his resume or curriculum vitae for such purposes.
Executive agrees that the Company shall have the sole control over the type
style, type size, or placement of his name on any materials, or over the
final content of any biography used in said material.
(g) DISCLOSURE OF INVENTIONS. Executive will make full and
prompt disclosure to the Company of all Inventions subject to assignment to
the Company, and all information relating thereto in Executive's possession
or under his control as to possible applications and use thereof, to an
authorized representative of the Company.
(h) NO VIOLATION OF THIRD PARTY RIGHTS. Executive
represents, warrants, and covenants that he:
i) will not, in the course of employment, infringe upon
or violate any proprietary rights of any third party (including, without
limitation, any third party confidential relationships, patents,
copyrights, mask works, trade secrets, or other proprietary rights);
ii) is not a party to any conflicting agreements with
third parties which will prevent his from fulfilling the terms of
employment and the obligations of this Agreement;
iii) does not have in his possession any confidential or
proprietary information or documents belonging to others and will not
disclose to the Company, use, or induce the Company to use, any
confidential or proprietary information or documents of others; and
iiii) agrees to respect any and all valid obligations
which he may now have to prior employers or to others relating to
confidential information, inventions, or discoveries which are the property
of those prior employers or others, as the case may be.
Executive has supplied or shall promptly supply to the Company
a copy of each written agreement to which Executive is subject (other than
any agreement to which the Company is a party) which includes any obligation
of confidentiality, assignment of Inventions, or non-competition.
Executive agrees to indemnify and save harmless the Company
from any loss, claim, damage, costs or expenses of any kind (including
without limitation, reasonable
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attorney's fees) to which the Company may be subjected by virtue of a breach
by Executive of the foregoing representations, warranties, and covenants.
(i) OBLIGATIONS UPON TERMINATION. In the event of any
termination of his employment, for whatever reason, Executive will promptly
(A) deliver to the Company all physical property, discs, documents, notes,
printouts, and all copies thereof and other materials in Executive's
possession or under Executive's control pertaining to the business of the
Company, including, but not limited to, those embodying or relating to the
Inventions and the Confidential Information (as defined herein), (B) deliver
to the Company's patent department or legal department or other person
designated by the Company all notebooks and other data relating to research
or experiments or other work conducted by Executive in the scope of
employment or any Inventions made, created, authored, conceived, or reduced
to practice by Executive, either alone or jointly with others, and (C) make
full disclosure relating to any Inventions.
If Executive would like to keep certain property, such as
material relating to professional societies or other non-confidential
material, upon the termination of employment with the Company, he agrees to
discuss such issues with the Company. Where such a request does not put
Confidential Information of the Company at risk, the Company will customarily
grant the request.
Upon termination of employment with the Company, Executive
shall, if requested by the Company, reaffirm Executive's recognition of the
importance of maintaining the confidentiality of the Company's Confidential
Information and reaffirm all of the Executive's obligations set forth in this
Section 5.
6. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
(a) CONFIDENTIALITY. Executive acknowledges that in his
employment hereunder, and during prior period of employment with the Company,
he has occupied and will continue to occupy a position 9f trust and
confidence. Executive shall not, except as may be required to perform his
duties hereunder or as required by applicable law, without limitation in time
or until such information shall have become public other than by Executive's
unauthorized disclosure, disclose to others or use, whether directly or
indirectly, any Confidential Information regarding the Company. "Confidential
Information" shall mean information about the Company, its subsidiaries and
affiliates, and their respective clients and customers that is not disclosed
by the Company for financial report purposes and that was learned by
Executive in the course of his employment by the Company, including (without
limitation) any proprietary knowledge, trade secrets, data, formulae,
information and client and customer lists and all papers, resumes, and
records (including computer records) of the documents containing such
Confidential Information. Executive acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the
Company, and that such information gives the Company a competitive advantage.
The Executive agrees to deliver or return to the Company, at the Company's
request at any time or upon termination
7
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or expiration of his employment or as soon thereafter s possible, all
documents, computer tapes and disks, records, lists, data, drawings, prints,
notes and written information (and all copies thereof) furnished by the
Company or prepared by the Executive during the term of his employment by the
Company.
(b) NON-COMPETITION. During the period of Executive's
employment hereunder, Executive shall not, directly or indirectly, without
the prior written consent of the Company, provide consultative services or
otherwise provide services to (whether as an employee or a consultant, with
or without pay), own, manage, operate, join, control, participate in, or be
connected with (as a stockholder, partner, or otherwise), any business,
individual, partner, firm corporation, or other entity that is then a
competitor of the Company, including any entity engaged in the design,
manufacture and/or distribution of network service systems or software that
have substantially the same features or functionality to or otherwise
competes with the systems that are designed, manufactured or distributed by
the Company or any direct or indirect subsidiary of Company (each such
competitor a "Competitor of the Company"); provided, however, that the
"beneficial ownership" by Executive, either individually or as a member of a
"group,' as such terms are used in Rule 13d of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of not more than five percent (5 %) of the voting stock of
any publicly held corporation shall not alone constitute a violation of this
Agreement. It is further expressly agreed that the Company will or would
suffer irreparable injury if Executive were to compete with the Company or
any subsidiary or affiliate of the Company in violation of this Agreement and
that the Company would by reason of such competition be entitled to
injunctive relief in a court of appropriate jurisdiction, and, the provisions
of Section 11 notwithstanding, Executive further consents and stipulates to
the entry of such injunctive relief in such a court prohibiting Executive
from competing with the Company or any subsidiary or affiliate of the Company
in violation of this Agreement.
(c) NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the
period of Executive's employment hereunder, Executive shall not, directly or
indirectly, influence or attempt to influence customers or suppliers of the
Company or any of its subsidiaries or affiliates, to divert their business to
any Competitor of the Company.
(d) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that
he possesses and will possess confidential information about other employees
of the Company relating to their education, experience, skills, abilities,
compensation and benefits, and interpersonal relationships with customers of
the Company. Executive recognizes that the information he possesses and will
possess about these other employees is not generally known, is of substantial
value to the Company in developing its business and in securing and retaining
customers, and has been and will be acquired by his because of his business
position with the Company. Executive agrees that, during the period of
Executive's employment hereunder and for a period of one (1) year thereafter,
he will not, directly or indirectly, solicit or recruit any employee of the
Company for the purpose of being employed by his or by any Competitor of the
Company on whose behalf he is acting as an agent, representative or employee
and that he
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<PAGE>
will not convey any such confidential information or trade secrets about
other employees of the Company to any other person.
(e) SURVIVAL OF PROVISIONS. The obligations contained in
this Section 6 shall survive the termination or expiration of Executive's
employment with the Company and shall be fully enforceable thereafter. If it
is determined by a court of competent jurisdiction in any state that any
restriction in this Section 6 is excessive in duration or scope or is
unreasonable or unenforceable under the laws of that state, it is the
intention of the parties that such restriction may be modified or amended by
the court to render it enforceable to the maximum extent permitted by the law
of that state.
7. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile or first-class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given three (3) days after mailing or twenty-four
(24) hours after transmission of a facsimile to the respective persons named
below:
If to Company: QCS CORPORATION
650 Castro Street, Suite 210
Mountain View, California 94041
Attention: Marcel van Heesewijk
Facsimile: (650) 966-1025
If to Executive: John F. Buckles
9943 Huntersrun Lane, Suite 100
Cincinnati, Ohio 45242-5448
Facsimile: (513) 792-9471
Either party may change such party's address for notices by notice duly given
pursuant hereto.
8. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the
parties with respect to Executive's employment and compensation by the
Company.
9. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation,
transfer, or sale of all or substantially all of the assets of the Company
with or to any other individual or entity, this Agreement shall, subject to
the provisions thereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.
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10. DISPUTE RESOLUTION; GOVERNING LAW. In the event of any dispute
regarding the terms of employment of Executive, including, but not limited
to, any dispute regarding the negotiation and entering into of the terms of
employment, any termination or employment or the interpretation or
performance of the terms and conditions hereof, Executive and Company hereby
agree that such dispute shall be subject to and shall be determined
exclusively by binding arbitration in accordance with the rules of the
American Arbitration Association. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under
and in accordance with the laws of the State of California, without giving
effect to provisions thereof regarding conflict of laws.
11. WITHHOLDING. Except to the extent otherwise provided in
Exhibit B, the Company shall make such deductions and withhold such amounts
from each payment made to the Executive hereunder as may be required from
time to time by law, governmental regulation or order.
12. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope and may be
modified only in writing. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
13. WAIVER; MODIFICATION. Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any
right or power hereunder at any one or more times to be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed
by each party hereto.
14. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that
violate such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
15. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has hereunto
signed this Agreement, effective as of the date first above written.
QCS CORPORATION JOHN F. BUCKLES
By:
(signature) (signature)
Its:
(title)
Name:
(print name)
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<PAGE>
EXHIBIT A
QCS CORPORATION
POSITION DESCRIPTION
TITLE
Vice President of Strategic Alliances
POSITION OBJECTIVE
The achievement of the sales plan for North America through the identified
strategic business partners: IBM and QRS; and then to be expanded to the
achievement of the world wide sales plan through strategic alliances.
MAIN RESPONSIBILITIES
PLANNING
- Create, with the business partner's, a fiscal year sales plan and
develop the required performance measurements.
- Develop, with the business partner's, a resource plan to support their
respective sales plans.
REPORTING
- Report on sales achievement and forecasts on a monthly and quarterly
basis.
- Ensure that the business partner's contribute, on the same basis, to
the sales reporting e.g. sales funnel management and revenue forecasting.
SALES SUPPORT
- Develop and assist with the execution of a sales and support training
program of business partners.
- Provide feedback to the appropriate QCS colleagues on sales support
requirements.
MARKET DEVELOPMENT AND INTELLIGENCE
- Provide feedback on customer requirements to the appropriate QCS
constituents.
- Be aware of activities of potential competitors and allies and bring
them to the attention of the appropriate management.
- Provide suggestions and feedback on market pricing of the QCS services
in order to obtain maximum return on a customer's commitment to QCS.
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POSITION DESCRIPTION (cont.)
OTHER RESPONSIBILITIES
----------------------
- Ensure that adequate documentation exists describing account
strategies in terms of the business plan and long and short term sales
objectives.
- Develop sales motivation programs which are industry and business
partner compatible and address achievement of objectives.
- Access and manage best and ethical sales methods and distribution for
QCS' products & network services with the business partners.
- Attract, maintain and motivate the best representatives of the
business partners according to the business plan and build a cohesive and
successful teams within the business partners. measure and hold the
business partners accountable to the business plan.
- Evaluate the market to ensure that the business partners deliver
achievement of increased market share and optimal results from the
accessible market.
- Liaison between QCS development in Mountain View and IBM customer
support in Cincinnati to ensure that sales support resources required are
planned in a timely manner relative to retailer hub status.
- Develop and coordinate training plans for hot line support and sales
and marketing staff of the business partners.
- Ensure that services and marketing feedback from the business partners
is communicated to QCS' development in Mountain View in a clear and timely
manner.
- Make sure the business partners work as a team with the QCS
organization and vise versa.
- Be a QCS resource and representative to the business partners.
REQUIRED SKILLS
---------------
- Proven organizational and management skills
- Able to set projections and deliver results
- Technical background required to understand technology which will aid
sales
- Goal oriented
- Market awareness (ability to become an expert on QCS' competition)
- Can quickly react to changing environments
- Strategic planning
- Team Player
- Strong internal and external (business partners and customers)
communication skills
- Hands on
- Does not require extensive support staff
- Honest and straightforward
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EXHIBIT B
Stock Option Plan
<PAGE>
Exhibit 10.5
QCS CORPORATION
STOCK OPTION PLAN
1. PURPOSE.
This Stock Option Plan (this "Plan") is intended to provide to
officers, directors, key Employees and Consultants of the Corporation an
opportunity to acquire a proprietary interest in the Corporation, to encourage
such key individuals to remain in the employ of or to contract with the
Corporation, and to attract and retain new officers, directors, Employees and
Consultants with outstanding qualifications. Pursuant to the Plan, the
Corporation may grant to officers, directors, Consultants and key Employees of
the Corporation options to purchase shares of Common Stock upon such terms and
conditions as provided herein.
2. DEFINITIONS.
(a) "Affiliate" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the Corporation
if each of such corporations, other than the last corporation in the chain, owns
at least 50% of the total voting power of one of the other corporations.
(b) "Board" shall mean the Board of Directors of the
Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the voting common stock of the
Corporation.
(e) "Consultant" shall mean any person who, or any employee of
any firm which, is engaged by the Company or any Affiliate to render consulting
services and is compensated for such consulting services, and any Non-employee
Director of the Company whether compensated for such services or not.
(f) "Corporation" shall mean QCS Corporation, a Delaware
corporation.
(g) "Effective Date" shall mean January 30, 1995. All options
to employees granted prior to this Effective Date shall be considered options
granted pursuant to the Plan.
(h) "Employee" shall mean any individual who is employed,
within the meaning of Section 3401 of the Code and the regulations thereunder,
by the Corporation or by any Affiliate.
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(j) "Exercise Price" shall mean the price per Share at which an
Option may be exercised, as determined by the Board and as specified in the
Optionee's stock option agreement.
(k) "Fair Market Value" shall mean the value of one Share of
Common Stock determined as follows: (i) if the Shares are traded on an exchange
or on the NASDAQ National Market System, the reported "closing price" on the
date of valuation or if no trading occurred on
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such date, the next preceding day on which trading occurred; (ii) if the
Shares are traded over-the-counter on the NASDAQ System (other than on the
NASDAQ National Market System), the mean between the bid and the ask prices
on said System at the close of business on the date of valuation or if no
trading occurred on such date, the next preceding day on which trading
occurred; and (iii) if neither (i) nor (ii) applies, the fair market value as
determined by the Board in good faith. Such determination shall be conclusive
and binding on all persons.
(l) "Joint Escrow Instructions" means joint escrow instructions
entered into between an Optionee and the Corporation in such form as may be
approved by the Board from time to time.
(m) "Non-employee Director" shall mean a member of the Board
who (i) is not currently an officer or Employee of the Corporation or a
parent or Subsidiary of the Corporation, (ii) has not received compensation
for serving as a Consultant or in any other non-director capacity or had an
interest in any transaction with the Corporation or a parent or Subsidiary of
the Corporation that would exceed the $60,000 threshold for which disclosure
would be required under Item 404(a) of Regulation S-K, or (iii) has not been
engaged through another party in a business relationship with the Corporation
which would be disclosable under Item 404(b) of Regulation S-K. If the Board
determines that compliance with Section 162(m) of the Code is desirable, then
the term "Non-employee Director" shall also be interpreted to satisfy the
definition of "outside director" under Section 162(m) and applicable
regulations issued pursuant thereto.
(n) "Option" shall mean an option to purchase shares of
Common Stock granted pursuant to the Plan. Such an Option shall be deemed a
non-statutory stock option, not of the type described in Section 422 of the
Code.
(o) "Optionee" shall mean any person who holds an Option
pursuant to the Plan.
(p) "Plan" shall mean this stock option plan, as amended from
time to time.
(q) "Purchase Price" shall mean at any particular time the
Exercise Price times the number of Shares for which an Option is being
exercised.
(r) "Share" shall mean one share of authorized Common Stock.
3. ADMINISTRATION.
(a) Powers of the Board.
The Plan shall be administered by the Board. Subject to the
provisions of the Plan, the Board shall have the authority, in its discretion
and on behalf of the Corporation:
(i) to grant Options;
(ii) to determine the Exercise Price per Share of Options
to be granted;
(iii) to determine the Employees to whom, and the time or
times at which, Options shall be granted and the number of Shares for which an
Option will be exercisable;
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<PAGE>
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and
regulations relating to the Plan;
(vi) to determine the terms and provisions of each Option
granted and, with the consent of the holder thereof, modify or amend each
Option;
(vii) to accelerate or defer, with the consent of the
Optionee, the exercise date of any Option;
(viii) to authorize any person to execute on behalf of the
Corporation any instrument required to effectuate the grant of an Option
previously granted by the Board;
(ix) with the consent of the Optionee, to re-price,
cancel and re-grant, or otherwise adjust the Exercise Price of an Option
previously granted by the Board; and
(x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(b) Board's Determination of Fair Market Value.
The Board shall have the authority to determine, upon review of
relevant information, the Fair Market Value of the Common Stock, subject to the
provisions of the Plan and irrespective of whether the Board has appointed a
Board to administer the Plan. The Board may delegate this authority to the
Board.
(c) Board's Interpretation of the Plan.
The interpretation and construction by the Board of any provision
of the Plan or of any Option granted hereunder shall be final and binding on all
parties claiming an interest in an Option granted under the Plan. No member of
the Board shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
4. PARTICIPATION.
(a) Eligibility.
The Optionees shall be such persons as the Board may select from
among the Employees and Consultants.
(b) Ten Percent Stockholders.
Any Employee who owns more than 10% of the total combined voting
power of all classes of outstanding stock of the Corporation or any Affiliate
shall not be eligible to receive an Option unless:
(i) the Exercise Price of the Shares subject to such
Option when granted is at least 110% of the Fair Market Value of such Shares,
and
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(ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
(c) Stock Ownership.
For purposes of Section 4(b), in determining stock ownership, an
Employee shall be considered as owning the stock owned, directly or indirectly,
by or for his or her brothers and sisters, spouse, ancestors, and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned proportionately
by or for its stockholders, partners, or beneficiaries, respectively. Stock with
respect to which such Employee holds an Option will be counted in the
determination of stock ownership for purposes of the above Section 4(b).
(d) Outstanding Stock.
For purposes of Section 4(b), the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
the Option to the Optionee but shall not include any share for which an Option
is exercisable by any person.
5. STOCK.
(a) Shares Subject to The Plan.
The aggregate number of Shares which may be issued upon exercise
of Options under the Plan shall not exceed Seven Hundred Thousand (700,000)
shares of Common Stock, subject to adjustment pursuant to Section 8 hereof.
(b) Options Not to Exceed Shares Available,
The number of Shares for which an Option is exercisable at any
time shall not exceed the number of Shares remaining available for issuance
under the Plan. If any Option expires or is terminated, the number of Shares for
which such Option was exercisable may be made exercisable pursuant to other
Options under the Plan. The limitations established by this Section 5(b) shall
be subject to adjustment in the manner provided in Section 8 hereof upon the
occurrence of an event specified therein.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreements.
Options shall be evidenced by a written stock option agreement
between the Optionee and the Corporation either in the form of a Stock Option
Agreement (attached hereto as EXHIBIT A) or in such other form as the Board
shall from time to time determine. No Option or purported Option shall be a
valid and binding obligation of the Corporation unless so evidenced in writing.
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<PAGE>
(b) Number of Shares.
Each stock option agreement shall state the number of Shares for
which the Option is exercisable and shall provide for the adjustment thereof in
accordance with Section 8 hereof. The maximum number of shares with respect to
which options may be granted to any one Optionee, in the aggregate in any
calendar year, shall not exceed Three Hundred Thousand (300,000) Shares.
(c) Vesting.
An Optionee may not exercise his or her Option for any Shares
until the Option, in regard to such Shares, has vested. Each stock option
agreement shall include a vesting schedule which shall show when the Option
becomes exercisable, subject only to the requirement that each Option granted
under this Plan must vest at a rate of not less than 20% per year (with the
first 20% vesting not later than the first anniversary of the date on which the
Options in question were first granted (the "Grant Date"), and the last 20%
vesting not later than the fifth anniversary of said Grant Date). The vesting
schedule shall not impose upon the Corporation or any Affiliate any obligation
to retain the Optionee in its employ or under contract for any period or
otherwise change the employment-at-will status of an Optionee who is an
Employee.
(d) Lapse of Options.
Each stock option agreement shall state the time or times when the
Option covered thereby lapses and becomes unexercisable in part or in full. An
Option shall lapse on the earliest of the following events (unless otherwise
determined by the Board and reflected in an option agreement):
(i) The tenth anniversary of the date of grant of the
Option;
(ii) The first anniversary of the Optionee's death;
(iii) The first anniversary of the date when the Optionee
ceases to be an Employee due to total and permanent disability, within the
meaning of Section 22(e)(3) of the Code;
(iv) On the date provided in Section 6(h)(i), unless the
Board otherwise extends such period before the applicable expiration date;
(v) On the date provided in Section 8 for a transaction
described in such Section;
(vi) The date the Optionee files or has filed against him
or her a petition in bankruptcy; or
(vii) The expiration date specified in the Optionee's
stock option agreement.
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<PAGE>
(e) Exercise Price.
Each stock option agreement shall state the Exercise Price for the
Shares for which the Option is exercisable. Subject to Section 4(b), the
Exercise Price shall not be less than 85% of the Fair Market Value of the Shares
for which the Option is exercisable and not less than the par value of the
Shares.
(f) Medium and Time of Payment.
The Purchase Price shall be payable in full in cash upon the
exercise of an Option, provided, however, that the Board may instead allow the
Optionee to pay the Purchase Price:
(i) by surrendering Shares in good form for transfer,
owned by the Optionee for more than 12 months, and having a Fair Market Value on
the date of exercise equal to the Purchase Price; or
(ii) by delivery of a full recourse promissory note
(Note") made by the Optionee in the amount of the Purchase Price, bearing
interest, compounded semiannually, at a rate not less than the rate determined
under Section 7872 of the Code to insure that no "foregone interest", as defined
in such section, will accrue, together with the delivery of a duly executed
standard form security agreement securing the Note by a pledge of the Shares
purchased; or
(iii) in any combination of such consideration, or such
other consideration and method of payment for the issuance of Shares permitted
under applicable law, so long as the Fair Market Value of the consideration so
paid equals the Purchase Price.
The Board or a stock option agreement may prescribe requirements
with respect to the exercise of Options, including the submission by the
Optionee of such forms and documents as the Board may require and the delivery
by the Optionee of cash sufficient to satisfy applicable withholding
requirements. The Board may vary the exercise requirements and procedures from
time to time to facilitate, for example, the broker-assisted exercise of
Options.
(g) Non-transferability of Options.
During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee or the Optionee's conservator or legal
representative and shall not be assignable or transferable except pursuant to a
qualified domestic relations order as defined by the Code. In the event of the
Optionee's death, the Option shall not be transferable by the Optionee other
than by will or the laws of descent and distribution.
(h) Termination of Employment Other than by Death or
Disability.
(i) If an Optionee ceases to be an Employee for any
reason other than his or her death or disability, the Optionee shall have the
right, subject to the provisions of this Section 6, to exercise any Option held
by the Optionee at any time within ninety (90) days after his or her termination
of employment, but not beyond the otherwise applicable term of the Option and
only to the extent that on such date of termination of employment the Optionee's
right to exercise such Option had vested.
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<PAGE>
(ii) For purposes of this Section 6(h), the employment
relationship shall be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Board.
(i) Death of Optionee.
If an Optionee dies while an Employee, or after ceasing to be an
Employee but during the period while he or she could have exercised an Option
under Section 6(h), any Option granted to the Optionee may be exercised, to the
extent it had vested at the time of death and subject to the Plan, at any time
within 12 months after the Optionee's death, by the executors or administrators
of his or her estate or by any person or persons who acquire the Option by will
or the laws of descent and distribution, but not beyond the otherwise applicable
term of the Option.
(j) Disability of Optionee.
If an Optionee ceases to be an Employee due to becoming totally
and permanently disabled within the meaning of Section 22(e)(3) of the Code, any
Option granted to the Optionee may be exercised to the extent it had vested at
the time of cessation and, subject to the Plan, at any time within 12 months
after the Optionee's termination of employment, but not beyond the otherwise
applicable term of the Option.
(k) Rights as a Stockholder.
An Optionee, or a transferee of an Optionee, shall have no rights
as a stockholder of the Corporation with respect to any Shares for which his or
her Option is exercisable until the date of the issuance of a stock certificate
for such Shares. No adjustment shall be made for dividends, ordinary or
extraordinary or whether in currency, securities, or other property,
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8 hereof.
(l) Modification, Extension, and Renewal of Options.
Within the limitations of the Plan, the Board may modify, extend
or renew outstanding Options or accept the cancellation of outstanding Options
for the granting of new Options in substitution therefor. Notwithstanding the
preceding sentence, no modification of an Option shall, without the consent of
the Optionee, alter or impair any rights or obligations under any Option
previously granted.
(m) Other Provisions.
The stock option agreements authorized under the Plan may contain
such other provisions which are not inconsistent with the terms of the Plan,
including, without limitation, restrictions upon the exercise of the Option, as
the Board shall deem advisable.
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7. TERM OF PLAN.
Options may be granted pursuant to the Plan until a date no later
than ten years following the Effective Date, and all Options which are
outstanding on such date shall remain in effect until they are exercised or
expire by their respective terms. The Plan shall expire for all purposes on the
date that is 10 years following the Effective Date.
8. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.
(a) Reorganizations.
The number of Shares covered by the Plan, as provided in Section 5
hereof and the number of Shares for which each Option is exercisable shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, a reverse stock split, the payment of a
stock dividend, re-capitalization, combination or reclassification of the
Corporation's stock or any other event which results in an increase or decrease
in the number of issued Shares effected without receipt of consideration by the
Corporation, and the Exercise Price shall be proportionately increased in the
event the number of Shares subject to such Option are decreased and shall be
proportionately decreased in the event the number of Shares subject to such
Option are increased. For the purposes of this Section 8(a), the conversion of
any convertible securities of the Corporation shall not be deemed to have been
"effected without receipt of consideration." Adjustments 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 Corporation
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 subject to an Option.
(b) Liquidation.
In the event of the dissolution or liquidation of the Corporation,
each Option shall terminate immediately prior to the consummation of such
action. The Board shall notify the Optionee not less than 15 days prior to the
proposed consummation of a pending dissolution or liquidation, and such Option
shall be exercisable as to all Shares which are vested prior to expiration until
immediately prior to the consummation of such action.
(c) Merger.
In the event of (i) a proposed merger of the Corporation with or
into another corporation, as a result of which the Corporation is not the
surviving corporation and (ii) the Option is not assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of the
successor corporation, then in such case the Option shall terminate immediately
prior to the consummation of such transaction. The Board shall notify the
Optionee not less than 15 days prior to the proposed consummation of such
transaction, and the Option shall be exercisable as to all Shares which are
vested prior to expiration and until immediately prior to the consummation of
such transaction.
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(d) Determination by Board.
All adjustments described in this Section 8 shall be made by the
Board, whose determination shall be conclusive and binding on all persons.
(e) Limitation on Rights of Optionee.
Except as expressly provided in this Section 8, no Optionee shall
have any rights by reason of any payment of any stock dividend, stock split or
reverse stock split or any other increase or decrease in the number of shares of
stock of any class, or by reason of any reorganization, consolidation,
dissolution, liquidation, merger, exchange, split-up or reverse split-up, or
spin-off of assets or stock of another corporation. Any issuance by the
Corporation of Shares, Options or securities convertible into Shares or Options
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of the Shares for which an Option is
exercisable. Notwithstanding the foregoing, if the Corporation enters into a
transaction affecting the Corporation's capital stock or distributions to the
holders of its capital stock for which a revision in the terms of each Option is
not required pursuant to this Section 8, the Board shall have the right, but not
the obligation, to revise the terms of each Option in a manner that the Board,
in its sole discretion, deems fair and reasonable given the transaction
involved. If necessary or appropriate in connection with such transaction, the
Board may declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his or her Option in whole or
in part, including exercise as to Shares to which the Option would not otherwise
be exercisable.
(f) No Restriction on Rights of Corporation.
The grant of an Option shall not affect or restrict in any way the
right or power of the Corporation to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to merge or
consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
9. SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance.
No Shares shall be issued upon the exercise of any Option unless
and until the Corporation has determined that: (i) the Corporation and the
Optionee have taken all actions required to exempt the issuance of the Shares
from the registration requirements under the Securities Act of 1933, as amended
(the "Act"), or the Corporation and the Optionee will determine that the
registration requirements of the Act do not apply to such exercise or issuance;
(ii) any applicable listing requirement of any stock exchange on which the
Common Stock is listed has been satisfied; and (iii) any other applicable
provision of state or Federal law has been satisfied.
(b) Restrictions on Transfer Representations of Optionee.
Legends.
Regardless of whether the offering and sale of Shares has been
registered under the Act or has been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions upon the
sale, pledge, or other transfer of such Shares, including the placement of
appropriate legends on stock certificates, it in the judgment of the Corporation
and its counsel, such
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restrictions are necessary or desirable in order to achieve compliance with
the provisions of the Act, the securities laws of any state, or any other
law. If the sale of Shares is not registered under the Act and the
Corporation will determine that the registration requirements of the Act
apply to such sale, but an exemption is available which requires an
investment representation or other representation, the Optionee will be
required, as a condition to purchasing Shares by exercise of his or her
Option, to represent that such Shares are being acquired for investment, and
not with a view to the sale or distribution thereof except in compliance with
the Act, and to make such other representations as are deemed necessary or
appropriate by the Corporation and its counsel. Stock certificates evidencing
Shares acquired pursuant to an unregistered transaction to which the Act
applies will bear a restrictive legend substantially in the following form
and such other restrictive legends as are required or deemed advisable under
the Plan or the provisions of any applicable law.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF, AND
MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT AND/OR QUALIFICATION UNDER ANY
APPLICABLE STATE SECURITIES LAWS, OR WITHOUT AN OPINION OF COUNSEL ACCEPTABLE TO
THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION OR QUALIFICATION IS NOT
REQUIRED."
Any determination by the Corporation and its counsel in connection
with any of the matters set forth in this Section 9 will be conclusive and
binding on all persons:
(c) Registration or Qualification of Securities.
The Corporation may, but will not be obligated to, register or
qualify the sale of Shares under the Act or any other applicable law. In
connection with any such registration or qualification, the Corporation will
provide each Optionee with such information required pursuant to all applicable
laws and regulations.
(d) Exchange of Certificate.
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares issued hereunder is no longer
required, the Optionee or the holder of such certificate will be entitled to
exchange such certificate for a certificate representing the same number of
Shares but without such legend.
(e) Market Standoff Agreement.
By acceptance of an Option, each Optionee agrees that if so
requested by the Corporation or any representative of the underwriters in
connection with any registration of any securities of the Corporation under the
Act, Optionee shall not sell or otherwise transfer any of the Shares or other
securities of the Corporation during the period requested by the Corporation or
the representative of the underwriters, as the case may be. Each Optionee agrees
that the Corporation
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may impose stop-transfer instructions with respect to the securities subject
to the foregoing restrictions.
10. EXERCISE OF UNVESTED OPTIONS.
The Board may grant to any Optionee the right to exercise any
Option prior to the complete vesting of such Option. Without limiting the
generality of the foregoing, the Board may provide that if an Option is
exercised prior to having completely vested, the Shares issued upon such
exercise shall remain subject to vesting at the same rate as under the Option so
exercised and shall be subject to a right, but not an obligation, of repurchase
by the Corporation with respect to all unvested Shares if the Optionee ceases to
be an Employee for any reason. For the purposes of facilitating the enforcement
of any such right of repurchase, at the request of the Board, the Optionee shall
enter into the Joint Escrow Instructions with the Corporation and deliver every
certificate for his or her unvested Shares with a stock power executed in blank
by the Optionee and by the Optionee's spouse, if required for transfer.
11. AMENDMENT OF THE PLAN.
The Board may, from time to time, terminate, suspend or
discontinue the Plan, in whole or in part, or revise or amend the Plan in any
respect whatsoever including, but not limited to, the adoption of any
amendment(s) deemed necessary or advisable to qualify the Options under rules
and regulations promulgated by the Securities and Exchange Commission with
respect to Employees who are subject to the provisions of Section 16 of the
Exchange Act or to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option granted thereunder, without approval
of the stockholders of the Corporation, but without the approval of the
Corporation's stockholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan, other
than any increase pursuant to Section 8;
(b) Materially modify the requirements as to eligibility for
participation in the Plan;
(c) Materially increase the benefits accruing to Optionees
under the Plan;
(d) Extend the term of the Plan; or
(e) Amend this Section to defeat its purpose.
No amendment, termination or modification of the Plan shall affect any Option
theretofore granted in any material adverse way without the consent of the
Optionee.
12. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common
Stock pursuant to the exercise of an Option shall be used for general corporate
purposes.
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13. WITHHOLDING OF TAXES.
In the event the Corporation or an Affiliate determines that it is
required to withhold Federal, state, or local taxes in connection with the
exercise of an Option or the disposition of Shares issued pursuant to the
exercise of an Option, the Optionee or any person succeeding to the rights of
the Optionee, as a condition to such exercise or disposition, may be required to
make arrangements satisfactory to the Corporation or the Affiliate to enable it
to satisfy such withholding requirements.
Alternatively, the Corporation may issue or transfer Shares net of
the number of Shares sufficient to satisfy withholding tax requirements. For
withholding tax purposes, the Shares will be valued on the date the withholding
obligation is incurred.
14. RIGHTS AS AN EMPLOYEE.
Neither the Plan nor any Option granted pursuant thereto shall be
construed to give any person the right to remain in the employ of the
Corporation or any Affiliate, or to affect the right of the Corporation or any
Affiliate to terminate such individual's employment at any time with or without
cause. The grant of an Option shall not entitle the Optionee to, or disqualify
the Optionee from, participation in the grant of any other Option under the Plan
or participation in any other benefit plan maintained by the Corporation or any
Affiliate.
15. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF IMPLIED
RIGHTS.
In adopting and maintaining the Plan and granting options
hereunder, neither the Corporation nor any Affiliate makes any representations
or undertakings with respect to the initial qualification or treatment of
Options under Federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees, Optionees,
or beneficiaries of any obligations on the part of the Corporation, any
Affiliate or the Board, except as expressly provided herein.
16. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Optionee's Option, and
any other documents and records which an Optionee is entitled by law to inspect
shall be open to inspection by the Optionee and his or her duly authorized
representative at the office of the Board at any reasonable business hour.
17. INFORMATION TO OPTIONEES.
Each Optionee shall be provided with such information regarding
the Corporation as the Board from time to time deems necessary or appropriate;
provided, however, that each Optionee shall at all times be provided with such
information as is required to be provided from time to time pursuant to
applicable regulatory requirements, including, but not limited to, any
applicable requirements of the Securities and Exchange Commission, the
California Department of Corporations and other state securities agencies.
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Exhibit 10.6
QCS CORPORATION
STOCK OPTION
This Stock Option Agreement is made and entered into this _____ day of
_______________. The Board of Directors of QCS Corporation (the "Corporation")
has selected _______________ (the "Optionee") to receive the following grant of
a stock option ("Stock Option") to purchase shares of the common stock of the
Corporation, on the terms and conditions set forth below to which Optionee
accepts and agrees:
1. STOCK OPTIONS GRANTED:
<TABLE>
<S> <C>
No. of Shares Subject to Option. . . . . .
Date of Grant. . . . . . . . . . . . . . .
Vesting Commencement Date. . . . . . . . .
Exercise Price Per Share . . . . . . . . .
Expiration Date. . . . . . . . . . . . . .
</TABLE>
The Stock Option is granted to purchase the number of shares of authorized
but unissued common stock of the Corporation specified in Section 1 hereof (the
"Shares"). The Stock Option shall expire, and all rights to exercise it shall
terminate on the Expiration Date, except that the Stock Option may expire
earlier as provided herein. The number of shares subject to the Stock Option
granted hereunder shall be adjusted as provided herein.
2. DEFINITIONS.
(a) "AFFILIATE" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the Corporation
if each of such corporations, other than the last corporation in the chain, owns
at least 50% of the total voting power of one of the other corporations.
(b) "BOARD" shall mean the Board of Directors of the Corporation.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the voting common stock of the
Corporation.
(e) "CONSULTANT" shall mean any person who, or any employee of any
firm which, is engaged by the Corporation or any Affiliate to render consulting
services.
(f) "CORPORATION" shall mean QCS CORPORATION, a Delaware corporation.
(g) "EMPLOYEE" shall mean any individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or by any Affiliate.
<PAGE>
(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "EXERCISE PRICE" shall mean the price per Share at which the
Stock Option may be exercised.
(j) "FAIR MARKET VALUE" shall mean the value of one Share of Common
Stock, determined as follows: (i) if the Shares are traded on an exchange or on
the NASDAQ National Market System, the reported "closing price" on the date of
valuation or if no trading occurred on such date, the next preceding day on
which trading occurred; (ii) if the Shares are traded over-the-counter on the
NASDAQ System (other than on the NASDAQ National Market System), the mean
between the bid and the ask prices on said System at the close of business on
the date of valuation or if no trading occurred on such date, the next preceding
day on which trading occurred; and (iii) if neither (i) nor (ii) applies, the
fair market value as determined by the Board in good faith. Such determination
shall be conclusive and binding on all persons.
(k) "OPTION" shall mean an option to purchase Common Stock granted
pursuant to this Agreement.
(l) "OPTIONEE" shall mean any person who holds this Stock Option.
(m) "PURCHASE PRICE" shall mean at any particular time the Exercise
Price times the number of Shares for which the Stock Option is being exercised.
(n) "SHARE" shall mean one share of authorized Common Stock.
3. TERMS AND CONDITIONS OF OPTIONS.
(a) VESTING.
Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(i) The Stock Option may not be exercised in whole or part at
any time prior to the end of the first 4 full calendar quarters following the
Vesting Commencement Date.
(ii) Optionee may exercise the Stock Option as to __________ of
the Shares at the end of the 4th full calendar quarter following the Vesting
Commencement Date.
(iii) Optionee may exercise the Stock Option as to an additional
__________ of the Shares at the end of each the 8th full calendar quarter
following the Vesting Commencement Date.
(iv) Optionee may exercise the Stock Option as to an additional
__________ of the Shares at the end of each the 12th full calendar quarter
following the Vesting Commencement Date.
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(v) The right to exercise the Stock Option shall be
cumulative. Optionee may buy all, or from time to time any part, of the maximum
number of shares which are exercisable under the Stock Option, but in no case
may Optionee exercise the Stock Option with regard to a fraction of a share, or
for any share for which the Stock Option is not exercisable.
(b) LAPSE OF OPTIONS.
The Stock Option shall lapse and become unexercisable in part or
in full on the earliest of the following events:
(i) The tenth anniversary of the date of granting the Stock
Option;
(ii) The first anniversary of the Optionee's death;
(iii) The first anniversary of the date the Optionee ceases to
be an Employee due to total and permanent disability, within the meaning of
Section 22(e)(3) of the Code;
(iv) On the date provided in Section 3(e)(i), unless the Board
otherwise extends such period before the applicable expiration date;
(v) On the date provided in Section 4 for a transaction
described in such Section;
(vi) The date the Optionee files or has filed against him or
her a petition in bankruptcy; or
(vii) The expiration date specified in Section 1 hereof.
(c) MEDIUM AND TIME OF PAYMENT.
The Purchase Price shall be payable in full in cash upon the
exercise of the Stock Option but the Board may allow the Optionee to pay the
Purchase Price:
(i) by surrendering Shares in good form for transfer, owned by
the Optionee and having a Fair Market Value on the date of exercise equal to the
Purchase Price;
(ii) by delivery of a full recourse promissory note ("Note")
made by the Optionee in the amount of the Purchase Price, bearing interest,
compounded semiannually, at a rate not less than the rate determined under
Section 7872 of the Code to insure that no "foregone interest," as defined in
such section, will accrue, together with the delivery of a duly executed
standard form security agreement securing the Note by a pledge of the Shares
purchased; or
(iii) in any combination of such consideration or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law Code as long as the sum of the cash so paid, the
Fair Market Value of the Shares so surrendered, and the amount of any Note
equals the Purchase Price.
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The Board may prescribe requirements with respect to the exercise
of the Stock Option, including the submission by the Optionee of such forms and
documents as the Board may require and, the delivery by the Optionee of cash
sufficient to satisfy applicable withholding requirements. The Board may vary
the exercise requirements and procedures from time to time to facilitate, for
example, the broker-assisted exercise of Options.
(d) NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, the Stock Option shall be
exercisable only by the Optionee or the Optionee's conservator or legal
representative and shall not be assignable or transferable except pursuant to a
qualified domestic relations order as defined by the Code. In the event of the
Optionee's death, the Stock Option shall not be transferable by the Optionee
other than by will or the laws of descent and distribution.
(e) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR DISABILITY.
(i) If the Optionee ceases to be an Employee for any reason
other than his or her death or disability, the Optionee shall have the right,
subject to the provisions of this Section, to exercise any portion of this Stock
Option held by the Optionee at any time within ninety (90) days after his or her
termination of employment, but not beyond the otherwise applicable term of the
Stock Option and only to the extent that on such date of termination of
employment the Optionee's right to exercise the Stock Option had vested.
(ii) For purposes of this Section, the employment relationship
shall be treated as continuing intact while the Optionee is an active employee
of the Corporation or any Affiliate, or is on military leave, sick leave, or
other bona fide leave of absence to be determined in the sole discretion of the
Board.
(f) DEATH OF OPTIONEE.
If the Optionee dies while an Employee, or after ceasing to be an
Employee but during the period while he or she could have exercised the Stock
Option under Section 3(e), the Stock Option granted to the Optionee may be
exercised, to the extent it had vested at the time of death, at any time within
12 months after the Optionee's death, by the executors or administrators of his
or her estate or by any person or persons who acquire the Stock Option by will
or the laws of descent and distribution, but not beyond the otherwise applicable
term of the Stock Option.
(g) DISABILITY OF OPTIONEE.
If an Optionee ceases to be an Employee due to becoming totally
and permanently disabled within the meaning of Section 22(e)(3) of the Code, the
Stock Option granted to the Optionee may be exercised to the extent it had
vested at the time of cessation and at any time within 12 months after the
Optionee's termination of employment, but not beyond the otherwise applicable
term of the Stock Option.
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(h) RIGHTS AS A SHAREHOLDER.
The Optionee, or a transferee of an Optionee, shall have no
rights as a shareholder of the Corporation with respect to any Shares for which
this Stock Option is exercisable until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends,
ordinary or extraordinary or whether in currency, securities, or other property,
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 4 hereof.
4. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.
(a) REORGANIZATIONS.
The number of Shares for which this Stock Option is exercisable
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from the payment of a Common Stock dividend, a stock
split, a reverse stock split or any other event which results in an increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Corporation, and the Exercise Price shall be
proportionately increased in the event the number of Shares subject to this
Stock Option are decreased and shall be proportionately decreased in the event
the number of Shares subject to this Stock Option are increased. For the
purposes of this paragraph, conversion of any convertible securities of the
Corporation shall not be deemed to have been "effected without receipt of
consideration." Adjustments 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 Corporation 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 this Stock Option.
(b) LIQUIDATION.
In the event of the dissolution or liquidation of the
Corporation, this Stock Option shall terminate immediately prior to the
consummation of such action. The Board shall notify the Optionee not less than
fifteen (15) days prior to the proposed consummation of a pending dissolution or
liquidation, and this Stock Option shall be exercisable as to all Shares which
are vested prior to expiration until immediately prior to the consummation of
such action.
(c) MERGER.
In the event of (i) a proposed merger of the Corporation with or
into another corporation, as a result of which the Corporation is not the
surviving corporation and (ii) this Stock Option is not assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of the
successor corporation, then in such case this Stock Option shall terminate
immediately prior to the consummation of such transaction. The Board shall
notify the Optionee not less than fifteen (15) days prior to the proposed
consummation of such transaction, and this Stock Option shall be exercisable as
to all Shares which are vested prior to expiration and until immediately prior
to the consummation of such transaction.
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<PAGE>
(d) DETERMINATION BY BOARD.
All adjustments described in this Section 4 shall be made by the
Board, whose determination shall be conclusive and binding on the Optionee.
(e) LIMITATION ON RIGHTS OF OPTIONEE.
Except as expressly provided in this Section 4, the Optionee
shall not have any rights by reason of any payment of any stock dividend, stock
split or reverse stock split or any other increase or decrease in the number of
shares of stock of any class, or by reason of any reorganization, consolidation,
dissolution, liquidation, merger, exchange, split-up or reverse split-up, or
spin-off of assets or stock of another corporation. Any issuance by the
Corporation of Shares, Options or securities convertible into Shares or Options
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of the Shares for which this Stock Option is
exercisable. Notwithstanding the foregoing, if the Corporation shall enter into
a transaction affecting the Corporation's capital stock or distributions to the
holders of its capital stock for which a revision in the terms of this Stock
Option is not required pursuant to this Section 4, the Board shall have the
right, but not the obligation, to revise the terms of this Stock Option in a
manner the Board, in its sole discretion, deems fair and reasonable given the
transaction involved. If necessary or appropriate in connection with such
transaction, the Board may declare that this Stock Option shall terminate as of
a date fixed by the Board and give the Optionee the right to exercise this Stock
Option in whole or in part, including exercise as to Shares to which the Stock
Option would not otherwise be exercisable.
(f) NO RESTRICTION ON RIGHTS OF CORPORATION.
The grant of this Stock Option shall not affect or restrict in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or to dissolve, liquidate, sell, or
transfer all or any part of its business or assets.
5. SECURITIES LAW REQUIREMENTS.
(a) REGISTRATION.
The Corporation shall not be under any obligation to issue any
Shares upon the exercise of this Stock Option unless and until the Corporation
has determined that: (i) it and the Optionee have taken all actions required to
register the Shares under the Securities Act of 1933, or to perfect an exemption
from the registration requirements thereof; (ii) any applicable listing
requirement of any stock exchange on which the Common Stock is listed has been
satisfied; and (iii) all other applicable provisions of state and Federal law
have been satisfied.
(b) MARKET STANDOFF AGREEMENT.
By acceptance of this Option, Optionee agrees that if so
requested by the Corporation or any representative of the underwriters in
connection with any registration of any securities of the Corporation under the
Act, Optionee shall not sell or otherwise transfer any of the Shares or other
securities of the Corporation during the period requested by the Corporation or
the
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<PAGE>
representative of the underwriters, as the case may be. Optionee agrees that
the Corporation may impose stop-transfer instructions with respect to the
securities subject to the foregoing restrictions.
6. EXERCISE OF UNVESTED OPTIONS.
The Board may grant the Optionee the right to exercise this Stock
Option prior to the complete vesting of such Stock Option. Without limiting the
generality of the foregoing, the Board may provide that if this Stock Option is
exercised prior to having completely vested, the Shares issued upon such
exercise shall remain subject to vesting at the same rate as under the Stock
Option so exercised and shall be subject to a right, but not an obligation, of
repurchase by the Corporation with respect to all unvested Shares if the
Optionee ceases to be an Employee for any reason. For the purposes of
facilitating the enforcement of any such right of repurchase, at the request of
the Board, the Optionee shall enter into the Joint Escrow Instructions with the
Corporation and deliver every certificate for his or her unvested Shares with a
stock power executed in blank by the Optionee and by the Optionee's spouse, if
required for transfer.
7. WITHHOLDING OF TAXES.
In the event the Corporation or a Affiliate determines that it is
required to withhold Federal, state, or local taxes in connection with the
exercise of an Option or the disposition of Shares issued pursuant to the
exercise of an Option, the Optionee or any person succeeding to the rights of
the Optionee, as a condition to such exercise or disposition, may be required to
make arrangements satisfactory to the Corporation or the Affiliate to enable it
to satisfy such withholding requirements.
8. RIGHTS AS AN EMPLOYEE.
Neither the Plan nor any Option granted pursuant thereto shall be
construed to give any person the right to remain in the employ of the
Corporation or any Affiliate, or to affect the right of the Corporation or any
Affiliate to terminate such individual's employment at any time with or without
cause. The grant of an Option shall not entitle the Optionee to, or disqualify
the Optionee from, participation in the grant of any other Option under the Plan
or participation in any other benefit plan maintained by the Corporation or any
Affiliate.
9. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF IMPLIED
RIGHTS.
In adopting and maintaining this Plan and granting options hereunder,
neither the Corporation nor any Affiliate makes any representations or
undertakings with respect to the initial qualification or treatment of Options
under federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees, Optionees,
or beneficiaries of any obligations on the part of the Corporation, any
Affiliate or the Board, except as expressly provided herein.
10. INFORMATION TO OPTIONEE.
Each Optionee shall be provided with such information regarding the
Corporation as the Board from time to time deems necessary or appropriate;
provided however, that each Optionee shall at all times be provided with such
information as is required to be provided from time to time
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<PAGE>
pursuant to applicable regulatory requirements, including, but not limited
to, any applicable requirements of the Securities and Exchange Commission,
the California Department of Corporations and other state securities agencies.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE QCS CORPORATION
By:
- ---------------------------------- ----------------------------------
(signature) (signature)
Its:
- ---------------------------------- ----------------------------------
(Type or Print Name)
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Exhibit 10.7
AMENDMENT #1 TO
QCS CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE.
This Stock Option Plan (this "Plan") is intended to provide to
officers, directors, key Employees and Consultants of the Corporation an
opportunity to acquire a proprietary interest in the Corporation, to
encourage such key individuals to remain in the employ of or to contract with
the Corporation, and to attract and retain new officers, directors, Employees
and Consultants with outstanding qualifications. Pursuant to the Plan, the
Corporation may grant to officers, directors, Consultants and key Employees
of the Corporation options to purchase shares of Common Stock upon such terms
and conditions as provided herein.
2. DEFINITIONS.
(a) "AFFILIATE" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the
Corporation if each of such corporations, other than the last corporation in
the chain, owns at least 50% of the total voting power of one of the other
corporations.
(b) "BOARD" shall mean the Board of Directors of the
Corporation.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" shall mean the committee appointed by the
Board to administer the Plan (as further described in Section 3 hereof), or
if no such committee is appointed, the Board.
(e) "COMMON STOCK" shall mean the voting common stock of the
Corporation.
(f) "CONSULTANT" shall mean any person who, or any employee
of any firm which, is engaged by the Company or any Affiliate to render
consulting services and is compensated for such consulting services, and any
Non-employee Director of the Company whether compensated for such services or
not.
(g) "CORPORATION" shall mean QCS Corporation, a Delaware
corporation.
(h) "EFFECTIVE DATE" shall mean December 1, 1997.
(i) "EMPLOYEE" shall mean any individual who is employed,
within the meaning of Section 3401 of the Code and the regulations
thereunder, by the Corporation or by
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any Affiliate. For purposes of the Plan and only for purposes of the
Plan, and in regard to Non-statutory Stock Options but not for Incentive
Stock Options, a Consultant or director of the Corporation or any Affiliate
shall be deemed to be an Employee, and service as a Consultant or director
with the Corporation or any Affiliate shall be deemed to be employment, but
no Incentive Stock Option shall be granted to a Consultant or director who is
not an employee of the Corporation or any Affiliate within the meaning of
Section 3401 of the Code and the regulations thereunder. In the case of a
Non-employee Director or Consultant, the provisions governing when a
termination of employment has occurred for purposes of the Plan shall be set
forth in the written stock option agreement between the Optionee and the
Corporation, or, if not so set forth, the Committee shall have the discretion
to determine when a termination of "employment" has occurred for purposes of
the Plan.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(k) "EXERCISE PRICE" shall mean the price per Share at which
an Option may be exercised, as determined by the Committee and as specified
in the Optionee's stock option agreement.
(l) "FAIR MARKET VALUE" shall mean the value of one Share of
Common Stock, determined as follows: (i) if the Shares are traded on an
exchange or on the NASDAQ National Market System, the reported "closing
price" on the date of valuation or if no trading occurred on such date, the
next preceding day on which trading occurred; (ii) if the Shares are traded
over-the-counter on the NASDAQ System (other than on the NASDAQ National
Market System), the mean between the bid and the ask prices on said System at
the close of business on the date of valuation or if no trading occurred on
such date, the next preceding day on which trading occurred; and (iii) if
neither (i) nor (ii) applies, the fair market value as determined by the
Committee in good faith. Such determination shall be conclusive and binding
on all persons.
(m) "INCENTIVE STOCK OPTION" shall mean an Option of the
type described in Section 422(b) of the Code.
(n) "JOINT ESCROW INSTRUCTIONS" means joint escrow
instructions entered into between an Optionee and the Corporation in such
form as may be approved by the Committee from time to time.
(o) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board
who (i) is not currently an officer or Employee of the Corporation or a
parent or Subsidiary of the Corporation, (ii) has not received compensation
for serving as a Consultant or in any other non-director capacity or had an
interest in any transaction with the Corporation or a parent or Subsidiary of
the Corporation that would exceed the $60,000 threshold for which disclosure
would be required under Item 404(a) of Regulation S-K, or (iii) has not been
engaged through another party in a business relationship with the Corporation
which would be disclosable under Item 404(b) of Regulation S-K. If the Board
determines that compliance with Section 162(m) of the Code is desirable, then
the term "Non-employee Director" shall also be interpreted to satisfy the
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definition of "outside director" under Section 162(m) and applicable
regulations issued pursuant thereto.
(p) "NON-STATUTORY STOCK OPTION" shall mean an Option of the
type not described in Section 422(b) or 423(b) of the Code.
(q) "OPTION" shall mean an option to purchase shares of
Common Stock granted pursuant to the Plan.
(r) "OPTIONEE" shall mean any person who holds an Option
pursuant to the Plan.
(s) "OUTSIDE DIRECTOR" shall mean a member of the Board who
qualifies as an "outside director" pursuant to Internal Revenue Code Section
162(m) and the Regulations promulgated thereunder.
(t) "PLAN" shall mean this stock option plan, as amended
from time to time.
(u) "PURCHASE PRICE" shall mean at any particular time the
Exercise Price times the number of Shares for which an Option is being
exercised.
(v) "SHARE" shall mean one share of authorized Common Stock.
3. ADMINISTRATION.
(a) THE COMMITTEE.
The Plan shall be administered by the Committee. The Committee
shall consist only of Non-employee Directors of the Corporation who are also
Outside Directors, and shall have at least two members. The Committee shall
meet such other requirements as may be established from time to time by the
Securities and Exchange Commission for plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act. The
Board may appoint a separate committee of the Board, composed of one or more
directors of the Corporation who need not be Non-employee Directors, who may
administer the Plan with respect to Employees or Consultants who are not
officers or directors of the Corporation or incoming new directors of the
Corporation, may grant Options under the Plan to such persons and may
determine the timing, number of Shares subject to such Options and other
terms of such grants.
(b) POWERS OF THE COMMITTEE.
Subject to the provisions of the Plan, the Committee shall have
the authority, in its discretion and on behalf of the Corporation:
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(i) to grant Options;
(ii) to determine the Exercise Price per Share of
Options to be granted;
(iii) to determine the Employees to whom, and the time
or times at which, Options shall be granted and the number of Shares for
which an Option will be exercisable;
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and
regulations relating to the Plan;
(vi) to determine the terms and provisions of each
Option granted and, with the consent of the holder thereof, modify or amend
each Option;
(vii) to accelerate or defer, with the consent of the
Optionee, the exercise date of any Option;
(viii) to authorize any person to execute on behalf of
the Corporation any instrument required to effectuate the grant of an Option
previously granted by the Committee;
(ix) with the consent of the Optionee, to re-price,
cancel and re-grant, or otherwise adjust the Exercise Price of an Option
previously granted by the Committee; and
(x) to make all other determinations deemed necessary
or advisable for the administration of the Plan.
(c) BOARD'S DETERMINATION OF FAIR MARKET VALUE.
The Board shall have the authority to determine, upon
review of relevant information, the Fair Market Value of the Common Stock,
subject to the provisions of the Plan and irrespective of whether the Board
has appointed a Committee to administer the Plan. The Board may delegate
this authority to the Committee.
(d) COMMITTEE'S INTERPRETATION OF THE PLAN.
The interpretation and construction by the Committee of
any provision of the Plan or of any Option granted hereunder shall be final
and binding on all parties claiming an interest in an Option granted under
the Plan. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option.
(e) COMMITTEE PROCEDURES.
The Committee shall designate one of its members as chairman.
The Committee
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may hold meetings at such times and places as it shall determine. The acts
of a majority of the Committee's members present at meetings at which a
quorum exists, or acts reduced to or approved in writing by all of the
Committee's members, shall be valid acts of the Committee.
4. PARTICIPATION.
(a) ELIGIBILITY.
The Optionees shall be such persons as the Committee may
select from among the Employees, provided that Consultants are not eligible
to receive Incentive Stock Options.
(b) TEN PERCENT STOCKHOLDERS.
Any Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Corporation
or any Affiliate shall not be eligible to receive an Option unless:
(i) the Exercise Price of the Shares subject to such
Option when granted is at least 110% of the Fair Market Value of such Shares,
and
(ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
(c) STOCK OWNERSHIP.
For purposes of Section 4(b), in determining stock
ownership, an Employee shall be considered as owning the stock owned,
directly or indirectly, by or for his or her brothers and sisters, spouse,
ancestors, and lineal descendants. Stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust shall be considered as
being owned proportionately by or for its stockholders, partners, or
beneficiaries, respectively. Stock with respect to which such Employee holds
an Option will be counted in the determination of stock ownership for
purposes of the above Section 4(b).
(d) OUTSTANDING STOCK.
For purposes of Section 4(b), the term "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant of the Option to the Optionee but shall not include any share
for which an Option is exercisable by any person.
5. STOCK.
(a) SHARES SUBJECT TO THE PLAN.
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The aggregate number of Shares which may be issued upon
exercise of Options under the Plan shall not exceed Four Million (4,000,000)
shares of Common Stock, subject to adjustment pursuant to Section 9 hereof.
(b) OPTIONS NOT TO EXCEED SHARES AVAILABLE.
The number of Shares for which an Option is exercisable
at any time shall not exceed the number of Shares remaining available for
issuance under the Plan. If any Option expires or is terminated, the number
of Shares for which such Option was exercisable may be made exercisable
pursuant to other Options under the Plan. The limitations established by
this Section 5(b) shall be subject to adjustment in the manner provided in
Section 9 hereof upon the occurrence of an event specified therein.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENTS.
Options shall be evidenced by a written stock option
agreement between the Optionee and the Corporation either in the form of a
Non-statutory Stock Option Agreement (attached hereto as EXHIBIT A), in the
form of an Incentive Stock Option Agreement (attached hereto as EXHIBIT B) or
in such other form as the Committee shall from time to time determine. No
Option or purported Option shall be a valid and binding obligation of the
Corporation unless so evidenced in writing.
(b) NUMBER OF SHARES.
Each stock option agreement shall state the number of
Shares for which the Option is exercisable and shall provide for the
adjustment thereof in accordance with Section 9 hereof. Each stock option
agreement will also specify whether the option is a Non-statutory Stock
Option or an Incentive Stock Option. The maximum number of shares with
respect to which options may be granted to any one Optionee, in the aggregate
in any calendar year, shall not exceed One Million (1,000,000) Shares.
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(c) VESTING.
An Optionee may not exercise his or her Option for any
Shares until the Option, in regard to such Shares, has vested. Each stock
option agreement shall include a vesting schedule which shall show when the
Option becomes exercisable, subject only to the requirement that each Option
granted under this Plan must vest at a rate of not less than 20% per year
(with the first 20% vesting not later than the first anniversary of the date
on which the Options in question were first granted (the "Grant Date"), and
the last 20% vesting not later than the fifth anniversary of said Grant
Date). The vesting schedule shall not impose upon the Corporation or any
Affiliate any obligation to retain the Optionee in its employ or under
contract for any period or otherwise change the employment-at-will status of
an Optionee who is an Employee.
(d) LAPSE OF OPTIONS.
Each stock option agreement shall state the time or
times when the Option covered thereby lapses and becomes unexercisable in
part or in full. An Option shall lapse on the earliest of the following
events (unless otherwise determined by the Committee and reflected in an
option agreement):
(i) The tenth anniversary of the date of grant of the
Option;
(ii) The first anniversary of the Optionee's death;
(iii) The first anniversary of the date when the
Optionee ceases to be an Employee due to total and permanent disability,
within the meaning of Section 22(e)(3) of the Code;
(iv) On the date provided in Section 6(h)(i), unless
with respect to a Non-statutory Stock Option, the Committee otherwise extends
such period before the applicable expiration date;
(v) On the date provided in Section 9 for a
transaction described in such Section;
(vi) The date the Optionee files or has filed against
him or her a petition in bankruptcy; or
(vii) The expiration date specified in the Optionee's
stock option agreement.
(e) EXERCISE PRICE.
Each stock option agreement shall state the Exercise
Price for the Shares for which the Option is exercisable. Subject to Section
4(b), the Exercise Price of an Incentive Stock Option and a Non-statutory
Stock Option shall, when granted, be not less than 100% and
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85% of the Fair Market Value of the Shares for which the Option is
exercisable, respectively, and not less than the par value of the Shares.
(f) MEDIUM AND TIME OF PAYMENT.
The Purchase Price shall be payable in full in cash upon
the exercise of an Option, provided, however, that the Committee may instead
allow the Optionee to pay the Purchase Price:
(i) by surrendering Shares in good form for transfer,
owned by the Optionee for more than 12 months, and having a Fair Market Value
on the date of exercise equal to the Purchase Price; or
(ii) by delivery of a full recourse promissory note
("Note") made by the Optionee in the amount of the Purchase Price, bearing
interest, compounded semiannually, at a rate not less than the rate
determined under Section 7872 of the Code to insure that no "foregone
interest", as defined in such section, will accrue, together with the
delivery of a duly executed standard form security agreement securing the
Note by a pledge of the Shares purchased; or
(iii) in any combination of such consideration, or such
other consideration and method of payment for the issuance of Shares
permitted under applicable law, so long as the Fair Market Value of the
consideration so paid is not less than the Purchase Price.
The Committee or a stock option agreement may prescribe
requirements with respect to the exercise of Options, including the
submission by the Optionee of such forms and documents as the Committee may
require and the delivery by the Optionee of cash sufficient to satisfy
applicable withholding requirements. The Committee may vary the exercise
requirements and procedures from time to time to facilitate, for example, the
broker-assisted exercise of Options.
(g) NON-TRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee or the Optionee's conservator or legal
representative and shall not be assignable or transferable except pursuant to
a qualified domestic relations order as defined by the Code. In the event of
the Optionee's death, the Option shall not be transferable by the Optionee
other than by will or the laws of descent and distribution.
(h) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR
DISABILITY.
(i) If an Optionee ceases to be an Employee for any
reason other than his or her death or disability, the Optionee shall have the
right, subject to the provisions of this Section 6, to exercise any Option
held by the Optionee at any time within ninety (90) days after his or her
termination of employment, but not beyond the otherwise applicable term of
the
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Option and only to the extent that on such date of termination of employment
the Optionee's right to exercise such Option had vested.
(ii) For purposes of this Section 6(h), the employment
relationship shall be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Committee. The preceding sentence notwithstanding, in the
case of an Incentive Stock Option, employment shall be deemed to terminate on
the date that the Optionee ceases active employment with the Corporation or
any Affiliate, unless the Optionee's reemployment rights are guaranteed by
statute or contract.
(i) DEATH OF OPTIONEE.
If an Optionee dies while an Employee, or after ceasing
to be an Employee but during the period while he or she could have exercised
an Option under Section 6(h), any Option granted to the Optionee may be
exercised, to the extent it had vested at the time of death and subject to
the Plan, at any time within 12 months after the Optionee's death, by the
executors or administrators of his or her estate or by any person or persons
who acquire the Option by will or the laws of descent and distribution, but
not beyond the otherwise applicable term of the Option.
(j) DISABILITY OF OPTIONEE.
If an Optionee ceases to be an Employee due to becoming
totally and permanently disabled within the meaning of Section 22(e)(3) of
the Code, any Option granted to the Optionee may be exercised to the extent
it had vested at the time of cessation and, subject to the Plan, at any time
within 12 months after the Optionee's termination of employment, but not
beyond the otherwise applicable term of the Option.
(k) RIGHTS AS A STOCKHOLDER.
An Optionee, or a transferee of an Optionee, shall have
no rights as a stockholder of the Corporation with respect to any Shares for
which his or her Option is exercisable until the date of the issuance of a
stock certificate for such Shares. No adjustment shall be made for
dividends, ordinary or extraordinary or whether in currency, securities, or
other property, distributions, or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 9 hereof.
(l) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS.
Within the limitations of the Plan, the Committee may
modify, extend or renew outstanding Options or accept the cancellation of
outstanding Options for the granting of new Options in substitution therefor.
Notwithstanding the preceding sentence, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or
obligations under any Option previously granted.
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(m) RULE 16b-3.
Options granted to persons who are subject to Section 16
of the Exchange Act shall comply with the applicable provisions of Rule 16b-3
promulgated thereunder and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to the Plan's
transactions; provided, however, that this provision shall not apply if, at
the time of such option grant, the Plan, as it relates to such grant, is not
administered by a Committee consisting solely of Non-employee Directors.
(n) OTHER PROVISIONS.
The stock option agreements authorized under the Plan
may contain such other provisions which are not inconsistent with the terms
of the Plan, including, without limitation, restrictions upon the exercise of
the Option, as the Committee shall deem advisable.
7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs.
To the extent that the Fair Market Value of Shares (determined
for each Share as of the date of grant of the Option covering such Share)
subject to Options granted under the Plan (or any other plan of the
Corporation or any Affiliate) which are designated as Incentive Stock Options
and which become exercisable by an Optionee for the first time during a
single calendar year exceeds $100,000, the Option(s) (or portion thereof)
covering such Shares shall be re-characterized (to the extent of such excess
over $100,000) as a Non-statutory Stock Option. In determining which
Option(s) shall be treated as Non-statutory Stock Options under the preceding
sentence, the Options shall be taken into account in the order granted, with
the result that a later granted Option shall be re-characterized as a
Non-statutory Stock Option prior to such re-characterization of a previously
granted Option.
8. TERM OF PLAN.
Options may be granted pursuant to the Plan until a date no
later than ten years following the Effective Date, and all Options which are
outstanding on such date shall remain in effect until they are exercised or
expire by their respective terms. The Plan shall expire for all purposes on
the date that is 20 years following the Effective Date.
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9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.
(a) REORGANIZATIONS.
The number of Shares covered by the Plan, as provided in
Section 5 hereof, and the number of Shares for which each Option is
exercisable shall be proportionately adjusted for any increase or decrease in
the number of issued Shares resulting from a stock split, a reverse stock
split, the payment of a stock dividend, re-capitalization, combination or
reclassification of the Corporation's stock or any other event which results
in an increase or decrease in the number of issued Shares effected without
receipt of consideration by the Corporation, and the Exercise Price shall be
proportionately increased in the event the number of Shares subject to such
Option are decreased and shall be proportionately decreased in the event the
number of Shares subject to such Option are increased. For the purposes of
this Section 9(a), the conversion of any convertible securities of the
Corporation shall not be deemed to have been "effected without receipt of
consideration." Adjustments 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 Corporation 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 subject to an Option.
(b) LIQUIDATION.
In the event of the dissolution or liquidation of the
Corporation, each Option shall terminate immediately prior to the
consummation of such action. The Committee shall notify the Optionee not
less than 15 days prior to the proposed consummation of a pending dissolution
or liquidation, and such Option shall be exercisable as to all Shares which
are vested prior to expiration until immediately prior to the consummation of
such action.
(c) MERGER.
In the event of (i) a proposed merger of the Corporation
with or into another corporation, as a result of which the Corporation is not
the surviving corporation and (ii) the Option is not assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of
the successor corporation, then in such case the Option shall terminate
immediately prior to the consummation of such transaction. The Committee
shall notify the Optionee not less than 15 days prior to the proposed
consummation of such transaction, and the Option shall be exercisable as to
all Shares which are vested prior to expiration and until immediately prior
to the consummation of such transaction.
(d) DETERMINATION BY COMMITTEE.
All adjustments described in this Section 9 shall be
made by the Committee, whose determination shall be conclusive and binding on
all persons.
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(e) LIMITATION ON RIGHTS OF OPTIONEE.
Except as expressly provided in this Section 9, no
Optionee shall have any rights by reason of any payment of any stock
dividend, stock split or reverse stock split or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
reorganization, consolidation, dissolution, liquidation, merger, exchange,
split-up or reverse split-up, or spin-off of assets or stock of another
corporation. Any issuance by the Corporation of Shares, Options or
securities convertible into Shares or Options shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of the Shares for which an Option is exercisable.
Notwithstanding the foregoing, if the Corporation enters into a transaction
affecting the Corporation's capital stock or distributions to the holders of
its capital stock for which a revision in the terms of each Option is not
required pursuant to this Section 9, the Committee shall have the right, but
not the obligation, to revise the terms of each Option in a manner that the
Committee, in its sole discretion, deems fair and reasonable given the
transaction involved. If necessary or appropriate in connection with such
transaction, the Committee may declare that any Option shall terminate as of
a date fixed by the Committee and give each Optionee the right to exercise
his or her Option in whole or in part, including exercise as to Shares to
which the Option would not otherwise be exercisable.
(f) NO RESTRICTION ON RIGHTS OF CORPORATION.
The grant of an Option shall not affect or restrict in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or to dissolve, liquidate, sell, or
transfer all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS.
(a) LEGALITY OF ISSUANCE.
No Shares shall be issued upon the exercise of any
Option unless and until the Corporation has determined that: (i) the
Corporation and the Optionee have taken all actions required to exempt the
issuance of the Shares from the registration requirements under the
Securities Act of 1933, as amended (the "Act"), or the Corporation and the
Optionee will determine that the registration requirements of the Act do not
apply to such exercise or issuance; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) any other applicable provision of state or Federal law has been
satisfied.
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(b) RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF OPTIONEE;
LEGENDS.
Regardless of whether the offering and sale of Shares
has been registered under the Act or has been registered or qualified under
the securities laws of any state, the Corporation may impose restrictions
upon the sale, pledge, or other transfer of such Shares, including the
placement of appropriate legends on stock certificates, if, in the judgment
of the Corporation and its counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Act, the
securities laws of any state, or any other law. If the sale of Shares is not
registered under the Act and the Corporation will determine that the
registration requirements of the Act apply to such sale, but an exemption is
available which requires an investment representation or other
representation, the Optionee will be required, as a condition to purchasing
Shares by exercise of his or her Option, to represent that such Shares are
being acquired for investment, and not with a view to the sale or
distribution thereof, except in compliance with the Act, and to make such
other representations as are deemed necessary or appropriate by the
Corporation and its counsel. Stock certificates evidencing Shares acquired
pursuant to an unregistered transaction to which the Act applies will bear a
restrictive legend substantially in the following form and such other
restrictive legends as are required or deemed advisable under the Plan or the
provisions of any applicable law.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT
AND/OR QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR WITHOUT
AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED."
Any determination by the Corporation and its counsel in
connection with any of the matters set forth in this Section 10 will be
conclusive and binding on all persons:
(c) REGISTRATION OR QUALIFICATION OF SECURITIES.
The Corporation may, but will not be obligated to,
register or qualify the sale of Shares under the Act or any other applicable
law. In connection with any such registration or qualification, the
Corporation will provide each Optionee with such information required
pursuant to all applicable laws and regulations.
(d) EXCHANGE OF CERTIFICATES.
If, in the opinion of the Corporation and its counsel,
any legend placed on a stock certificate representing Shares issued hereunder
is no longer required, the Optionee or the holder of such certificate will be
entitled to exchange such certificate for a certificate
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representing the same number of Shares but without such legend.
(e) MARKET STANDOFF AGREEMENT.
By acceptance of an Option, each Optionee agrees that if
so requested by the Corporation or any representative of the underwriters in
connection with any registration of any securities of the Corporation under
the Act, Optionee shall not sell or otherwise transfer any of the Shares or
other securities of the Corporation during the period requested by the
Corporation or the representative of the underwriters, as the case may be.
Each Optionee agrees that the Corporation may impose stop-transfer
instructions with respect to the securities subject to the foregoing
restrictions.
11. EXERCISE OF UNVESTED OPTIONS.
The Committee may grant to any Optionee the right to exercise
any Option prior to the complete vesting of such Option. Without limiting
the generality of the foregoing, the Committee may provide that if an Option
is exercised prior to having completely vested, the Shares issued upon such
exercise shall remain subject to vesting at the same rate as under the Option
so exercised and shall be subject to a right, but not an obligation, of
repurchase by the Corporation with respect to all unvested Shares if the
Optionee ceases to be an Employee for any reason. For the purposes of
facilitating the enforcement of any such right of repurchase, at the request
of the Committee, the Optionee shall enter into the Joint Escrow Instructions
with the Corporation and deliver every certificate for his or her unvested
Shares with a stock power executed in blank by the Optionee and by the
Optionee's spouse, if required for transfer.
12. AMENDMENT OF THE PLAN.
The Board or the Committee may, from time to time, terminate,
suspend or discontinue the Plan, in whole or in part, or revise or amend the
Plan in any respect whatsoever including, but not limited to, the adoption of
any amendment(s) deemed necessary or advisable to qualify the Options under
rules and regulations promulgated by the Securities and Exchange Commission
with respect to Employees who are subject to the provisions of Section 16 of
the Exchange Act or to correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Option granted thereunder, without
approval of the stockholders of the Corporation, but without the approval of
the Corporation's stockholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan, other
than any increase pursuant to Section 9;
(b) Materially modify the requirements as to eligibility for
participation in the Plan;
38
<PAGE>
(c) Materially increase the benefits accruing to Optionees
under the Plan;
(d) Extend the term of the Plan; or
(e) Amend this Section to defeat its purpose.
No amendment, termination or modification of the Plan shall affect any Option
theretofore granted in any material adverse way without the consent of the
Optionee.
13. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of
Common Stock pursuant to the exercise of an Option shall be used for general
corporate purposes.
14. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the affirmative vote
of the holders of a majority of all classes of the outstanding shares present
and entitled to vote at the first meeting of stockholders of the Corporation
following the adoption of the Plan or by written consent, and in no event
later than one (1) year following the Effective Date. Prior to such
approval, Options may be granted but shall not be exercisable. Any amendment
described in Section 12(a) to (d) shall also be subject to approval by the
Corporation's stockholders.
15. WITHHOLDING OF TAXES.
In the event the Corporation or an Affiliate determines that it
is required to withhold Federal, state, or local taxes in connection with the
exercise of an Option or the disposition of Shares issued pursuant to the
exercise of an Option, the Optionee or any person succeeding to the rights of
the Optionee, as a condition to such exercise or disposition, may be required
to make arrangements satisfactory to the Corporation or the Affiliate to
enable it to satisfy such withholding requirements.
Alternatively, the Corporation may issue or transfer Shares net
of the number of Shares sufficient to satisfy withholding tax requirements.
For withholding tax purposes, the Shares will be valued on the date the
withholding obligation is incurred.
39
<PAGE>
16. RIGHTS AS AN EMPLOYEE.
Neither the Plan nor any Option granted pursuant thereto shall
be construed to give any person the right to remain in the employ of the
Corporation or any Affiliate, or to affect the right of the Corporation or
any Affiliate to terminate such individual's employment at any time with or
without cause. The grant of an Option shall not entitle the Optionee to, or
disqualify the Optionee from, participation in the grant of any other Option
under the Plan or participation in any other benefit plan maintained by the
Corporation or any Affiliate.
17. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF
IMPLIED RIGHTS.
In adopting and maintaining the Plan and granting options
hereunder, neither the Corporation nor any Affiliate makes any
representations or undertakings with respect to the initial qualification or
treatment of Options under Federal or state tax or securities laws. The
Corporation and each Affiliate expressly disavows the creation of any rights
in Employees, Optionees, or beneficiaries of any obligations on the part of
the Corporation, any Affiliate or the Committee, except as expressly provided
herein.
18. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Optionee's Option,
and any other documents and records which an Optionee is entitled by law to
inspect shall be open to inspection by the Optionee and his or her duly
authorized representative at the office of the Committee at any reasonable
business hour.
19. INFORMATION TO OPTIONEES.
Each Optionee shall be provided with such information regarding
the Corporation as the Committee from time to time deems necessary or
appropriate; provided, however, that each Optionee shall at all times be
provided with such information as is required to be provided from time to
time pursuant to applicable regulatory requirements, including, but not
limited to, any applicable requirements of the Securities and Exchange
Commission, the California Department of Corporations and other state
securities agencies.
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<PAGE>
Exhibit 10.8
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this ____ day of
________, 199__, pursuant to the QCS CORPORATION 1997 Stock Option Plan (the
"Plan"). Any terms not defined in this agreement will have the meanings
ascribed to such terms in the Plan. The Committee administering the Plan has
selected __________________ ("the Optionee") to receive the following grant
of an incentive stock option ("Stock Option") to purchase shares of the
common stock of QCS CORPORATION, a Delaware corporation (the "Corporation"),
on the terms and conditions set forth below to which Optionee accepts and
agrees:
1. Stock Options Granted:
<TABLE>
<CAPTION>
<S> <C>
No. of Shares Subject to Option . . . . . . . . . . ___________
Date of Grant . . . . . . . . . . . . . . . . . . . ___________
Vesting Commencement Date . . . . . . . . . . . . . ___________
Exercise Price Per Share. . . . . . . . . . . . . . ___________
Expiration Date . . . . . . . . . . . . . . . . . . ___________
</TABLE>
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in part at any
time prior to the end of the first (four) 4 full calendar quarters following the
Vesting Commencement Date.
<PAGE>
(b) Optionee may exercise the Stock Option as to one fourth of the
Shares at the end of the 4th full calendar quarter following the Vesting
Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional 1/16th
of the Shares at the end of each of the full calendar quarter commencing with
the 5th full calendar quarter following the Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a share, or for any share
for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and regulations
applicable to the grant and exercise of the Stock Option and the sale or other
disposition of the common stock of the Corporation received pursuant to the
exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until the
Corporation has determined that:
(a) it and Optionee have taken all actions required to register such
shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(b) any applicable listing requirement of any stock exchange on which
such shares are listed has been satisfied; and
(c) all other applicable provisions of state and Federal law have
been satisfied.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE QCS CORPORATION
By:
- ---------------------------------- ----------------------------------
(signature) (signature)
Its:
- ---------------------------------- ----------------------------------
(Type or Print Name)
Address:
-------------------------
- ----------------------------------
<PAGE>
Exhibit 10.9
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
NON-STATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this ______ day of
_________, 199__, pursuant to the QCS CORPORATION 1997 Stock Option Plan (the
"Plan"). Any terms not defined in this agreement will have the meanings
ascribed to such terms in the Plan. The Committee administering the Plan has
selected __________________ ("the Optionee") to receive the following grant
of a non-statutory stock option ("Stock Option") to purchase shares of the
common stock of QCS CORPORATION, a Delaware corporation (the "Corporation"),
on the terms and conditions set forth below to which Optionee accepts and
agrees:
1. Stock Options Granted:
<TABLE>
<CAPTION>
<S> <C>
No. of Shares Subject to Option . . . . . . . . . . ___________
Date of Grant . . . . . . . . . . . . . . . . . . . ___________
Vesting Commencement Date . . . . . . . . . . . . . ___________
Exercise Price Per Share. . . . . . . . . . . . . . ___________
Expiration Date . . . . . . . . . . . . . . . . . . ___________
</TABLE>
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan. This Stock Option is intended by the Corporation and the
Optionee to be a Non-statutory Stock Option and does not qualify for any special
tax benefits to the Optionee and is not subject to Section 7 of the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in part at any
time prior to the end of the first 4 full calendar quarters following the
Vesting Commencement Date.
<PAGE>
(b) Optionee may exercise the Stock Option as to one fourth of the
Shares at the end of the 4th full calendar quarter following the Vesting
Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional 1/16th
of the Shares at the end of each of the full calendar quarter commencing with
the 5th full calendar quarter following the Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a share, or for any share
for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and regulations
applicable to the grant and exercise of the Stock Option and the sale or other
disposition of the common stock of the Corporation received pursuant to the
exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until the
Corporation has determined that:
(a) it and Optionee have taken all actions required to register such
shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(b) any applicable listing requirement of any stock exchange on which
such shares are listed has been satisfied; and
(c) all other applicable provisions of state and Federal law have
been satisfied.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE QCS CORPORATION
By:
- ---------------------------------- ----------------------------------
(signature) (signature)
Its:
- ---------------------------------- ----------------------------------
(Type or Print Name)
Address:
-------------------------
- ----------------------------------
<PAGE>
Exhibit 10.10
QCS.NET CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the ____
day of _______, 1999, by and between QCS.net Corporation, a Delaware corporation
(the "Company") and the Indemnitee identified on the signature page hereto (the
"Indemnitee").
R E C I T A L S
The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its 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.
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.
Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
The Company (i) desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company and
(ii) wishes to provide for the indemnification and advancing of expenses to each
Indemnitee to the maximum extent permitted by law.
In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify and
hold harmless Indemnitee (including its partners, employees and agents) 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 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,
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<PAGE>
administrative, investigative or other (hereinafter a "Claim") by reason of
(or arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, controlling person, 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,
controlling person, agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action or
inaction on the part of Indemnitee while serving in such capacity including,
without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of,
any action, suit proceeding or any claim asserted) under the Securities Act
of 1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act") or other federal or state statutory law
or regulation, at common law or otherwise, which relate directly or
indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto
(hereinafter an "Indemnification Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurredin connection with investigating, defending a witness in or
participating in (including on appeal), or preparing to defend, be a witness
in or participate in, any such 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
such Claim and any federal, state, local or foreign taxes imposed on
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all
interest, assessments and other charges paid or payable in connection with or
in respect of such Expenses. Such payment of Expenses shall be made by the
Company as soon as practicable but in any event no later than five days after
written demand by the Indemnitee therefor is presented to the Company.
(b) CONTRIBUTION. If the indemnification provided for in
Section 1(a) above for any reason is held by a court of competent jurisdiction
to be unavailable to an Indemnitee in respect of any losses, claims, damages,
expenses or liabilities referred to therein, then the Company, in lieu of
indemnifying Indemnitee thereunder, shall contribute to the amount paid or
payable by Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
2
<PAGE>
The Company and the Indemnitee agree that it would not be just and
equitable if contribution pursuant to this Section 1(b) were determined by pro
rata or per capita allocation or by securities, in no event shall an Indemnitee
be required to contribute any amount under this Section 1(b) in excess of the
lesser of (i) that proportion of the total of such losses, claims, damages or
liabilities indemnified against equal to the proportion of the total securities
sold under such registration statement which is being sold by such Indemnitee or
(ii) the proceeds received by Indemnitee from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) SURVIVAL REGARDLESS OF INVESTIGATION. The indemnification and
contribution provided for in this Section 1 will remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnitee or any
officer, director, employee, agent or controlling person of the Indemnitee.
(d) CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments 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, Independent Legal
Counsel (as defined in Section 10(d) hereof) shall be selected by the 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
permitted to be indemnified under applicable law. The Company agrees to abide by
such opinion and to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify 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.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 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 the defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification
3
<PAGE>
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 applicable
law. In connection with any determination as to whether Indemnitee is entitled
to be indemnified hereunder, 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 2(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 Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel approved by the
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election to do so. After delivery of
such notice, approval of such counsel by the Indemnitee and the retention of
such counsel by the Company, the Company will not be liable to Indemnitee under
this Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) the Indemnitee shall have the
right to employ Indemnitee's counsel in any such Claim at the Indemnitee's
expense and (ii) if (A) the employment of counsel by the Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there is 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 the Indemnitee's counsel shall be at the expense of the Company. The Company
shall have the right to conduct such defense as it sees fit in its sole
discretion, including the right to settle any claim against Indemnitee without
the consent of such Indemnitee.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify 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.
4
<PAGE>
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 8(a)
hereof.
(b) NONEXCLUSIVITY. The indemnification 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 agreement, any vote of
stockholders or disinterested directors, the Delaware General Corporation Law or
otherwise. The indemnification provided under this Agreement shall continue as
to Indemnitee for any action Indemnitee took or did not take while serving in an
indemnified capacity even though the Indemnitee may have ceased to serve in such
capacity.
4. 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 such Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any 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.
6. MUTUAL ACKNOWLEDGEMENT. 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 rights under public policy to indemnify the Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, control persons, 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 accorded 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, control person, or
fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of the
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which the Indemnitee may not
be relieved of liability under
5
<PAGE>
applicable law;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings to establish or enforce a right to indemnify 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
Indemnifiable 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, advance expense payment or insurance recovery, as the case may
be;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(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.
9. 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.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify is directors, officers, employees, agents or fiduciaries,
so that if Indemnitee is or was a director, officer, employee, agent, control
person, or fiduciary of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee,
control person, agent or fiduciary or another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, each 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.
(b) For purposes of this Agreement, 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, office, employee, agent or fiduciary of the
6
<PAGE>
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.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term in used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, (A) who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 10% or more of
the combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% 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 of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(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 right of Indemnitee under this Agreement,
or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
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
7
<PAGE>
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 and/or assets of the Company, spouses,
heirs, and personal and legal representatives. The Company shall require and
cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business and/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 with respect to Claims relating to
Indemnifiable Events regardless of whether Indemnitee continues to serve as a
director, officer, employee, agent, controlling person, or fiduciary of the
Company or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. 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, any Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action (including costs and
expenses incurred with respect to Indemnitee counterclaims and cross-claims made
in such action), and shall be entitled to the advancement of Expenses with
respect to such action, unless, as a part of such action, a court having
jurisdiction over such action determines that each of Indemnitee's material
defenses to such action was made in bad faith or was frivolous.
14. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposited with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if deliverable by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
Indemnitee's address as set forth beneath the Indemnitee's signature to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
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 Superior
Court of the State of California in and for Orange County, which shall be the
exclusive and only proper forum for adjudicating such a claim.
8
<PAGE>
16. 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 limitations, 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.
17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware without regard to the conflict
of laws principles thereof.
18. 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 suite to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by all parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
20. 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.
21. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY
QCS.NET CORPORATION
a Delaware corporation
By:
Sean Maloy, President/CEO
9
<PAGE>
Address:
INDEMNITEE
Address: _____________________________
_____________________________
10
<PAGE>
Exhibit 10.11
CITY CENTRE OFFICE LEASE
BY AND BETWEEN
EAGLE SQUARE PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
AND
QCS CORPORATION,
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. SUMMARY OF LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 1
a. Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
b. Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
c. Date of Lease (for reference purposes only) . . . . . . . . . . . 1
d. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
e. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
f. Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . 1
g. Lease Termination . . . . . . . . . . . . . . . . . . . . . . . . 1
h. Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
i. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 1
j. Estimated Office Project Taxes and Operating Expenses. . . . . . . 1
k. Tenant's Percentage Share of Office Project. . . . . . . . . . . . 1
l. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
m. Addresses for Notices . . . . . . . . . . . . . . . . . . . . . . 2
n. Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
o. Reimbursable Expense Maximum on Relocation . . . . . . . . . . . . 2
p. Geographic Area . . . . . . . . . . . . . . . . . . . . . . . . . 2
q. Summary Provisions in General . . . . . . . . . . . . . . . . . . 2
2. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
a. Construction of Improvements/Delay in Possession . . . . . . . . . 3
b. Early Possession . . . . . . . . . . . . . . . . . . . . . . . . . 4
c. Certificates and Licenses . . . . . . . . . . . . . . . . . . . . 4
d. Tenant to Physically Occupy . . . . . . . . . . . . . . . . . . . 4
5. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
a. Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
b. Cost of Living Adjustment . . . . . . . . . . . . . . . . . . . . 4
6. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. OPERATING EXPENSES AND PROJECT TAXES . . . . . . . . . . . . . . . . . . 5
a. Office Project Taxes and Operating Expenses. . . . . . . . . . . . 5
b. Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(2) Tenant's Percentage Shine. . . . . . . . . . . . . . . . . 5
b. Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . 6
(1) Retail Operating Expenses. . . . . . . . . . . . . . . . . 7
(2) Office Operating Expenses. . . . . . . . . . . . . . . . . . 7
(3) Shared Operating Expenses. . . . . . . . . . . . . . . . . . 7
c. Project Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
d. Other Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10. ALTERATIONS AND ADDITIONS. . . . . . . . . . . . . . . . . . . . . . . . 9
a. Tenant's Alterations . . . . . . . . . . . . . . . . . . . . . . . 9
b. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
c. Alterations Required by Law. . . . . . . . . . . . . . . . . . . .10
d. Landlord's Improvements. . . . . . . . . . . . . . . . . . . . . .10
11. REPAIRS . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
a. By Tenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
b. By Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
-i-
<PAGE>
12. LIENS . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
13. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . .11
a. Prohibitions in General. . . . . . . . . . . . . . . . . . . . . .11
b. Collection of Rent . . . . . . . . . . . . . . . . . . . . . . . .12
c. Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . .12
d. Request for Transfer . . . . . . . . . . . . . . . . . . . . . . .12
e. No Bonus Value . . . . . . . . . . . . . . . . . . . . . . . . . .12
f. Conditional Consent . . . . . . . . . . . . . . . . . . . . . . .12
g. Corporations and Partnerships . . . . . . . . . . . . . . . . . .13
h. Attorneys' Fees and Costs . . . . . . . . . . . . . . . . . . . .13
i. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . .13
j. Reasonable Provisions . . . . . . . . . . . . . . . . . . . . . .13
14. HOLD HARMLESS .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
15. SUBROGATION . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
16. INSURANCE . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
a. Liability Insurance . . . . . . . . . . . . . . . . . . . . . . .14
b. Property Insurance . . . . . . . . . . . . . . . . . . . . . . . .14
c. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . .15
d. Increase Coverage . . . . . . . . . . . . . . . . . . . . . . . .15
17. SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . .15
18. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . .16
19. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
20. ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . .16
21. RECONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
22. DEFAULT . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
23. REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . .18
a. Termination of Lease . . . . . . . . . . . . . . . . . . . . . . .18
b. Continuation of Lease . . . . . . . . . . . . . . . . . . . . . .19
c. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . .19
d. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
24. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
25. OFFSET STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
26. PARKING . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
27. AUTHORITY . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
28. SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . .21
a. Condition of Premises . . . . . . . . . . . . . . . . . . . . . .21
b. Removal of Personal Property . . . . . . . . . . . . . . . . . . .21
29. LANDLORD DEFAULT AHD MORTGAGEE PROTECTION . . . . . . . . . . . . . . .21
30. RIGHTS RESERVED BY LANDLORD . . . . . . . . . . . . . . . . . . . . . .21
31. PLATS AND RIDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
32. WAIVER. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
33. NOTICES . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
34. JOINT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .22
35. MARGINAL HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . .22
36. TIME. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
-ii-
<PAGE>
37. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . .22
38. RECORDATION . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
39. QUIET POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST . . . . . . . . . . . . . . .22
a. Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . .22
b. Additional Rent and Interest . . . . . . . . . . . . . . . . . . .23
41. PRIOR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
42. INABILITY TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . . .23
43. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
44. SALE OF PREMISES BY LANDLORD/LIMITATION OF LIABILITY . . . . . . . . . .23
45. SUBORDINATION/ATTORNMENT . . . . . . . . . . . . . . . . . . . . . . . .23
46. NAME. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
47. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
48. CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . .24
49. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
50. SIGNS . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
51. GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
52. LICENSES. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
53. BROKERS . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
54. SUBSURFACE AND AIRSPACE . . . . . . . . . . . . . . . . . . . . . . . .24
55. COMMON AREA . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
a. Retail Common Area . . . . . . . . . . . . . . . . . . . . . . . .25
b. Office Common Area . . . . . . . . . . . . . . . . . . . . . . . .25
c. Shared Common Area . . . . . . . . . . . . . . . . . . . . . . . .25
d. Exterior Common Area . . . . . . . . . . . . . . . . . . . . . . .25
56. LABOR DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
57. CONDITIONS. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
58. TENANTS FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . .25
59. LANDLORD NOF A TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . .25
60. MERGER. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
62. NO PARTNERSHIP OR JOINT VENTURE . . . . . . . . . . . . . . . . . . . .25
62. LANDLORD'S RIGHT TO PERFORM TENANTS COVENANTS . . . . . . . . . . . . .26
63. PLANS . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
64. RELOCATION. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
a. Relocation Prior to Possession . . . . . . . . . . . . . . . . . .26
b. Relocation After Possession . . . . . . . . . . . . . . . . . . .26
c. New Premises . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Addenda to Lease
Exhibit A -- Project
Exhibit B -- Premises
Exhibit C -- Work Letter
Exhibit C-1 -- Addendum to Work Letter
Exhibit D -- Rules and Regulations
</TABLE>
-iii-
<PAGE>
CITY CENTER OFFICE LEASE
For and in consideration of the rentals, covenants, and conditions hereafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord, the herein described Premises for the term, at the rental and
subject to and upon all of the terms, covenants and agreements set forth in
this lease (Lease"):
1. SUMMARY OF LEASE PROVISIONS.
a. TENANT: QCS CORPORATION (A DELAWARE CORPORATION)
("Tenant")
b. LANDLORD: EAGLE SQUARE PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
("Landlord")
c. DATE OF LEASE (for reference purposes only): JULY 20, 1995
d. PREMISES: That certain space commonly known as 650 Castro
Street, Suite 210, Mountain View, California, and shown cross-
hatched on the floor plan attached hereto as Exhibit "B",
consisting of approximately TWO THOUSAND ONE HUNDRED FORTY-
EIGHT (2,148) gross leasable square feet (defined in Article
7a.) with a fourteen percent (14%) load factor for
approximately TWO THOUSAND FOUR HUNDRED FOUR-NINE (2,449)
rentable square feet, subject to expansion pursuant to the
terms of this Lease if an option to expand the leased premises
is expressly granted elsewhere in this Lease ("Premises".
(ARTICLE 2)
e. TERM: FIVE (5) years subject to extension pursuant to
the terms of this Lease if an option to extend the terms is
expressly granted elsewhere in this Lease. (ARTICLE 3)
f. COMMENCEMENT DATE: SEPTEMBER 15, 1995 (ARTICLE 3)
g. LEASE TERMINATION: SEPTEMBER 14, 2000 ("Expiration Date"),
unless sooner terminated pursuant to the terms of this Lease.
(ARTICLE 3)
h. BASE RENT: Monthly Base rent shall be as set forth below
(hereinafter referred to as "Base Rent"):
09/5/95 thru 09/14/96 $1.60 $3,918.40
09/5/96 thru 09/14/97 $1.65 $4,040.85
09/5/97 thru 09/14/98 $1.70 $4,163.30
09/5/98 thru 09/14/99 $1.75 $4,285.75
09/5/99 thru 09/14/00 $1.80 $4,408.20
COST OF LIVING ADJUSTMENT DATES:
Beginning in the 13th month and every twelve (12) months
thereafter during the Term of this Lease and Option Period, if
any. ("Adjustment Dates").
MINIMUM BASE RENT ADJUSTMENT:
One Hundred THREE percent (103%) of the Base Rent in effect
immediately prior to an Adjustment Date.
MAXIMUM BASE RENT ADJUSTMENT:
One Hundred FIVE (105%) of the Base Rent in effect immediately
prior to an Adjustment Date. (ARTICLE 5)
i. SECURITY DEPOSIT: Three Thousand Nine Hundred Eighteen and
40/100ths Dollars ($3,918.40) (ARTICLE 6)
j. ESTIMATED OFFICE PROJECT TAXES AND OPERATING EXPENSES:
Approximately SEVEN AND 55/100THS DOLLARS ($7.55 ) per
gross leasable square foot per year. ARTICLE 7)
k. TENANT'S PERCENTAGE SHARE OF OFFICE PROJECT TAXES AND
OPERATING EXPENSES: TWO AND 69/100THS percent (2.69%).
(ARTICLE 7)
l. PARKING: Nonexclusive right to use no more than EIGHT (8)
parking spaces within the Underground Parking Structure.
(ARTICLE 26).
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m. Addresses for Notices:
To Landlord: 2600 CAMPUS DRIVE
SAN MATEO, CA 94403
ATTN: SANFORD DILLER
To Tenant: To the Premises and a courtesy copy to:
n/a
n. BROKER: Cornish & Carey Commercial (ARTICLE 53)
o. REIMBURSABLE EXPENSE MAXIMUM ON RELOCATION: TWO THOUSAND ONE
HUNDRED FORTY EIGHT AND 00/100THS dollars ($2,148.00).
(ARTICLE 64)
p. GEOGRAPHIC AREA: Palo Alto and Mountain View, California
(ARTICLE 16)
q. Summary Provisions in General. Parenthetical references in
this Article 1 to other Articles in this Lease are for
convenience of reference, and designate some of the other
Lease Articles where applicable provisions are set forth. All
of the terms and conditions of each such referenced Articles
shall be construed to be incorporated within and made a part
of each of the above referred to Summary of Leas Provisions.
If any conflict exists between any Summary of Lease Provision
as set forth above and the balance of the Lease, the latter
shall control.
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the Premises described in Article 1d., subject,
nevertheless, to all of the terms and conditions of this Lease. Calculation
of the actual Rentable Area of the Premises and Building shall be performed
by Landlord's architect, which calculation shall be conclusive and binding
upon Landlord and Tenant. Except as used in Sections 9, 11(b), 20, 21, 44, 46
and 64, the term "Building" shall mean the structure in which the Premises
are located. Tenant acknowledges that Landlord is contemplating constructing,
although is not obligated to construct, buildings and improvements on the
Parcel in addition to the Building in which the Premises are located.
Landlord reserves the right to construct such additional buildings and
improvements, if any, in phases, and to modify the design, size, location,
and use of such additional buildings and improvements. As used in this Lease,
the term "Parcel" shall beam the parcel of land described on Exhibit "B"
annexed hereto, as the same may be subdivided from time to time, in which
event "Parcel" shall mean all of the subdivided parcels. Landlord reserves
the right to subdivide the Parcel from time to time into two (2) more parcels
in such manner as Landlord determines. For purposes of references, a site
plan (the "Site Plan") is attached hereto as Exhibit "B", showing the general
location of the land upon which the Building containing the Premises is
located, the location of the Exterior Common Area, and the remainder of the
Parcel. The land comprising that portion of the Parcel on which the Building
containing the Premises is located is depicted on the Site Plan, and is
hereinafter referred to, as the "Phase I Pad". The portion of the Parcel
other than the Phase I Pad and the Exterior Common Area is depicted on the
Site Plan, and is hereinafter referred to, as the "Phase II Pad". The Parcel,
building and all other improvements now or hereafter located on the Parcel,
if any, are herein sometimes referred to as the "Project". Tenant
acknowledges that as currently contemplated by Landlord, the first floor of
the Building will be devoted to retail use and the second through fifth
floors of the Building will be devoted to office use; provided, however, that
nothing in this Lease shall be deemed to require Landlord to utilize the
Building at any time during the term of this Lease as currently contemplated
by Landlord. As used in this Lease, the term "Retail Space" shall refer to
that portion of the Building leased to, or intended to lease to, retail
tenants from time to time, and the term "Office Space" shall mean and refer
to that portion of the Building leased to, or intended to be leased to,
office tenants from time to time. Tenant acknowledges that Landlord may from
time to time reconfigure the location of buildings, driveways, landscaped
areas and other improvements within the Project. "Exterior Common Area" is
defined in Article 55.
This Lease is subject to all of the terms, covenants and conditions set
forth in this Lease. Tenant covenants as a material part of the consideration
for this Lease to keep and perform each and all of said terms, covenants and
conditions to be kept by Tenant under the Lease.
3. TERM. The term of this Lease shall be for the period
designated in Article 1e., commencing on the Commencement Date set forth in
Article 1f and ending on the Expiration
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Date set forth in Article lg., unless sooner terminated pursuant to this
Lease ("Term"). The expiration or sooner termination of the Lease is
hereinafter referred to as "Lease Termination".
4. POSSESSION.
a. CONSTRUCTION OF IMPROVEMENTS/DELAY IN POSSESSION. Landlord and
Tenant agree to the provisions set forth in the work letter attached hereto
as Exhibit "C" ("Work Letter"). Landlord agrees to construct within the
Premises the improvements described in said work letter as "Landlord's Work"
("Tenant Improvements"), upon and subject to the provisions thereof. Tenant
agrees to construct within the Premises the improvements described in said
work letter as "Tenant's Work," upon and subject to the provisions thereof.
If Landlord, for any reason whatsoever, cannot deliver possession of the
Premises to Tenant on the Commencement Date, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, nor shall the Commencement Date or Expiration Date be
extended. Notwithstanding Article 42, if delivery of possession of the
Premises is delayed beyond the Commencement Date, all Rentals (defined in
Article 40b.) shall be abated beginning on the Commencement Date for a period
equal to the period of delay, unless delay in possession of the Premises was
caused or contributed to by Tenant or Tenant's agents, officers, employees,
contractors, servants, invitees or guests (collectively "Tenant's Agents").
Landlord shall be deemed to have delivered possession to Tenant on the
earlier of (i) the date that Landlord gives notice to Tenant that the Tenant
Improvements are substantially completed as evidenced by a certificate of
Landlord's architect, and that the Premises arc available for occupancy by
Tenant subject only to punch list items which do not prevent Tenant from
using the Premises for its intended use, (ii) the date oil which the Tenant
Improvements would have been substantially completed but for delays caused by
Tenant or Tenant's Agents, including without limitation, change orders
requested by Tenant or required because of any errors or omissions in plans
submitted by Tenant, or (iii) the date upon which Tenant actually occupies or
commences operation from the Premises.
b. Early Possession. If Landlord permits Tenant to occupy the
Premises prior to the Commencement Date for any reason, such occupancy shall
be subject to all the provisions of this Lease, including the obligation to
pay Rentals. Said early possession shall not advance the Expiration Date.
c. Certificates and Licenses. Prior to occupancy, Tenant shall
provide to Landlord the certificate(s) of insurance required in Article 16
and a copy of all licenses and authorizations that may be required for the
lawful operation of Tenant's business upon the Premises, including any City
business licenses as may be required.
d. Tenant to Physically Occupy. Tenant shall physically occupy
the Premises and open the Premises for business in no event later than thirty
(30) days after possession of the Premises is delivered to Tenant; provided,
however, that the date of Tenant's physical occupancy of the Premises shall
in no event extend the Commencement Date, the Expiration Date or the date the
payment of Rentals hereunder commences. Time is of the essence.
5. RENT.
a. BASE RENT. Tenant agrees to pay to Landlord as rental for
the Premises, without offset, deduction, prior notice or demand, the monthly
Base Rent designated in Article 1h., as the same may be adjusted from time to
time pursuant to Article 5b. below.
Base Rent shall be payable in advance on or before the first day of the
first full calendar month of the term hereof and a like sum, adjusted as
aforesaid, on or before the first day of each and every successive calendar
month thereafter during the Term, except that a full month's Base Rent shall
be paid upon the execution hereof and the prorated Base Rent payable for the
period, if any, prior to the first full calendar month of the Term shall be
paid on the first day of said first full calendar month. Base Rent for any
period during the Term which is for less than one (1) month shall be prorated
based upon a thirty (30) day month.
b. COST OF LIVING ADJUSTMENT. Base Rent shall be adjusted
on the Adjustment Dates described in Article 1h., and the Base Rent as
adjusted shall be payable monthly pursuant to the terms of Article 5a. above.
As of any Adjustment Date, Base Rent shall be increased to a Sum equal to the
product obtained by multiplying the then current Base Rent by a fraction, the
numerator of which is the New Index and the denominator of which is the
Initial index. For the purposes of adjusting Base Rent as provided in this
Article 5b., the following definitions shall apply:
(i) "Index" means the Consumer Price Index (all items)
for All Urban Consumers as published by the United States Department of
Labor, Bureau of Labor Statistics, for the San Francisco-Oakland-San Jose,
California Area (1982-84 = 100 base year);
(ii) "Initial Index" means in regard to the first
adjustment pursuant to this Article 5b., the Index published for the month
nearest but prior to the Commencement Date,
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and in regard to all subsequent adjustments, the Index published nearest but
prior to the immediately preceding Adjustment Date;
(iii) "New Index" means the Index published nearest but
prior to the applicable Adjustment Date.
If, at any time when Base Rent is to be adjusted as provided above, the
Index is changed so that the base year differs from the base year used for
the Initial Index, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the Index is otherwise changed or discontinued during
the Term, the most nearly comparable official price index of the United
States government or other computation (as determined in Landlord's sole
reasonable discretion) shall be used for computing the adjustments to Base
Rent in order to obtain substantially the same result as would be obtained if
the Index had not been changed or discontinued. Notwithstanding the
foregoing, in no event shall Base Rent as of any Adjustment Date be less than
the Minimum Base Rent Adjustment nor more than the Maximum Base Rent
Adjustment set forth in Article 1h. above.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum set
forth in Article l i. as the security deposit ("Security Deposit"). The
Security Deposit shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this
Lease to be kept and performed by Tenant during the Term. If Tenant defaults
with respect to any provision of this Lease, including, but not limited to
the provisions relating to the payment of Rentals or the condition of the
Premises at Lease Termination, Landlord may (but shall not be required to)
use, apply or retain all or any part of the Security Deposit for the payment
of any Rental or any other sum in default, or for the payment of any amount
which Landlord may spend or become obligated to spend by reason of Tenant's
default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall within five (5) days
after written demand therefore, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount and
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep the Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on the Security Deposit.
Landlord is not a trustee of the Security Deposit and may use it in ordinary
business, transfer it or assign it, or use it in any combination of such
ways. If Tenant fully and faithfully performs every provision of this Lease
to be performed by it, the remaining portion of the Security Deposit shall be
returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interests hereunder) within two (2) weeks after Lease Termination
and vacation of the Premises by Tenant or its last assignee; provided,
however if any portion of the Security Deposit is to be applied to repair
damages to the Premises caused by Tenant or Tenant's Agents or to clean the
Premises, then the balance of the Security Deposit shall be returned to
Tenant (or, at Landlord's option to the last assignee of Tenant's interest
hereunder) no later than thirty (30) days after the date Landlord receives
possession of the Premises. Tenant shall not transfer or encumber the
Security Deposit nor shall Landlord be bound by Tenant's attempt to do so. If
Landlord's interest in this Lease is terminated, Landlord shall transfer the
Security Deposit to Landlord's successor in interest, and upon such transfer
Landlord shall be released from any liability to Tenant with respect to the
Security Deposit and Tenant shall look only to the transferee for any return
of the Security Deposit to which Tenant may be entitled.
7. OPERATING EXPENSES AND PROJECT TAXES.
a. OFFICE PROJECT TAXES AND OPERATING EXPENSES.
(1) DEFINED. As used in this Least the term "Office
Project Taxes and Operating Expenses" shall mean the aggregate of the
following:
(a) One hundred percent (100%) of the Office
Operating Expenses (defined in Article 7b.); plus
(b) A percentage of the Shared Operating Expenses
(defined in Article 7b.), which percentage shall be determined by dividing
(i) the total gross leasable square feet of the Office Space ("Office Gross
Leasable Area") plus the gross leasable square feet of any Office Common Area
(defined in Article 55) located within the Building by (ii) the Building
Gross Leasable Area, as set forth herein. Gross leasable square feet shall be
measured from the exterior faces of exterior walls and store-fronts, and the
center lines of party walls and common partitions. In measuring gross
leasable square feet, no deduction or exclusion shall be made by reason of
columns, stairs, elevators, escalators, shafts or other interior
construction. As used in this Lease, "Building Gross Leasable Area" shall
mean the sum of the gross leasable square feet of the Retail Space, the
Office Gross Leasable Area and the gross leasable square feet of those
portions of the Building constituting Retail Common Area and Office Common
Area; plus
(c) A percentage of the Project Taxes (defined in
Article 7c.), which percentage shall be determined by dividing (i) the total
Office Gross Leasable Area plus the
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gross leasable square feet of any Office Common Area located within the
Building by (ii) the total Building Gross Leasable Area, as set forth herein.
(2) TENANT'S PERCENTAGE SHARE. During the Lease Term,
Tenant shall pay to Landlord as additional rent and without deduction or
offset, an amount equal to Tenant's percentage share, determined as set forth
below ("Tenant's Percentage Share"), of the Office Project Taxes and
Operating Expenses, defined below. Office Project Taxes and Operating
Expenses in the aggregate first calendar year are estimated in the amount set
forth in Article 1j. above. Tenant acknowledges, however, that said sum is
all estimate only, and is not binding upon Landlord. Landlord does not
represent or warrant that the actual Office Project Taxes and Operating
Expenses will not exceed such estimate. Payment of Office Project Taxes and
Operating Expenses shall be based on Landlord's estimate of same, as adjusted
from time to time. Tenant's Percentage Share of Office Project Taxes and
Operating Expenses shall be determined by dividing the total Rentable Area of
the Premises by ninety-five percent (95%) of the total Rentable Area of the
Office Space. Tenant's Percentage Share of such Office Project Taxes and
Operating Expenses shall be the percentage set forth in Article 1k. above,
subject to an equitable adjustment in the event of a condemnation, sale by
Landlord of part of the Project, reconstruction after damage or destruction
or expansion or reduction of the areas within the Project designated by
Landlord as Retail Space and Office Space from time to time. Tenant's
Percentage Share of the Office Project Taxes and Operating Expenses shall be
payable during the Lease Term in monthly installments on the first day of
each month in advance, without deduction, offset or prior demand as follows:
An amount equal to one-twelfth (1/12) of Tenant's Percentage Share of the
estimated Office Project Taxes and Operating Expenses shall be payable
monthly by Tenant as aforesaid, commencing on the Commencement Date and
continuing until receipt of any notice of adjustment from Landlord given
pursuant to this paragraph. Until notice of the estimated Office Project
Taxes and Operating Expenses for a subsequent calendar year is delivered to
Tenant, Tenant shall continue to pay its Percentage Share of Office Project
Taxes and Operating Expenses on the basis of the prior estimate. Landlord may
at any time during the Term adjust estimates of the Office Project Taxes and
Operating Expenses to reflect current expenditures and following Landlord's
written notice to Tenant of such revised estimate, subsequent payments of
Tenant shall be based upon such revised estimate.
If the Commencement Date is on a date other than the first day of the
calendar year, the amount of the Office Project Taxes and Operating Expenses
payable by Tenant in such calendar year shall be prorated on the basis which
the number of days from the Commencement Date to the end of the calendar year
in which the Commencement Date falls bears to three hundred and sixty (360).
Within ninety (90) days after the end of each calendar year during the
Term and within ninety (90) days after the Expiration Date, or as soon
thereafter as practicable, Landlord will furnish to Tenant a statement
("Landlord's Statement") of the actual Office Project Taxes and Operating
Expenses paid or incurred by Landlord during the preceding year, and
thereupon within ten (10) days an adjustment will be made by Tenant's payment
to Landlord or credit to Tenant by Landlord against the Office Project Taxes
and Operating Expenses next becoming due from Tenant, as the case may
require, to the end that Landlord shall receive the entire amount of Tenant's
Percentage Share of Office Project Taxes and Operating Expenses for such
calendar year and no more. If based on Landlord's Statement a payment from
Tenant is required, Tenant shall not have the right to withhold or defer such
payment pending a review of Landlord's books and records pursuant to the
following paragraph or to the resolution of any dispute relating to Office
Project Taxes and Operating Expenses. If the Expiration Date is on a day
other than the last day of a calendar year, the amount of Office Project
Taxes and Operating Expenses payable to Tenant for the calendar year in which
the Expiration Date falls shall be prorated on the basis which the number of
days from the commencement of such calendar year to and including such
Expiration Date bears to three hundred sixty (360). The early termination of
this Lease shall not affect the obligations of Landlord and Tenant pursuant
to this Article 7.
Within sixty (60) days after Tenant receives a statement of actual Office
Project Taxes and Operating Expenses paid or incurred for a calendar year,
Tenant shall have the right, upon written demand and reasonable notice, to
inspect Landlord's books and records relating to such Office Project Taxes
and Operating Expenses for the calendar year covered by Landlord's Statement
for the purpose of verifying the amount set forth in such statement. Such
inspection shall be made during Landlord's normal business hours, at the
place where such books and records arc customarily maintained by Landlord.
Unless Tenant asserts in writing a specific error within ninety (90) days
following Tenant's receipt of Landlord's Statement, the amounts set forth in
Landlord's statement shall be conclusively deemed correct and binding on
Tenant.
Notwithstanding anything contained in this Article 7 to the contrary,
express or implied, Rentals payable by Tenant shall in no event be less than
the Base Rent specified in Article 5a., as adjusted from time to time
pursuant to this Lease.
b. OPERATING EXPENSES. As used in this Lease, "Operating
Expenses" shall mean all costs of operation, maintenance, repair and management
of every portion of the Project as
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determined by standard accounting practices. Operating Expenses shall
include, without limitation, all sums expended in connection with all
maintenance and repairs, resurfacing, painting, restriping, cleaning,
sweeping and janitorial services; maintenance and repair of sidewalks, curbs,
signs and other Common Areas (defined in Article 55); maintenance and repair
of sprinkler systems, planting and landscaping; trash removal; sewage;
electricity, gas, water and any other utilities (including any temporary or
permanent utility surcharge or other exaction whether now or hereafter
imposed); maintenance and repair of directional signs and other markers and
bumpers; maintenance and repair of any fire protection systems, elevator
systems, lighting systems, storm drainage systems, HVAC, and other utility
systems; any governmental imposition or surcharge imposed upon Landlord or
assessed against the Project; all costs and expenses pertaining to a security
alarm system and security guard for the Project if Landlord deems necessary
in Landlord's reasonable discretion; materials; supplies; tools; depreciation
on maintenance and operating machinery and equipment (if owned) and rental
paid for such machinery and equipment (if rented); service agreements on
equipment; maintenance and repair of parking areas and parking structures, if
any; repair and routine and preventative maintenance of the roof (including
repair of leaks and resurfacing); repair and maintenance of the exterior
surfaces of all improvements (including painting); maintenance and repair of
structural parts (including foundation, floor slabs and load bearing walls);
replacement of Common Area carpets and window coverings, the cost of which
shall be amortized over the useful life of such items as determined by
standard accounting practices; window cleaning; elevator or escalator
services; material handling; fees for licenses and permits relating to the
Project; the cost of complying with rules, regulations and orders of
governmental authorities; accounting and lega fees; Project office rent or
rental value; the cost of contesting the validity or applicability of any
governmental enactments which may affect Operating Expenses or Project Taxes;
personnel to implement such services; public liability, property damage and
fire and extended coverage insurance on the Project (in such amounts and
providing such coverage as determined in Landlord's reasonable discretion and
which may include without limitation liability, all risk property, lessor's
risk liability, war risk, vandalism, malicious mischief, sprinkler leakage,
boiler and machinery, rental income, flood and worker's compensation
insurance, and, if available at commercially reasonable rates or required by
the lender of any loan affecting all or any portion of the Project,
earthquake); compensation and fringe benefits payable to all persons employed
by Landlord in connection with the operation, maintenance, repair, and
management of the Project; and all annual assessments and special assessments
levied against the Project and/or Landlord pertaining to the Project pursuant
to any declaration of covenants, conditions and restrictions affecting the
Project. Landlord may cause any or all of said services to be provided by an
independent contractor or contractors, or they may be rendered by Landlord.
If such services are provided by Landlord, the cost of such services which
are included in Operating Expenses shall be reasonable, based upon the
prevailing market prices for such services, if Landlord makes capital
improvements which have the effect of reducing Operating Expenses, Landlord
may amortize its investment in said improvements as an Operating Expense in
accordance with standard accounting practices provided that such amortization
is not at a rate greater than the anticipated savings in Operating Expenses.
It is the intent of the parties hereto that Operating Expenses shall include
every cost paid or incurred by Landlord in connection with the operation,
maintenance, repair and management of the Project and the specificexamples of
Operating Expenses stated in this Section 7b. are in no way intended to, and
shall not limit the costs comprising Operating Expenses, nor shall such
examples be deemed to obligate Landlord to incur such costs or to provide
such services or to take such actions except as Landlord may be expressly
required in other portions of this Lease, or except as Landlord, in its
reasonable discretion, may elect. The maintenance of the Project shall be at
the reasonable discretion of Landlord and all costs incurred by Landlord
reasonably and in good faith shall be deemed conclusively binding on Tenant.
If less than one hundred (100%) percent of the Project is occupied during any
calendar year, all Operating Expenses on the statements provided by Landlord
shall be adjusted for each calendar year to equal Landlord's reasonable
estimate of Operating Expenses had one hundred percent (100%) of the Project
been occupied. Operating Expenses shall be comprised of Retail Operating
Expenses, Office Operating Expenses and Shared Operating Expenses.
(1) RETAIL OPERATING EXPENSES. As used in this
Lease, "Retail Operating Expenses" shall mean those Operating Expenses
attributable to the Retail Space and the Retail Common Area (defined in
Article 55) as reasonably determined by the Landlord from time to time,
including, without limitation, the cost of all gas, electricity and other
utilities attributable to the Retail Space and not separately metered to any
other tenant; Landlord's advertising and promotional costs for the Project;
the cost of all electricity supplied to the parking areas within the Project
during such hours as are reasonably determined by Landlord from time to time
to be of primary benefit to the Retail Space; the cost of a service
maintenance agreement on all heating, ventilating and air conditioning
equipment ("HVAC") servicing the Retail Space and the cost of any HVAC
maintenance and repairs; and a management fee equal to ten percent (10%) of
Common Area Expenses.
(2) OFFICE OPERATING EXPENSES. As used in this
Lease, "Office Operating Expenses" shall mean those Operating Expenses
attributable to the Office Space and the Office Common Area, as reasonably
determined by Landlord from time to time; and a management fee equal to five
percent (5%) of Landlord's gross receipts from the Project including all
Rentals.
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(3) SHARED OPERATING EXPENSES. As used in this
Lease, "Shared Operating Expenses" shall mean all Operating Expenses other
than Retail Operating Expenses and Office Operating Expenses.
c. PROJECT TAXES. The term "Project Taxes" as used in
this Lease shall collectively mean (to the extent any of the following are
not paid by Tenant pursuant to Article 7d. below) all: real estate taxes and
general or special assessments (including, without limitation, assessments
for public improvements or benefits); personal property taxes; taxes based on
vehicles utilizing parking areas within the Project; taxes computed or based
on rental income (including without limitation any municipal business tax but
excluding federal, state and municipal net income taxes); Environmental
Surcharges (defined below); excise taxes; gross receipts taxes; sales and/or
use taxes; employee taxes; water and sewer taxes, levies, assessments and
other charges in the nature of taxes or assessments (including, but not
limited to, assessments for public improvements or benefit); and all other
governmental, quasi-governmental or special district impositions of any kind
and nature whatsoever; regardless of whether now customary or within the
contemplation of the parties hereto and regardless of whether resulting from
increased rate and/or valuation, or whether extraordinary or ordinary,
general or special, unforeseen or foreseen, or similar or dissimilar to any
of the foregoing which during the Term are laid, levied, assessed or imposed
upon Landlord and/or become a lien upon or chargeable against any portions of
the Project under or by virtue of any present or future laws, statutes,
ordinances, regulations, or other requirements of any governmental authority
or quasi-governmental authority or special district having the direct or
indirect power to tax or levy assessments whatsoever. "Environmental
Surcharges" shall include any and all expenses, taxes, charges or penalties
imposed by any local, state or federal governmental agency or entity now or
hereafter vested with the power to impose taxes, assessments or other types
of surcharges as a means of controlling or abating environmental pollution or
the use of energy in regard to the use, operation or occupancy of the
Project. "Taxes" shall include (to the extent the same are not paid by Tenant
pursuant to Article 7d. below), without limitation: the cost to Landlord of
contesting the amount or validity or applicability of any Project Taxes; and
all taxes, assessments, levies, fees, impositions or charges relating to the
use, possession, occupancy, leasing, operation or management of the Project
or in lieu of or equivalent to any Project Taxes described in this Article 7c.
If at any time during the Term, Project Taxes are under-assessed by the
taxing authorities so that they are not computed on a fully completed and
occupied basis in accordance with the then applicable taxing authority of the
governmental entities having jurisdiction, Landlord shall have the right, but
not the obligation, to adjust Project Taxes to reflect the amount that
Project Taxes would be if the Project were assessed on a fully completed and
occupied basis, as determined in Landlord's reasonable discretion. If at any
time during the Term Project Taxes are under-assessed by the taxing authority
so that they are not computed on a fully completed and occupied basis, and
after Lease Termination the taxing authority increases the Project Taxes
attributable to any period during the Term by recomputing Project Taxes on a
fully completed and occupied basis, Tenant shall pay to Landlord, upon
demand, Tenant's Percentage Share of that portion of such increase in Project
Taxes includable in Office Project Taxes and Operating Expenses,
notwithstanding that the Lease has expired or terminated. Tenant's obligation
to pay its share of the increase in Project Taxes shall survive Lease
Termination.
d. OTHER TAXES. Tenant shall pay the following:
(1) Tenant shall pay (or reimburse Landlord as
additional rent if Landlord is assessed), before delinquency, any and all
taxes levied or assessed, and which become payable for or in connection with
any period during the Term, upon all of the following (collectively,
"Leasehold Improvements and Personal Property"): Tenant's leasehold
improvements, the Tenant Improvements, equipment, furniture, furnishings,
fixtures, merchandise, inventory, machinery, appliances and other personal
property located in the Premises; except only that which has been paid for by
Landlord and is the standard of the Office Space in the Building in which the
Premises are located. Tenant hereby acknowledges receipt of a copy of a
schedule setting forth the improvements comprising the standard of the Office
Space in the Building in which the Premises are located. If any or all of the
Leasehold Improvements and Personal Property are assessed and taxed with the
Project, Tenant shall pay to Landlord such amounts within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount applicable to the Leasehold Improvements and Personal Property. If the
Leasehold Improvements and Personal Property are not separately assessed on
the tax statement or bill, Landlord's good faith determination of the amount
of such taxes applicable to the Leasehold Improvements and Personal Property
shall be a conclusive determination of Tenant's obligation to pay such amount
so as determined by Landlord.
(2) Tenant shall pay (or reimburse Landlord if Landlord
is assessed, as additional rent), prior to delinquency or within ten (10)
days after receipt of a statement thereof, any and all other taxes, levies,
assessments, or surcharges payable by Landlord or Tenant and relating to this
Lease, the Premises or Tenant's activities in the Premises (other than
Landlord's net income, succession, transfer, gift, franchise, estate, or
inheritance taxes), whether or not now customary or within the contemplation
of the parties hereto, now in force or which may hereafter become effective,
including but not limited to taxes: (i) upon, allocable to, or measured by
the area
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of the Premises or on the Rentals payable hereunder, including without
limitation any gross income, gross receipts, excise, or other tax levied by
the state, any political subdivision thereof, city or federal government with
respect to the receipt of such Rentals; (ii) upon or with respect to the use,
possession, occupancy, leasing, operation and management of the Premises or
any portion thereof; (iii) upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in the
Premises; or (iv) imposed as a means of controlling or abating environmental
pollution or the use of energy, including, without limitation, any parking
taxes, levies or charges or vehicular regulations imposed by any governmental
agency. Tenant shall also pay, prior to delinquency, all privilege, sales,
excise, use, business, occupation, or other taxes, assessments, license fees,
or charges levied, assessed, or imposed upon Tenant's business operations
conducted at the Premises. If any such taxes are payable by Landlord and it
shall not be lawful for Tenant to reimburse Landlord for such taxes, then the
Rentals payable hereunder shall be increased to net Landlord the net Rental
after imposition of any such tax upon Landlord as would have been payable to
Landlord prior to the imposition of any such tax.
8. CONDUCT OF BUSINESS.
a. In no event shall Tenant use or permit the use of
the Premises for any purpose other than general office use. Landlord and
Tenant hereby acknowledge and agree that the foregoing use restriction is an
absolute prohibition against a change in use of the Premises as contemplated
under California Civil Code section 1997.230. Tenant hereby acknowledges and
agrees that Landlord has carefully selected Tenant in order to produce a mix
of Tenant uses within the Project compatible and consistent with the design
of the Building, with other uses of the Building, and with the operation of a
profitable and successful mixed-use office/retail project; provided, however,
that the selection of project tenants shall be in Landlord's sole discretion
and Landlord, in making such selection, shall not be deemed to be warranting
that any use of the Building made by any such tenant is or will be compatible
or consistent with the design of the Building, with other uses of the
Building, or will result in the operation of a profitable and successful
mixed-use office/retail project. Tenant shall not do or permit anything to be
done in or about the Premises nor bring or keep anything therein which will
in any way increase the existing rate of or affect any fire or other
insurance upon the Building or the Project or any of its contents, or cause
cancellation of any insurance policy coveting the Building or the Project or
any part thereof or any of its contents. Tenant shall not, without prior
consent of Landlord, bring into the Building or the Premises or use or
incorporate in the Premises any apparatus, equipment or supplies that may
cause substantial noise, odor or vibration or overload the Premises or the
Building or any of its utility or elevator systems or jeopardize the
structural integrity of the Building or any part thereof. Tenant and Tenant's
Agents shall not use, store or dispose, or allow the use, storage or disposal
of, any Hazardous Materials (defined below) on any portion of the Project.
Tenant shall indemnify, defend with counsel acceptable to Landlord, and hold
Landlord and Landlord's employees, agents, partners, officers, directors and
shareholders harmless from and against any and all claims, actions, suits,
proceedings, orders, judgment, losses, costs, damages, liabilities, penalties
or expenses (including, without limitation, attorneys' fees) arising in
connection with the breach of the obligations described in the previous
sentence. As used in this paragraph, Hazardous Material means any chemical,
substance or material which has been determined or is hereafter determined by
any federal, state or local governmental authority to be capable of posing
risk of injury to health or safety, including, without limitation, petroleum,
asbestos, polychlorinaled biphenyls, radioactive materials and radon gas.
Tenant shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other tenants
or occupants of the Building or the Project or injure or annoy them or use or
allow the Premises to b used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises. Tenant shall not commit or suffer to
be committed any waste in or upon the Premises. Tenant and Tenant's Agents
shall comply with the provisions of any declaration of covenants, conditions
and restrictions affecting the Premises.
b. EFFECT OF USE RESTRICTION. Landlord and Tenant hereby
acknowledge and agree that the use restriction set forth in Paragraph 8.a.
above shall be deemed reasonable in all respects and under all circumstances.
Landlord and Tenant further acknowledge and agree that, notwithstanding any
provision of this Lease to the contrary, (i) in the event Tenant requests
Landlord's consent to a proposed assignment of this Lease or subletting of
the Premises, Landlord shall be deemed reasonable in withholding its consent
to such assignment or subletting if the proposed assignee or subtenant
desires to use the Premises for any purpose other than as expressly provided
in Paragraph 8.a. above, and (ii) in the event of a default by Tenant under
the Lease, the enforcement of the use restriction set forth in Paragraph 8.a.
above shall be deemed reasonable for purposes of computing the rental loss
that could be or could have been reasonably avoided by Landlord pursuant to
California Civil Code section 1951.2 and in connection with the exercise of
Landlord's remedies under California Civil Code section 1951.4.
Notwithstanding the preceding to the contrary, if Landlord withholds its
consent to an assignment of the Lease or subletting of the Premises based
upon the desire of the proposed assignee or subtenant to use the Premises for
any purpose other than as expressly provided in Paragraph 8.a. above, or if
Tenant is in default under this Lease, then, prior to commencing or pursuing
any claim or defense against Landlord based upon the unreasonableness of the
use
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restriction set forth in Paragraph 8.a. above, Tenant shall provide Landlord
with written notice (by certified mail, postage prepaid and return receipt
requested) setting forth Tenant's objections to the enforcement of the use
restriction in such instance, the basis upon which Tenant intends to
demonstrate that the enforcement of such use restriction would be
unreasonable in such instance, and the use(s) which Tenant believes Landlord
should allow Tenant or its proposed assignee or subtenant, as the case may
be, to make of the Premises. Within thirty (30) days of Landlord's receipt of
Tenant's written notice of objection, Landlord shall provide Tenant with
written notice of Landlord's election to either (A) enforce the use
restriction set forth in Paragraph 8.a. above, or (B) permit a change in the
use of the Premises, provided that such proposed use shall in no event (1)
require the use, storage or disposal of Hazardous Materials on or about the
Premises or the Project, (2) increase or affect any fire or other insurance
covering the Building or the Project, (3) interfere with the rights of other
tenants of the Building or Project, including, without limitation, any
exclusive use rights of such tenants, (4) be in violation of application
federal, state or local laws, rules, regulations, codes or ordinances, or (5)
require Landlord to construct or install, or to provide any allowance for the
construction or installation of, any tenant improvements in the Premises.
Notwithstanding the preceding to the contrary, in no event shall Landlord
have any obligation to allow a change in the use of the Premises, it being
expressly understood by the parties that the use restriction set forth in
Paragraph 8.a. above is an absolute prohibition against a change in use of
the Premises. In the event Landlord fails to provide Tenant with written
notice of its election to either enforce the use restriction or allow a
change in use of the Premises within said thirty (30) day period, Landlord
shall be deemed to have elected to enforce the use restriction. In the event
Landlord elects or is deemed to have elected to enforce the use restriction
as provided hereinabove, Tenant shall have the right to pursue such valid
claims or defenses against Landlord as may be permitted under California
Civil Code section 1997.040 and which Tenant is able to prove.
9. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or
permit anything to be done in or about the Premises which will in any way
conflict with or violate any law, statute, ordinance, order or governmental
rule or regulation or requirement of duly constituted public authorities or
quasi-public authorities now in force or which may hereafter be enacted or
promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances, orders and governmental or quasi-governmental
rules, regulations or requirements now in force or which may hereafter be in
force and with all recorded documents which relate to or affect the
condition, use or occupancy of the Premises, and with the requirements of any
board of fire insurance underwriters or other similar bodies now or hereafter
constituted, relating to, or affecting the condition, use or occupancy of the
Premises, excluding structural changes not related to or affected by Tenant's
improvements, acts or use or occupancy of the Premises. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any law, statute, ordinance, or governmental or quasi-governmental
rule, regulation or requirement, shall be conclusive of that fact as between
the Landlord and Tenant. Tenant shall obtain, prior to taking possession of
the Premises, all permits, licenses, or other authorizations for the lawful
operation of its business at the Premises. Tenant shall indemnify, defend
with counsel acceptable to Landlord and hold Landlord and Landlord's
employees, agents, partners, officers, directors and shareholders harmless
from and against any claim, action, suit, proceeding, order, judgment,
liability, penalty or expense (including, without limitation, attorneys'
fees) arising out of the failure of Tenant to comply with any applicable law,
statute, ordinance, order, rule, regulation, requirement or recorded
document. Tenant acknowledges that Tenant has independently investigated and
is satisfied that the Premises are suitable for Tenant's intended use and
that the Building and Premises meet all governmental and quasi-governmental
requirements for such intended use.
Landlord and Tenant acknowledge that, in accordance with the provisions of
the Americans with Disabilities Act (the "ADA"), responsibility for
compliance with the terms and conditions of Title III of the ADA may be
allocated as between Landlord and Tenant. In this regard and notwithstanding
anything to the contrary contained in the Lease, Landlord and Tenant agree
that the responsibility for compliance with the ADA (including, without
limitation, the removal of architectural and communications barriers and the
provision of auxiliary aids and services to the extent required) shall be
allocated as follows: (i) Tenant shall be responsible for compliance with the
provisions of Title I of the ADA, and of Title II and Title III of the ADA as
Titles II and III relate to any construction, renovations, alterations and
repairs made within the Premises if such construction, renovations,
alterations and repairs are made by Tenant, at its expense without the
assistance of Landlord; (ii) Landlord shall be responsible for compliance
with the provisions of Title II and III of the ADA for all construction,
renovations, alterations and repairs which Landlord is required, under this
Lease, to make within the Premises, whether (pursuant to the relevant
provisions of the Lease) at Landlord's or Tenant's expense; and (iii)
Landlord shall be responsible for compliance with the previsions of Title III
of the ADA for all exterior and interior areas of the Building not included
within the Premises. Landlord agrees to indemnify and hold Tenant harmless
from and against any claims, damages, costs and liabilities arising out of
Landlord's failure, or alleged failure, as the case may be, to comply with
the ADA, to the extent such compliance has been allocated to Landlord herein,
which indemnification obligation shall survive the expiration or termination
of the Lease if the Lease has not been terminated by reason of a default by
Tenant. Tenant agrees to indemnify and hold Landlord harmless from and
against any
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claims, damages, costs and liabilities arising out of Tenant's failure, or
alleged failure, as the case may be, to comply with the ADA to the extent
such compliance has been allocated to Tenant herein, which indemnification
obligation shall survive the expiration or termination of this Lease.
Landlord and Tenant each agree that the allocation of responsibility for ADA
compliance shall not require Landlord or Tenant to supervise, monitor or
otherwise review the compliance activities of the other with respect to its
assumed responsibility for ADA compliance as set forth in this paragraph.
Landlord shall, in complying with the ADA (to the extent such compliance has
been allocated to Landlord herein), be entitled to rely upon representations
made to, or information given to Landlord by Tenant in regard to Tenant's use
of the Premises, Tenant's employees, and other matters pertinent to
compliance with the ADA. The indemnity of Tenant set forth above shall apply
as to any liability arising against Landlord by reasons of any
misrepresentations or misinformation given by Tenant to Landlord. The
allocation of responsibility for ADA compliance between Landlord and Tenant,
and the obligations of Landlord and Tenant established by such allocations,
shall supersede any other provisions of the Lease that may contradict or
otherwise differ from the requirements of this paragraph.
10. ALTERATIONS AND ADDITIONS.
a. TENANT'S ALTERATIONS. Tenant shall not make or
suffer to be made any alterations, additions, changes or improvements
(collectively, "Alterations") to or of the Premises, or any part thereof
without Landlord's prior Written consent, which consent shall not, except as
otherwise expressly provided in this Lease, be unreasonably withheld.
Landlord may impose, as a condition to the aforesaid consent, such
requirements as Landlord may deem necessary in its reasonable discretion,
including, without limitation: the manner in which the work is done; a right
of approval of the contractor by whom the work is to be performed; that all
work be performed with union labor; the times during which such work is to be
accomplished; the requirement that Tenant post a completion bond in an amount
and form satisfactory to Landlord; the requirement that Tenant reimburse
Landlord, as additional rent, for Landlord's reasonable costs incurred in
reviewing any proposed Alterations, whether or not Landlord's consent is
granted; and the requirement that at Lease Termination, either (i) Tenant, at
its expense, will remove any and all such Alterations installed by Tenant and
shall, at its cost, promptly repair all damages to the Project caused by such
removal, or (ii) the Alterations made by Tenant shall remain with the
Premises, be a part of the realty, and belong to Landlord. If Landlord
consents to any Alterations to the Premises by Tenant, the same shall be made
by Tenant at Tenant's sole cost and expense in accordance with plans and
specifications approved by Landlord. Any such Alterations made by Tenant
shall be performed in accordance with all applicable laws, ordinances and
codes and in a first class workmanlike manner, and shall not weaken or impair
the structural strength or lessen the value of the Building, shall not
invalidate, diminish, or adversely affect any warranty applicable to the
Building or any other improvements located within the Project, including any
equipment therein, and shall be performed in a manner causing Landlord and
Landlord's agets and other tenants of the Building the least interference and
inconvenience practicable under the circumstances. In making any such
Alterations, Tenant shall, at Tenant's sole cost and expense:
(i) File for and secure any necessary permits or
approvals from all governmental departments or authorities having
jurisdiction, and any utility company having an interest therein;
(ii) Notify Landlord in writing at least fifteen (15)
days prior to the commencement of work on any Alteration, so that Landlord
can post and record appropriate notices of nonresponsibility; and
(iii) Provide copies of all drawings and specifications
prior to commencement of construction of any Alterations.
In no event shall Tenant make or suffer to be made any Alteration to the
mechanical or utility systems of the Building, to the Common Area or to the
structural portions of the Building or any part thereof without Landlord's
prior written consent, which consent may be withheld in Landlord's sole
discretion.
b. REMOVAL. Upon Lease Termination, Tenant shall, upon written
demand by Landlord at Tenant's sole cost and expense, forthwith and with all
due diligence remove any alterations made by Tenant, which is then designated
by Landlord to be removed and Tenant shall, forthwith and with all due
diligence at its sole cost and expense, repair any damage to the Premises or
Project caused by such removal. Tenant may also, upon Lease Termination and
provided that Tenant is not then in default hereunder, remove Tenant's
movable equipment, furnishings, trade fixtures and other personal property
(excluding any Alterations made by Tenant not specifically designated by
Landlord to be removed), provided that Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damages to the
Premises or the Project caused by such removal. Unless Landlord elects to
have Tenant remove any such Alterations, all such Alterations except for
movable equipment, furnishings and trade fixtures of Tenant not affixed to
the Premises, shall become the property of Landlord upon Lease Termination
(without any payment therefor) and remain upon and be surrendered with the
Premises.
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c. ALTERATIONS REQUIRED BY LAW. Tenant shall pay
to Landlord as additional rent, the cost of any structural or nonstructural
alteration, addition or change to the Building and/or at Landlord's election,
shall promptly make, at Tenant's sole expense and in accordance with the
provisions of Article 10a. above, any structural or nonstructural alteration,
addition or change to the Premises required to comply with laws, regulations,
ordinances or orders of any public agencies, whether now existing or
hereinafter promulgated, where such alterations, additions or changes are
required by reason of: Tenant's or Tenant's Agents' acts; Tenant's use or
change of use of the Premises; alterations or improvements to the Premises
made by or for Tenant; or Tenant's application for any permit or governmental
approval.
d. LANDLORD'S IMPROVEMENTS. All fixtures,
improvements or equipment which are installed, constructed on or attached to
the Premises, or any part of the Project by Landlord at its expense shall be
a part of the realty and belong to Landlord.
11. REPAIRS.
a. BY TENANT. By taking possession of the Premises,
Tenant shall be deemed to have accepted the Premises as being in good and
sanitary order, condition and repair and to have accepted the Premises in
their condition existing as of the date of such possession, subject to all
applicable laws, covenants, conditions, restrictions, easements, and other
matters of public record and the Rules and Regulations from time to time
promulgated by Landlord governing the use of any portion of the Project.
Tenant shall further be deemed to have accepted the Tenant improvements
constructed by Landlord, if any, as being completed in accordance with the
plans and specifications for such improvements, excluding only the punch list
items referred to in Article 4a. above. Tenant shall at Tenant's sole cost
and expense, keep every part of the Premises in good condition and repair,
ordinary wear and tear excepted. If Tenant fails to maintain the Premises as
required by this Lease, Landlord may give Tenant notice to do such acts as
are reasonably required to so maintain the Premises and if Tenant fails to
commence such work immediately in an emergency or where immediate action is
required to protect the Premises or any portion of the Project, or within ten
(10) days after such notice is given under other circumstances, and
diligently prosecute it to completion, then Landlord or Landlord's agents, in
addition to all of the rights and remedies available hereunder or by law and
without waiving any alternative remedies, shall have the right to enter the
Premises and to do such acts and expend such funds at the expense of Tenant
as are reasonably required to perform such work. Any amount so expended by
Landlord shall be paid by Tenant to Landlord as additional rent, upon demand.
With respect to any work performed by Landlord pursuant to this Article
11.a., Landlord shall be liable to Tenant only for physical damage caused to
Tenant's personal property located within the Premises to the extent such
damage is caused by Landlord's active negligence or willfulmisconduct and
such damage is neither insured against nor required to be insured against by
Tenant pursuant to this Lease. In no event shall Landlord have any liability
to Tenant for any other damages, or for any inconvenience or interference
with the use of the Premises by Tenant, or for any consequential damages,
including lost profits, as a result of performing any such work. Except as
specifically provided in an addendum, if any, to this Lease, Landlord shall
have no obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part thereof and the panics hereto affirm that
Landlord has made no representations or warranty to Tenant respecting the
condition of the Premises or any part of the Project except as specifically
set forth in this Lease.
b. BY LANDLORD. The costs of repairs and maintenance
which are the obligation of Landlord hereunder or which Landlord elects to
perform hereunder shall be an Operating Expense and Tenant shall pay, as
additional rent, a portion of such costs to Landlord as provided in Article
7. Landlord shall repair and maintain the structural portions of the
Building, including the basic plumbing, air conditioning: heating and
electrical systems installed or furnished by Landlord, unless such
maintenance or repairs are caused in part or in whole by the act, neglect,
fault or omission of any duty by the Tenant or Tenant's Agents, in which case
Tenant shall pay to Landlord the reasonable cost of such maintenance or
repairs as additional rent. Landlord shall not be liable for any failure to
make any repairs or to perform any maintenance for which Landlord is
responsible as provided above unless Landlord fails to commence such work for
a period of more than thirty (30) days after written notice of the need of
such repairs or maintenance is given to Landlord by Tenant and the failure is
due solely to causes within Landlord's reasonable control. Except as provided
in Article 21 of this Lease, there shall be no abatement of Rentals, and in
any event there shall be no liability of Landlord by reason of any injury to
or interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the Project or
in or to fixtures, appurtenances and equipment therein. Tenant waives the
benefits of any statute now or hereafter in effect (including, without
limitation, the provisions of subsection I of Section 1932, Section 1941 and
Section 1942 of the California Civil Code and any similar or dissimilar law,
statute or ordinance now or hereafter in effect) which would otherwise afford
Tenant the right to make repairs at Landlord's expense (or to deduct the cost
of such repairs from Rentals due hereunder) or to terminate this Lease
because of Landlord's failure to keep the Premises in good and sanitary order.
12 LIENS. Tenant shall keep the Premises and every
portion of the Project free from any and all mechanics', materialmen's and
other liens, and claims thereof, arising out of any work performed, materials
furnished or obligations incurred by or for Tenant. Landlord may
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require, at Landlord's sole option, that Tenant provide to Landlord at
Tenant's sole cost and expense a payment and performance bond, or its
equivalent, in an amount equal to one and one half (1-1/2) times any and all
estimated costs of any Alterations to the Premises, to insure Landlord
against any liability for mechanics' and materialmen's liens and to insure
completion of the work. Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from and against any liens,
demands, claims, actions, suits, proceedings, orders, losses, costs, damages,
liabilities, penalties, expenses, judgments or encumbrances (including,
without limitation, attorneys' fees) arising out of any work or services
performed or materials furnished by or at the direction of Tenant or Tenant's
Agents or any contractor employed by Tenant with respect to the Premises.
Landlord shall have the right, at all times, to post and keep posted on the
Premises, any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord, the Project, and any other party
having an interest therein, from mechanics' and materialmen's liens,
including without limitation a notice of non-responsibility. Tenant shall
give written notice to Landlord fifteen (15) days prior to employing any
laborer or contractor to perform services related to, or receiving materials
for use upon the Premises, and prior to the commencement of any work of
improvement on the Premises. Should any claims of lien relating to work
performed, materials furnished or obligations incurred by Tenant be filed
against, or any action be commenced affecting the Premises, any part of the
Project, and/or Tenant's interest therein, Tenant shall give Landlord notice
of such lien or action within three (3) days after Tenant receives notice of
the filing of the lien or the commencement of the action. If Tenant does not,
within twenty (20) days following the imposition of any such lien, cause such
lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by
such means as it shall deem proper, including by payment of the claim giving
rise to such lien or by posting a proper bond, or by requiring Tenant to post
for Landlord's benefit a bond, surety, or cash amount equal to one and
one-half (1-1/2) times the amount of lien and sufficient to release the
Premises and Project from the lien. All sums paid by Landlord pursuant to
this Article 12 and all expenses incurred by it in connection therewith
including attorneys' fees and costs shall be payable to Landlord by Tenant as
additional rent on demand.
13. ASSIGNMENT AND SUBLETTING.
a. PROHIBITIONS IN GENERAL. Tenant shall not (whether
voluntarily, involuntarily, or by operation of law) assign this Lease or
allow all or any part of the Premises to be sublet without Landlord's prior
written consent in each instance, which consent shall not be unreasonably
withheld, subject, nevertheless, to the provisions of this Article 13. Except
for an allowed assignment or subletting pursuant to the previous sentence,
Tenant shall not (whether voluntarily, involuntarily, or by operation of law)
(i) allow all or any part of the Premises to be occupied or used by any
person or entity other than Tenant, (ii) transfer any right appurtenant to
this Lease or the Premises, (iii) mortgage, hypothecate or encumber the Lease
or Tenant's interest in the Lease or Premises (or otherwise use the Lease as
a security device) in any manner, or (iv) permit any person to assume or
succeed to any interest whatsoever in this Lease, without Landlord's prior
written consent in each instance, which consent may be withheld in Landlord's
sole and absolute discretion.
Any assignment, sublease, hypothecation, encumbrance, or transfer
(collectively, "Transfer") without Landlord's consent shall constitute a
default by Tenant and shall be voidable. Landlord's consent to any one
Transfer shall not constitute a waiver of the provisions of this Article 13
as to any subsequent Transfer nor a consent to any subsequent Transfer. The
provisions of this Article 13a. expressly apply to all heirs, successors,
sublessees, assigns and transferees of Tenant. If Landlord consents to a
proposed Transfer, such Transfer shall be valid and the transferee shall have
the right to take possession of the Premises only if the Assumption Agreement
described in Article 13c. below is executed and delivered to Landlord, Tenant
has paid the costs and fees described in Article 13h. below, and an executed
counterpart of the assignment, sublease or other document evidencing the
Transfer is delivered to Landlord and such transfer document contains the
same terms and conditions as stated in Tenant's notice given to Landlord
pursuant to Article 13d. below, except for any such modifications Landlord
has consented to in writing. The acceptance of Rentals by Landlord from any
person or entity other than Tenant shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any Transfer.
b. COLLECTION OF RENT. Tenant irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, all rent not
otherwise payable to Landlord by reason of any Transfer of all or any part of
the Premises or this Lease. Landlord, as assignee of Tenant, or a receiver
for Tenant appointed on Landlord's application, may collect such rent and
apply it toward Tenant's obligations under this Lease; provided, however,
that until the occurrence of any default by Tenant or except as provided by
the provisions of Article 13f. below, Tenant shall have the right to collect
such rent.
c. Assumption Agreement. As a condition to Landlord's
consent to any Transfer of Tenant's interest in this Lease or the Premises,
Tenant and Tenant's assignee, sublessee, encumbrancer, secured party as a
result of a hypothecation, or transferee (collectively "Transferee"), shall
execute a written Assumption Agreement, in a form approved by Landlord, which
Agreement shall include a provision that Tenant's Transferee shall expressly
assume all
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obligations of Tenant under this Lease to the extent of the interest
transferred, and shall be and remain, jointly and severally liable with Tenant
for the performance of all conditions, covenants, and obligations under this
Lease to the extent of the interest transferred from the effective date of the
Transfer. In no event shall Landlord have any obligation to materially amend or
modify this Lease in connection with any proposed Transfer, including, without
limitation, amending or modifying the use restriction set forth in Paragraph
8.a. above.
d. REQUEST FOR TRANSFER. Tenant shall give Landlord at
least forty-five (45) days prior written notice of any desired Transfer and
of the proposed terms of such Transfer, including but not limited to: the
name and legal composition of the proposed Transferee; an audited financial
statement of the proposed Transferee prepared in accordance with generally
accepted accounting principles within one year prior to the proposed
effective date of the Transfer, the nature of the proposed Transferee's
business to be carried on in the Premises; the payment to be made or other
consideration to be given on account of the Transfer; and other such
pertinent information as may be requested by Landlord, all in sufficient
detail to enable Landlord to evaluate the proposed Transfer and the
prospective Transferee. Tenant's notice shall not be deemed to have been
served or given until such time as Tenant has provided Landlord with all
information specified above and all additional information requested by
Landlord pursuant to this Article 13d. Tenant shall immediately notify
Landlord of any modification to the proposed terms of such transfer.
e. NO BONUS VALUE. It is the intent of the parties hereto
that this Lease shall confer upon Tenant only the right to use and occupy the
Premises, and to exercise such other rights as are conferred upon Tenant by
this Lease. The parties agree that this Lease is not intended to have a bonus
value, nor to serve as a vehicle whereby Tenant may profit by a future
Transfer of this Lease or the right to use or occupy the Premises as a result
of any favorable terms contained herein or any future changes in the market
for leased space. It is the intent of the parties that any such bonus value
that may attach to this Lease shall be and remain the exclusive property of
Landlord.
f. CONDITIONAL CONSENT. Without otherwise limiting the
criteria upon which Landlord may withhold its consent to any proposed
Transfer, if Landlord withholds its consent where the proposed Transferee's
net worth (according to generally accepted accounting principles) is less
than the greater of: (A) the net worth of Tenant immediately prior to the
Transfer; or (B) the net worth of Tenant at the time this Lease is executed,
such withholding of consent shall be presumptively reasonable. It shall also
be presumptively reasonable for Landlord to require, as a condition to its
consent that:
(i) Any and all rent to be paid by a Transferee,
including, but not limited to, any rent in excess of the Rentals to be paid
under this Lease (prorated in the event that a sublease is of less than the
entire Premises), shall be paid by Tenant directly to Landlord at the time
and place specified in this Lease. For the purposes of this Article 13, the
term "rent" shall include any consideration of any kind received, or to be
received, by Tenant from a Transferee, if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to, key
money, bonus money, and payments (in excess of the fair market value thereof)
for Tenant's assets, fixtures, trade fixtures, inventory, accounts, goodwill,
equipment, furniture, general intangibles, and any capital stock or other
equity ownership interest of Tenant; and/or
(ii) Either Tenant or the proposed Transferee cure, on or
before the proposed effective date of such Transfer, any and all uncured
defaults hereunder; provided, however, in no event shall Landlord's failure
to condition its consent upon such cure be deemed to be a waiver of any such
default or Landlord's rights and remedies under this Lease, at law, or in
equity in regard thereto. If Landlord has elected to impose such cure as a
condition to its consent and such condition is not satisfied by the effective
date of the Transfer, the Transfer shall be voidable at Landlord's option.
g. CORPORATIONS AND PARTNERSHIPS. If Tenant is a partnership,
a withdrawal or substitution (whether voluntary, involuntary, or by operation
of law and whether occurring at one time or over a period of time) of any
partner(s) owning twenty-five percent (25%) or more of the partnership, any
assignment(s) of twenty-five percent (25%) or more (cumulatively) of any
interest in the capital or profits of the partnership, or the dissolution of
the partnership shall be deemed a Transfer of this Lease. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization
of Tenant, any sale or transfer (or cumulative sales or transfers) of the
capital stock of Tenant in excess of twenty-five percent (25%), or any sale
(or, cumulative sales) of more than fifty percent (50%) of the value of the
assets of Tenant shall be deemed a Transfer of this Lease. This Article 13g.
shall not apply to corporations the capital stock of which is publicly traded.
h. ATTORNEYS' FEES AND COSTS. Tenant shall pay, as additional
rent, Landlord's actual costs and attorneys' fees incurred for reviewing,
investigating, processing and/or documenting any requested Transfer, whether
or not Landlord's consent is granted. Notwithstanding the foregoing, no
Landlord consent shall be required for any affiliate or subsidiary of the
Tenant hereinafter referred to as "Exempt Transfer".
i. MISCELLANEOUS. Regardless of Landlord's consent, no Transfer
shall release Tenant of Tenants obligations under the Lease or alter the
primary liability of Tenant to pay
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the Rentals and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of Rentals by Landlord from airy other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Upon breach
or default by any assignee of Tenant or any successor of Tenant in the
performance of any of the terms hereof, Landlord may proceed directly against
Tenant without the necessity of exhausting remedies against said assignee or
successor. Landlord may consent to subsequent assignments or subletting of
this Lease or amendments or modifications to this Lease with any assignee of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and such action shall not relieve
Tenant of liability under this Lease.
j. REASONABLE PROVISIONS. Tenant acknowledges and agrees
that Landlord has a special interest in preserving a specific tenant mix in
the Project in order to maintain and create a balance of business interests
and to promote the successful and profitable operation of the Project.
Accordingly, the parties agree that for all purposes including the purposes
of the Federal Bankruptcy Code, Landlord may rightfully withhold its consent
to a proposed Transfer if the proposed Transferee is unable to provide to
Landlord adequate assurances of future performance of the Lease, including,
without limitation, adequate assurance (i) of the source of Rentals or other
consideration due under the Lease, (ii) that the Transfer will not breach any
provision in this Lease or any other lease affecting the Project such as a
location, use or exclusivity provision, or any financing agreement or
document creating an interest in the Project superior or prior to that of
Tenant relating to the Project, (iii) that any proposed Transferee will use
the Premises for the specific purpose stated herein and (iv) that the
Transfer will not disrupt the tenant mix or balance in the Project. Tenant
acknowledges that, but for Tenant's identity, financial condition and ability
to perform the obligations of Tenant under the Lease, Landlord would not have
entered into this Lease nor demised the Premises to Tenant and that, in
entering into this Lease, Landlord has relied specifically on Tenant's
identity, financial condition, responsibility and capability of performing
the obligations of Tenant under the Lease. Tenant acknowledges that
Landlord's rights under this Article 13, including the right to withhold
consent to certain Transfers in Landlord's sole and absolute discretion, are
reasonable, agreed upon and bargained for rights of Landlord and that the
Rentals set forth in the Lease have taken into consideration such rights.
Tenant expressly agrees that the provisions of this Article 13 are not
unreasonable standards or conditions for purposes of Section 1951.4(b)(2) of
the Caliornia Civil Code, as amended from time to time or for any other
purpose.
14. HOLD HARMLESS. Tenant shall, to the fullest extent
permitted by law, indemnify, defend with counsel acceptable to Landlord, and
hold Landlord and Landlord's employees, agents, partners, officers, directors
and shareholders harmless from and against any and all claims, damages,
losses, liabilities, penalties, judgments, and costs and expenses (including,
without limitation, attorneys' fees) and any suit, action or proceeding
brought pursuant thereto (collectively, "Claims"), including Claims brought
pursuant thereto (collectively, "Claims"), including Claims for property
damage, or personal injury including death, arising out of (i) Tenant's use
of the Premises or any part thereof, or any activity, work or other thing
done or about the Premises, (ii) any activity, work or other thing done,
permitted or suffered by the Tenant in or about the Project, or any purl
thereof, (iii) any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or (iv) any act
or negligence of the Tenant or Tenant's Agents, and in each case from and
against any and all damages, losses, liabilities, penalties, judgments, and
costs and expenses (including, without limitation, a failure to maintain
insurance as provided in Section 1.6 ), or (iv) any act or negligence or
Tenant's Agent's.
Landlord shall indemnify and hold harmless Tenant from any liability
for injury to or death of any person, including any employee of Landlord, or
damage to any property, including any property of Landlord, occurring on the
Premises, in the Building, on the Project, or on the Master Project,
excepting therefrom, however liability for any such injury, death or damage
as is caused by, or arises out of or in any way connected with the negligence
of Tenant: breach of Tenant's duty to repair, any condition in the Premises
concerning which Landlord has no obligation to repair or maintain under
Article 11 hereof.
The indemnity herein shall extend to the costs and expenses incurred
by Landlord for administrative expenses, consultant fees, expert costs,
investigation expenses, consultant fees, expert costs, investigation expenses
and costs incurred in settling indemnified claims, whether such costs
occurred before or after any litigation is commenced. The indemnity herein
shall survive the termination of this Lease and shall continue in effect
until any and all claims, actions or causes of action with respect to any of
applicable statue of limitations. In no event shall any of insurance
provisions set forth in Section 16 of this Lease be construed as any
limitation on the scope of indemnification set forth herein.
Tenant as a material part of the consideration to Landlord hereby
assumes all risk of damage or loss to property or injury or death to persons
in, upon or about all portions of the Project from any cause, except to the
extent caused by the active negligence or willful misconduct of Landlord or
Landlord's agents, and Tenant hereby waives all claims in respect thereof
against Landlord. Landlord or its agents shall not be liable for any damage
or loss to properly entrusted to employees of any part of the Project nor for
loss or damage to any property by theft or otherwise, nor for any injury or
death of or damage or loss to persons or property resulting from any
accident, casualty or condition occurring in or about any portion of the
Project, or to any equipment, appliances or fixtures therein, or from any
other cause whatsoever, except to the extent caused by the active negligence
or willful misconduct of Landlord or Landlord's agents where such loss is
neither
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insured against nor required to be insured against by Tenant pursuant to this
Lease. Landlord or its agents shall not be liable for interference with the
light or other incorporeal hereditaments, nor shall Landlord be liable for
any latent defect in the Premises or in the Building. Notwithstanding any
other provision of this Lease, in no event shall Landlord have any liability
for
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loss of business (including, without limitation, lost profits) by Tenant.
Tenant shall give prompt written notice to Landlord in case of fire or
accidents in the Premises or in the Building or of defects therein or in the
fixtures or equipment.
If, by reason of any act or omission of Tenant or Tenant's Agents,
Landlord is made a party defendant to any litigation concerning this Lease or
any part of the Project, Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from any liability and
damages incurred by (or threatened against) Landlord as a party defendant,
including without limitation all damages, costs and expenses, including
attorneys' fees.
15. SUBROGATION. Landlord releases Tenant and Tenant's
officers, directors, agents, employees, partners and shareholders from any
and all claims or demands for damages, loss, expense or injury arising out of
any perils to the extent covered by insurance carried by Landlord, whether
due to the negligence of Tenant or Tenant's officers, directors, agents,
employees, partners and shareholders and regardless of cost or origin, to the
extent such waiver is permitted by Landlord's insurers and does not prejudice
the insurance required to be carried by Landlord under this Lease. Tenant
releases Landlord and Landlord's officers, directors, agents employees,
.partners. and shareholders from any and all claims or demands for damages,
loss, expense or injury arising out of any perils which are insured or
required to be insured against, under any insurance carried by Tenant or
required to be carried, whether due to the negligence of Landlord or its
officers, directors, agents, employees, partners and shareholders and
regardless of cost or origin, to the extent such waiver is permitted by
Tenant's insurers and does not prejudice the insurance required to be carried
by Tenant under this Lease.
16. INSURANCE.
a. LIABILITY INSURANCE. Tenant shall, at
Tenant's expense, obtain and keep in force during the Term a policy of
comprehensive general liability insurance, including the broad form
endorsement, insuring Landlord and Tenant against any liability arising out
of the ownership, use, occupancy, maintenance, repair or improvement of the
Premises and all areas appurtenant thereto. Such insurance shall provide
single limit liability coverage of not less than Five Million Dollars
($5,000,000) per occurrence for bodily injury or death and property damage.
Such insurance shall include Landlord as an additional insured, shall provide
that Landlord, although an additional insured, may recover for any loss
suffered by Landlord or Landlord's agents by reason of Tenant's or Tenant's
Agent's negligence. All such insurance shall specifically insure Tenant's
performance of fire indemnify and hold harmless agreements contained in
Article 14 above although Tenant's obligations pursuant to Article 14 shall
not be limited to the amount of any insurance required of or carried by
Tenant under this Article 16 and Tenant is responsible for ensuring that the
amount of liability insurance carried by Tenant is sufficient for Tenant's
purposes. Tenant may carry said insurance under a blanket policy, provided
that said insurance by Tenant shall name Landlord as an additional insured.
b. PROPERLY INSURANCE. Tenant acknowledges and agrees
that insurance coverage carried by Landlord will not cover Tenant's property
within the Premises or within the Building. Tenant shall, at Tenant's
expense, obtain and keep in force during the Term a policy of "All Risk"
properly insurance, including without limitation, coverage for earthquake and
flood; boiler and machinery (if applicable); sprinkler damage; vandalism;
malicious mischief; and demolition, increased cost of construction and
contingent liability from changes in building laws on all leasehold
improvements installed in the Premises at Tenant's expense (if any), and on
all equipment, trade fixtures, inventory, fixtures and personal property
located on or in fire Premises, including improvements or fixtures hereafter
constructed or installed on the Premises. Such insurance shall be in an
amount equal to the full replacement cost of the aggregate of the foregoing
and shall provide coverage comparable to the coverage in the Standard ISO All
Risk form, when such form is supplemented with the coverages required above.
c. MISCELLANEOUS. If Tenant fails to procure and maintain
any insurance required to be procured and maintained by Tenant pursuant to
this Lease, Landlord may, but shall not be required to, procure and maintain
all or any portion of the same, at the expense of Tenant. Landlord's election
pursuant to this Article 16c. to procure and maintain all or any portion of
the insurance which Tenant fails to procure and maintains acknowledged by
Tenant to be for Landlord's sole benefit. Tenant acknowledges that any
insurance procured and maintained by Landlord pursuant to this Article 16c.
may not be sufficient to adequately protect Tenant. Any personal property
insurance procured and maintained by Landlord for Tenant's equipment, trade
fixtures, inventory, fixtures and personal properly located on or in the
Premises, including improvements or fixtures hereafter constructed or
installed on the Premises, may not sufficiently cover the replacement cost
thereof. Any insurance procured and maintained by Landlord pursuant to this
Article 16c. may provide for less coverage than is required to be maintained
by Tenant pursuant to this Lease. Tenant acknowledges and agrees that Tenant
is and shall remain solely responsible for procuring insurance sufficient for
Tenant's purposes, notwithstanding the fact that Landlord has procured or
maintained any insurance pursuant to this Article 16(:. Any insurance
required to be maintained by Tenant hereunder shall be in companies rated A X
or better in "Best's Insurance Guide". Prior to occupancy of the Premises,
Tenant shall deliver to Landlord copies of the policies of insurance required
to be kept by Tenant hereunder, or certificates evidencing
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the existence and amount of such insurance, with evidence satisfactory to
Landlord of payment of premiums. No policy shall be cancellable or subject to
reduction of coverage except after thirty (30) days prior written notice to
Landlord. Tenant shall obtain a waiver of subrogation rights from all
insurers providing insurance to Tenant whereby such insurers waive their
right of recovery against Landlord and Landlord's officers, directors,
agents, employees, partners and shareholders for loss or damage arising out
of or incident to any insured perils, whether due to the negligence of any
indemnified party and regardless of cause or origin.
d. INCREASED COVERAGE. Not more frequently than once
every year, Tenant shall increase the amounts of insurance as follows: (i) as
recommended by Landlord's insurance broker provided that the amount of
insurance recommended by such broker shall not exceed the amount customarily
required of tenants in comparable projects located within the geographic area
identified in Article 1p., or (ii) as required by Landlord's lender. Any
limits set forth in this Lease on the amount or type of coverage required by
Tenant's insurance shall not limit the liability of Tenant under this Lease.
17. SERVICES AND UTILITIES. Tenant shall pay during the
Lease Term (and prior to delinquency) all charges for water, gas, light, heat
and air conditioning, power, electricity, telephone, janitorial service,
trash pick-up, sewer and all oilier services supplied to or consumed on the
Premises. To the extent not separately metered to the Premises, or not
arranged and paid for by Tenant, the cost of such services shall be an
Operating Expense and Tenant shall pay, as additional rent, a portion of such
cost to Landlord as provided in Article 7. Tenant shall arrange and pay for
all gas and electricity to the extent they are separately metered to the
Premises. Janitorial services for the Premises and telephone services
required by Tenant shall also be arranged and paid for by Tenant. To the
extent that gas or electricity is not separately metered to the Premises, and
provided that Tenant is not in default hereunder, Landlord agrees to furnish
to the Premises during reasonable hours of generally recognized business
days, to be determined by Landlord in its sole discretion ("Business Hours"),
and subject to the rules and regulations of the Building of which the
Premises arc a part, Building Standard (defined in Exhibit "g") electricity
for normal lighting and fractional horsepower office machines, heat and air
conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises. Landlord shall also maintain and keep lighted
during Business Hours the common stairs, common entries and toilet rooms in
the Building. The lack of shortage of any service or utility described in
this Article due to any cause whatsoever shall not affect Tenant's
obligations hereunder, and Tenant shall faithfully keep and observe all of
the terms, conditions and covenants of this Lease and pay all Rentals due
hereunder without diminution, credit or deduction. Landlord shall not be
liable under any circumstances for injury to or death of or loss or damage to
persons or property or damage to Tenant's business, however occurring,
through or in connection with or incidental to failure to furnish any of the
foregoing. Wherever heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintaine by the heating,
ventilating and air conditioning system servicing the Premises, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the costs thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord as additional rent, and not as an Operating
Expense. The entire cost of electricity, water, heat, air conditioning,
elevator service, janitorial service and other services and utilities
provided to the Premises in excess of Building Standard shall be paid for by
Tenant upon demand by Landlord as additional rent, and not as an Operating
Expense.
Tenant shall not connect or permit connection with electric current,
gas or water supply lines, except through existing electrical outlets, gas
lines or water lines, respectively, servicing the Premises, any apparatus or
device for the purpose of using gas, electric current or water. If Tenant
should require additional water, gas and/or electric current, to the extent
not separately metered to the Premises, Tenant shall first procure the
written consent of Landlord, which Landlord may refuse for any reason, to the
use thereof and Landlord may cause a water, gas meter or electric current
meter to be installed in the Premises so as to measure the amount of water,
gas and electric current consumed for any such use. The cost of any such
meters and of installation, maintenance and repair thereof shall be paid for
by the Tenant and Tenant agrees to pay Landlord, as additional rent promptly
upon demand therefor by Landlord, for all such water, gas and electric
current consumed as shown by said meters, at the rates charged for such
services by the local public utility furnishing the same, plus any additional
expense incurred in keeping account of the water, gas and electric current so
consumed. If a separate meter is not installed, such excess cost for such
water, gas and electric current will be conclusively established by an
estimate made by a utility company or electrical engineer selected by
Landlord. Tenant shall not, without Landlord's prior written consent, use any
machines or equipment which can exceed the capacity of any utility facilities
now located within the Premises or the Building. If Tenant requires
additional capacity, Tenant shall request Landlord to provide such capacity,
which request Landlord may refuse in Landlord's sole discretion. If
additional capacity is furnished, Tenant shall pay on demand and as
additional rent the costs thereof, including without limitation installation,
operation, repair and maintenance costs.
18. RULES AND REGULATIONS. Tenant shall faithfully observe
and comply with the Rules and Regulations that Landlord shall from time to
time promulgate for the Building and the Project, including without
limitation rules and regulations relating to parking and, use of the Common
Areas (the "Rules and Regulations"). Landlord reserves the right from time to
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time to make all reasonable modifications to said Rules and Regulations. The
additions and modifications to these Rules and Regulations shall be binding
upon Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said Rules and
Regulations by any other tenants or occupants. The current Rules and
Regulations arc attached hereto as "Exhibit D".
19. HOLDING OVER. If Tenant remains in possession of the
Premises or any part thereof after the expiration of the Term, with the
express written consent of Landlord, such occupancy shall be a tenancy from
month to month at a Base Rent in the amount of one hundred fifty percent
(150%) of the Base Rent in effect immediately preceding such expiration, plus
all Rentals and other charges payable hereunder, and upon all the terms
hereof applicable to a month to month tenancy. In such case, either party may
thereafter terminate this Lease at any time upon giving not less than thirty
(30) days written notice to the other party. For any possession of the
Premises after the Lease expiration without Landlord's consent, Tenant shall
be liable for all detriment proximately caused by Tenant's possession,
including without limitation, attorneys' fees, costs and expenses, claims of
any succeeding tenant founded on Tenant's failure to vacate and for payment
to Landlord of the fair market rental value for the Base Rent for the
Premises, together with such other Rentals provided in this Lease to the date
Tenant actually vacates the Premises, and such other remedies as are provided
by law, in equity or under this Lease, including without limitation punitive
damages recoverable under California Code of Civil Procedure Section 1174.
20. ENTRY BY LANDLORD. Landlord reserves and shall at any and
all reasonable times have the right to enter the Premises, inspect the same,
supply any service to be provided by Landlord to Tenant hereunder, to submit
said Premises to prospective purchasers, mortgagees, lenders or tenants, to
post notices of nonresponsibility, and to alter, improve or repair the
Premises and any portion of the Building that Landlord may deem necessary or
desirable, without any abatement of Rentals, and may for such purposes erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, provided that in a non-emergency
situation the entrance to the Premises shall not be unreasonably blocked
thereby and the business of the Tenant shall not be interfered with
unreasonably. The Premises shall be shown to prospective tenants during the
last six (6) months of the lease term or if Tenant provides Landlord with
notice at any time during the notice period as stated in Addendum No. 2. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which of the doors in, upon and about the Premises, excluding
Tenant's vaults, safes and files, and Landlord shall have the right to use
any and all means which Landlord may deem proper to open said doors in an
emergency in order to obtain entry to the Premises, without liability to
Tenant except as otherwise expressly provided elsewhere in this Article. Any
entry to the Premises obtained by Landlord by any of said means or otherwise
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant
from the Premises or any portion thereof. If Tenant has removed substantially
all of Tenant's property from the Premises, Landlord may, without abatement
of Rentals, enter the Premises for alteration, renovation or decoration
during the last thirty (30) days of the Tenn. With respect to any entry by
Landlord into the Premises, Landlord shall be liable to Tenant solely for
physical damage caused to Tenant's personal properly located within the
Premises to the extent such damage is caused by Landlord's active negligence
or willful misconduct and such damage is neither insured against nor required
to be insured against by Tenant pursuant to this Lease, and only with respect
to an entry in a non-emergency situation. In no event shall Landlord have any
liability to Tenant for any other damages caused by Landlord's entry into the
Premises. Tenant hereby waives any claim for damages or for injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other damage or loss
occasioned thereby.
21. RECONSTRUCTION. If the Premises are damaged and rendered
substantially untenantable, or if the Building is damaged (regardless of
damage to the Premises) or destroyed, Landlord may, within ninety (90) days
after the casually, notify Tenant of Landlord's election not to repair, in
which event this Lease shall terminate at the expiration of the ninetieth
(90th) day. If Landlord elects to repair the damage or destruction, this
Lease shall remain in effect and the then current Base Rent and Tenant's
Percentage Share of Office Project Taxes and Operating Expenses shall be
proportionately reduced during the period of repair. The reduction shall be
based upon the extent to which the making of repairs interferes with Tenant's
business conducted in the Premises, as reasonably determined by Landlord. All
other Rentals due hereunder shall continue unaffected, and Tenant shall have
no claim against Landlord for compensation for inconvenience or loss of
business during any period of repair or reconstruction. Tenant shall continue
the operation of its business on the Premises during any period of
reconstruction or repair to the extent reasonably practicable from the
standpoint of prudent business management. Upon Landlord's election to
repair, Landlord shall diligently repair the damage to the extent of
insurance proceeds available to Landlord. Landlord shall not be required to
repair or replace, whether injured or damaged by fire or other cause, any
items required to be insured by Tenant under this Lease including Tenants
fixtures, equipment, merchandise, personal property, inventory, panels,
decoration, furniture, railings, floor covering, partitions or any other
improvements, alterations, additions, or property made or installed by Tenant
to the Premises, and Tenant shall be obligated to promptly rebuild or restore
the same to the same condition as they were in immediately before the
casualty. Tenant hereby waives all claims for loss or damage to the
foregoing. Tenant waives any rights to terminate this Lease if the Premises
are damaged or
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destroyed, including without limitation any rights pursuant to the provisions
of Subdivision 2 of Section 1932 and Subdivision 4 of Section 1933 of the
Civil Code of California, as amended from time to time, and the provisions of
any similar law hereafter enacted. If the Lease is terminated by Landlord
pursuant to this Article 21, the unused balance of the Security Deposit and
any Rentals unearned as of the effective date of termination shall be
refunded to Tenant. Tenant shall pay to Landlord any Rentals or other charges
due Landlord under the Lease, prorated as of the effective date of
termination. Notwithstanding anything to the contrary in this Lease, if the
damage is due to the fault or neglect of Tenant or Tenant's Agents, there
shall be no abatement of Base Rent or any other Rentals.
Notwithstanding the foregoing, if less than thirty-three percent (33%) of
the Rentable Area of the Building is damaged from an insured casualty and the
insurance proceeds actually available to Landlord for reconstruction (net of
costs to recover such proceeds and after all claimants thereto including
lienholders have been satisfied or waive their respective claims) ("Net
Insurance Proceeds") are sufficient to completely restore the Building,
Landlord agrees to make such repairs and continue this Lease in effect. If,
upon damage of less than thirty-three percent (33%) of the Rentable Area of
the Building them arc not sufficient insurance proceeds actually available to
allow Landlord to completely restore the Building, Landlord shall not be
obligated to repair the Building and the provisions of the first paragraph of
this Article 21 shall control.
Tenants shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises, or for
any damage to Tenant's business, or any inconvenience or annoyance occasioned
by such damage, or by any repair, reconstruction or restoration by Landlord,
or by any failure of Landlord to make any repairs, reconstruction or
restoration under this Article or any other provision of this Lease.
22. DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Tenant:
a. Tenant's failure to pay when due Base Rent, or any other
Rentals or other sums payable hereunder;
b. Tenant's failure to occupy and use the Premises for thirty
(30) consecutive days, which failure shall be deemed an abandonment of the
Premises by Tenant.
c. Commencement, and continuation for at least thirty (30)
days, of any case, action, or proceeding by, against, or concerning Tenant,
or any guarantor of Tenant's obligations under this Lease ("Guarantor"),
under any federal or state bankruptcy, insolvency, or other debtor's relief
law, including without limitation, (i) a case under Title 11 of the United
States Code concerning Tenant or Guarantor, whether under Chapter 7, 11, or
13 of such Title or under any other Chapter, or (ii) a case, action, or
proceeding seeking Tenant's or a Guarantor's financial reorganization or an
arrangement with any of Tenant's or a Guarantors creditors;
d. Voluntary or involuntary appointment of a receiver, trustee,
keeper, or other person who takes possession for more than thirty (30) days
of substantially all of Tenant's or a Guarantor's assets, or of any asset
used in Tenant's business on the Premises, regardless of whether such
appointment is as a result of insolvency or any other cause;
e. Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant or a Guarantor available by law for the
satisfaction of judgment creditors;
f. Commencement of proceedings for winding up or dissolving
(whether voluntary or involuntary) the entity of Tenant or a Guarantor, if
Tenant or such Guarantor is a corporation or a partnership;
g. Levy of a writ of attachment or execution on Tenant's
interest under this Lease, if such writ continues for a period of ten (10)
days;
h. Any Transfer or attempted Transfer of this Lease by Tenant
contrary to the provisions of Article 13 above;
i. With respect to any report that Tenant is required to submit
hereunder, the submission by Tenant of any false report;
j. The use or occupancy of the Premises for any use or purpose
not specifically allowed by the terms of this Lease; or
k. Breach by Tenant of any term, covenant, condition, warranty,
or provision contained in this Lease or of any other obligation owing or due
to Landlord other than as described in subsections 22a., b., c., d., e., f.,
g., h., i., or j. of this Article 22, where such failure shall continue for
the period specified in this Lease or if no such period is specified, for a
period of thirty (30) days after written notice thereof by Landlord to
Tenant; provided, however, that if the nature of Tenant's default is such
that more than thirty (30) days are reasonably required for its
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cure, Tenant shall not be deemed to be in default if Tenant commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion, and if Tenant provides Landlord with such security
as Landlord may require to fully compensate Landlord for any loss or
liability to which Landlord might be exposed.
23. REMEDIES UPON DEFAULT. Upon any default or breach by Tenant,
or at any time thereafter, with or without notice or demand, and without
limiting Landlord in the exercise of any right or remedy which Landlord may
have hereunder or otherwise at law or in equity by reason of such default or
breach Landlord may do the following:
a. TERMINATION OF LEASE. Landlord may terminate this
Lease or Tenant's right to possession of the Premises by notice to Tenant or
any other lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant:
(i) The worth at the time of award of the unpaid
Rentals which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by
which the unpaid Rentals which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(iii) The worth at the time of award (computed by
discounting at the discount rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent) of the amount by which the unpaid
Rentals 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
(iv) Any other amounts necessary to compensate Landlord
for detriment proximately caused by the default by Tenant or which in the
ordinary course of events would likely result, including without limitation
the reasonable costs and expense incurred by Landlord for:
(A) Retaking possession of the Premises;
(B) Cleaning and making repairs and alterations
(including installation of leasehold improvements, whether or not the same
shall be funded by a reduction of rent, direct payment or otherwise)
necessary to return the Premises to good condition and preparing the Premises
for reletting;
(C) Removing, transporting, and storing any of
Tenant's property left at the Premises (although Landlord shall have no
obligation to remove, transport, or store any of the property);
(D) Reletting the Premises, including without
limitation, brokerage commissions, advertising costs, and attorneys' fees;
(E) Attorneys' fees, expert witness fees and
court costs;
(F) Any unamortized real estate brokerage
commissions paid in connection with this Lease; and
(G) Costs of carrying the Premises, such as
repairs, maintenance, taxes and insurance premiums, utilities and security
precautions, if any.
The "worth at the time of award" of the amounts referred to in Articles
23a.(i) and 23a.(ii) is computed by allowing interest at an annual rate equal
to the greater of: ten percent (10%); or five percent (5%) plus the rate
established by the Federal Reserve Bank of San Francisco, as of the 25th day
of the month immediately preceding the default by Tenant, on advances to
member banks under Sections 13 and 13(a) of the Federal Reserve Act, as now
in effect or hereafter from time to time amended (the "Stipulated Rate").
The computation of the amount of rental loss that could be or could have
been reasonably avoided by Landlord pursuant to California Civil Code section
1951.2 shall take into account the use restrictions set forth in Paragraph
8.a. above except to the extent that Tenant proves that under all
circumstances that enforcement of the use restriction would be unreasonable.
b. CONTINUATION OF LEASE. Landlord may continue this Lease
in full force and effect, and the Lease shall continue in effect as long as
Landlord does not terminate Tenant's right to possession, and Landlord shall
have the right to enforce all rights and remedies under this Lease including
the right to collect all Rentals when due. During the period Tenant is in
default, Landlord can enter the Premises and relet them, or any part of them,
to third parties for Tenant's account. Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in reletting the Premises, including
without limitation, those items outlined in Article 23a. (i) through a. (iv),
and other like costs. Reletting can be for a period shorter or longer than
the remaining
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Term. Tenant shall pay to Landlord all Rentals due under this Lease on the
date the Rentals are due, less the rent Landlord receives from any reletting.
No act by Landlord allowed by this paragraph shall terminate this Lease
unless Landlord notifies Tenant that Landlord elects to terminate this Lease.
The use restriction provided in Paragraph 8.a. above shall apply to
Landlord's remedies under California Civil Code section 1951.4 except to the
extent that Tenant proves that under all circumstances enforcement of the use
restriction would be unreasonable.
c. OTHER REMEDIES. Landlord may pursue any
other remedy now or hereafter available to Landlord under the laws or
judicial decisions of the State in which the Premises are located.
d. GENERAL. The following shall apply to
Landlord's remedies:
(i) No entry upon or taking of possession of the Premises
or any part thereof by Landlord, nor any letting or subletting thereof by
Landlord for Tenant, nor any appointment of a receiver, nor any other act of
Landlord, whether acceptance of keys to the Premises or otherwise, shall
constitute or be construed as an election by Landlord to terminate this Lease
or Tenant's right to possession of the Premises unless a written notice of
such election be given to Tenant by Landlord.
(ii) If Landlord elects to terminate this Lease or Tenant's
right to possession hereunder, Tenant shall surrender and vacate the Premises
in broom clean condition, and Landlord may re-enter and take possession of
the Premises and may eject all parties in possession or eject some and not
others or eject none. Any personal property of or under the control of Tenant
remaining on the Premises at the time of such re-entry may be considered and
treated by Landlord as abandoned.
(iii) Termination of this Lease or Tenant's right to
possession by Landlord shall not relieve Tenant from any liability to
Landlord under any provision of this Lease providing for any indemnification
of Landlord by Tenant. Tenant shall indemnify Landlord for all personal
injuries and property damage arising out of Tenant's use or occupancy of the
Premises or any acts or omissions of Tenant or Tenant's Agents.
24. EMINENT DOMAIN. If more than twenty-five percent (25%) of
the Premises is taken for any public or quasi-public use under the power of
eminent domain (including without limitation a voluntary sale or transfer in
lieu thereof), either party hereto shall have the right, at its option, to
terminate this Lease by written notice to the other party given within ten
(10) days of the date of such taking, and Landlord shall be entitled to any
and all income, rent, award, or any interest therein whatsoever which may be
paid or made (the "Award") in connection with such taking, and Tenant shall
have no claim against Landlord for the value of any unexpired term of this
Lease. If any part of the Building or the Project oilier than the Premises is
so taken, Landlord shall have the right to its option to terminate this
Lease, find in any such event Landlord shall be entitled to the entire Award
whether or not this Lease is terminated. If this Lease is terminated as
provided above: (i) the termination shall be effective as of the date upon
which title to the Premises, the Building, the Project, or a portion thereof,
passes to and vests in the condemnor or the effective date of any order for
possession if issued prior to the date title vests in the condemnor, (ii)
Landlord shall refund to Tenant any prepaid but unearned Rentals and the
unused balance of the Security Deposit; and (iii) Tenant shall pay to
Landlord any Rentals or other charges due Landlord under the Lease, prorated
as of the date of taking.
If twenty-five percent (25%) or less than twenty-five percent (25%) of the
Premises is taken, or more than twenty-five percent (25%) thereof is so taken
and neither party elects to terminate as herein provided, (i) Tenant shall
receive from the Award that portion of the Award attributable to trade
fixtures of Tenant located in the portion of the Premises taken which would
otherwise have been removable by Tenant hereunder, to the extent the Award is
not payable to the beneficiary or mortgagee of a deed of trust or mortgage
affecting the Building and Landlord shall receive the balance of the Award;
and (ii) the Base Rent thereafter to be paid hereunder for the Premises shall
be reduced in the same ratio that the percentage of the Premises so taken
bears to the aggregate rentable square feet in the Project immediately prior
to the taking. In addition, if any portion of the Building is so taken and
this Lease is not terminated by Landlord, Tenant's Percentage Share of Office
Project Taxes and Operating Expenses shall be adjusted pursuant to Article 7.
Notwithstanding this Article 24 above, upon a temporary taking of all or
any portion of the Premises, the Lease shall remain in effect and Tenant
shall continue to pay and be liable for all Rentals under this Lease. Upon
such temporary taking, Tenant shall be entitled to any Award for the
temporary use of the portion of the Premises taken which is attributable to
the period prior to the date of Lease Termination, and Landlord shall be
entitled to any portion of the Award for such use attributable to the period
after Lease Termination. As used in this paragraph, a temporary taking shall
mean a taking for a period of one year or less and does not include a taking
which is to
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last for an indefinite period and/or which will terminate only upon the
happening of a specified event unless it can be determined at the time of the
taking when such event will occur.
25. OFFSET STATEMENT. Tenant shall at any time and from time to
time within ten (10) days following request from Landlord execute,
acknowledge and deliver to Landlord a statement in writing, (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) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of the Landlord
hereunder, or specifying such defaults if any are claimed; (iii) certifying
the date Tenant entered into occupancy of the Premises and that Tenant is
open and conducting business at the Premises; (iv) certifying the date to
which Rentals and other charges are paid in advance, if any; (v) certifying
the current amount of Base Rent due under the Lease; (vi) evidencing the
status of this Lease as may be required either by a lender making a loan
affecting or a purchaser of the Premises or any part of the Project from
Landlord; (vii) warranting that if any beneficiary of any security instrument
encumbering the Premises forecloses on the security instrument, such
beneficiary shall not be liable for the Security Deposit; (viii) certifying
that all improvements to be constructed on the Premises by Landlord are
substantially completed, except for any punch list items which do not prevent
Tenant from using the Premises for its intended use, and (ix) certifying such
other mailers relating to this Lease and/or the Premises as may be requested
by a lender making a loan to Landlord or a purchaser of the Premises or any
part of the Project from Landlord. Any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the
Project or any interest therein. Tenant shall, within ten (10) days following
request of Landlord, deliver such other documents including Tenant's
financial statements as are reasonably requested in connection with the sale
of, or loan to be secured by, any portion of the Project or any interest
therein.
26. PARKING. Tenant shall have the right to use the
number of nonexclusive parking spaces located within the Project designated
in Article 1 (1.), subject to Landlord's right to relocate such parking area
from time to time. Use of all parking spaces shall be subject to the Rules
and Regulations established by Landlord which may be altered at any time and
from time to time during the Term. Landlord reserves the right from time to
time to make changes in the size, shape, location, amount, and extent of the
Common Area (including but not limited to the parking areas) provided
Tenant's access to the Premises is not materially impaired or precluded.
Neither Tenant nor Tenant's Agents shall at any time use more parking spaces
than the number so allocated to Tenant or park or permit the parking of their
vehicles in any portion of the Project not designated by Landlord as a
nonexclusive parking area. Tenant and Tenant's Agents shall not have the
exclusive right to use any specific parking space. Notwithstanding the number
of parking spaces designated for Tenant's nonexclusive use, if by reason of
any rule, regulation, order, law, statute or ordinance of any governmental or
quasi-governmental authority relating to or affecting parking on the Parcel,
or any cause beyond Landlord's reasonable control, Landlord is required to
reduce the number of parking spaces on the Parcel, Landlord shall have the
right to proportionately reduce the number of Tenant's parking spaces and the
nonexclusive parking spaces of other tenants of the Building. Landlord
reserves the right in its absolute discretion: to determine whether parking
facilities are becoming overcrowded and in such event to re-allocate parking
spaces among Tenant and other tenants of the Project; to have any vehicles
owned by Tenant or Tenant's Agents which are parked in violation of the
provisions of this Article 26 or Landlord's Rules and Regulations relating to
parking, towed away at Tenant's cost. If Landlord elects or is required by
any law to limit or control parking in the Project, by validation of parking
tickets or any other method, Tenant agrees to participate in such validation
or other program under such reasonable Rules and Regulations as are from time
to time established by Landlord. Landlord shall have the right to close all
or any portion of the parking areas at reasonable times for any purpose,
including, without limitation, the prevention of a dedication thereof, or the
accrual of rights in any person or the public therein. Employees of Tenant
shall be required to park in areas designated for employee parking, if any.
The parking areas shall not be used by Tenant or Tenant's Agents for any
purpose other than the parking of motor vehicles and the ingress and egress
of pedestrians and motor vehicles.
27. AUTHORITY. If Tenant is a corporation (or partnership),
each individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation in accordance with a
duly adopted resolution of the Board of Directors of said corporation or in
accordance with the By-Laws of said corporation (or on behalf of said
partnership in accordance with the partnership agreement of such partnership)
and that this Lease is binding upon said corporation (or partnership) in
accordance with its terms. If Tenant is a corporation, Tenant shall, upon
execution of this Lease, deliver to Landlord a certified copy of a resolution
of the Board of Directors of said corporation authorizing or ratifying the
execution of this Lease. If Tenant fails to deliver such resolution to
Landlord upon execution of this Lease, Landlord shall not be deemed to have
waived its right to require delivery of such resolution, and at any time
during the Term Landlord may request Tenant to deliver the same, and Tenant
agrees it shall thereafter promptly deliver such resolution to Landlord. If
Tenant is a corporation, Tenant hereby represents, warrants, and covenants
that (i) Tenant is a valid and existing corporation; (ii) Tenant is qualified
to do business in California; (iii) all fees and all franchise and corporate
taxes of Tenant are paid to date, and will be paid when due; (iv) all
required forms and reports will be filed when due; and (v) the signers of
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this Lease are properly authorized to execute this Lease on behalf of Tenant
and to bind Tenant hereto.
28. SURRENDER OF PREMISES.
a. CONDITION OF PREMISES. Tenant shall, upon Lease
Termination surrender the Premises broom clean, trash free, and in good
condition, reasonable wear and tear, and insured casualties to the extent of
Net Insurance Proceeds recovered by Landlord, alone excepted. By written
notice to Tenant, Landlord may elect to cause Tenant to remove from the
Premises or cause to be removed, at Tenant's expense, any logos, signs,
notices, advertisements or displays placed on the Premises by Tenant. If the
Premises are not surrendered as required by this Article 28, Tenant shall
indemnify Landlord from any loss or liability resulting from Tenant's failure
to comply with the provisions of this Article 28, including, without
limitation, any claims made by any succeeding tenant or losses to Landlord
due to lost opportunities to lease to succeeding tenants.
b. REMOVAL OF PERSONAL PROPERTY. Tenant shall remove all its
personal properly from the Premises upon Lease Termination, and shall
immediately repair all damage to the Premises, Building and Common Area
caused by such removal. Any personal property remaining on the Premises after
the Lease Termination may be packed, transported, and stored at a public
warehouse at Tenant's expense. If after Lease Termination and, within ten
(10) days after written demand by Landlord, Tenant fails to remove Tenant's
personal property or, if removed by Landlord, fails to pay the removal
expenses, the personal property may be deemed abandoned property by Landlord
and may be disposed of as Landlord deems appropriate. Tenant shall repair any
damage to the Premises caused by or in connection with the removal of any
personal property, including without limitation, the floor, and patch and
paint the walls, when required by Landlord, to Landlord's reasonable
satisfaction, all at Tenant's sole cost and expense. The provisions of this
Article 28 shall survive Lease Termination.
29. LANDLORD DEFAULT AND MORTGAGEE PROTECTION. Landlord shall not
be in default under this Lease unless Tenant shall have given Landlord
written notice of the breach, and, within thirty (30) days after notice,
Landlord has not cured the breach or, if the breach is such that it cannot
reasonably be cured under the circumstances within thirty (30) days, has not
commenced diligently to prosecute the cure to completion. Any money judgment
obtained by Tenant based upon Landlord's breach of this Lease shall be
satisfied only out of the proceeds of the sale or disposition of Landlord's
interest in the Building (whether by Landlord or by execution of judgment).
Upon any default by Landlord under this Lease, Tenant shall give notice by
registered mail to any beneficiary or mortgagee of a deed of trust or
mortgage encumbering the Premises and/or any portion of the Project, whose
address shall have been furnished to it, and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to
obtain possession of the Premises and/or Project by power of sale or judicial
foreclosure, if such should prove necessary to effect a cure.
30. RIGHTS RESERVED BY LANDLORD. Landlord shall have the
exclusive right in its sole discretion, without abatement of Rentals and
without limiting Landlord's other rights under this Lease, to (i) designate
the name, address, or other designation of the Building and/or Project,
without notice or liability to Tenant; (ii) close entrances, doors corridors,
elevators, escalators or other Building facilities or temporarily abate their
operation, provided same do not unreasonable interfere with the operation of
Tenants business, or use by Tenant of Premises. (iii) change or revise the
Business Hours of the Building; and/or (iv) expand, suspend, close,
eliminate, adjust, or replace any portion of any Project or any services
within any portion of the Project.
31. PLATS AND RIDERS. Clauses, plats and riders, if any, signed by
the Landlord and the Tenant and endorsed on or affixed to this Lease are a
part hereof.
32 WAIVER. No covenant, term or condition in this Lease
or the breach thereof shall be deemed waived, except by written consent of
the party against whom the waiver is claimed. Any waiver of the breach of any
covenant, term or condition herein shall not be deemed be a waiver of any
preceding or succeeding breach of the same or any other covenant, term or
condition. Acceptance by Landlord of any performance by Tenant after the time
the same shall have become due shall not constitute a waiver by Landlord of
the breach or default of any covenant, term or condition unless otherwise
expressly agreed to by Landlord in writing. The acceptance by Landlord of any
sum less than that which is required to be paid by Tenant shall be deemed to
have been received only on account of the obligation for which it is paid (or
for which it is allocated by Landlord, in Landlord's absolute discretion, if
Tenant does not designate the obligation as to which the payment should be
credited), and shall not be deemed an accord and satisfaction notwithstanding
any provisions to the contrary written on any check or contained in a letter
of transmittal. Landlord's efforts to mitigate damages caused by any default
by Tenant shall not constitute a waiver of Landlord's right to recover
damages for any default by Tenant. No custom or practice which may arise
between the parties hereto in the administration of the terms hereof shall be
construed as a waiver or diminution of Landlord's right to demand performance
by Tenant in strict accordance with the terms of this Lease.
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33. NOTICES. All notices, consents and demands which may
or are to be required or permitted t0 be given by either party to the other
hereunder shall be in writing. All notices, consents and demands by Landlord
to Tenant shall be personally delivered or sent by United States Mail,
postage prepaid, addressed to Tenant as designated in Article 1m., or to such
other place as Tenant may from time to time designate in a notice to Landlord
pursuant to this Article 33. All notices and demands by Tenant to Landlord
shall be personally delivered or sent by United States Mail, postage prepaid,
addressed to Landlord as designated in Article lm., or to such other person
or place as Landlord may from time to time designate in a notice to Tenant
pursuant to this Article 33. Mailed notices shall be deemed delivered
twenty-four (24) hours after deposit in the United States mail as required by
this Article 33. Notwithstanding the foregoing, any legal notices required to
be sent one party to the other (including, without limitation, a notice
pursuant to California Code of Civil Procedure Section 1161) shall be
delivered in the manner required by law.
34. JOINT OBLIGATIONS. If Tenant consists of more than one
person or entity, the obligations of each Tenant under this Lease shall be
joint and several.
35. MARGINAL HEADINGS. The captions of paragraphs and
articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
36. TIME Time is of the essence of this Lease and
each and all of its provisions in which performance is a factor except as to
the delivery of possession of the Premises to Tenant.
37. SUCCESSORS AND ASSIGNS. The covenants and
conditions herein contained, subject to the provisions of Article 13, apply
to and bind the heirs, successors, executors, administrators, legal
representatives and assigns of the parties hereto.
38. RECORDATION. Upon request by Landlord, Tenant shall
execute and acknowledge a short form of this Lease in form for recording
which may be recorded at Landlord's election. Tenant shall not record this
Lease or a short form or memorandum hereof without the prior written consent
of Landlord.
39. QUIET POSSESSION. Upon Tenant paying the Rentals reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant
shall have quiet possession of the Premises for the entire Term, subject to
all the provisions of this Lease and subject to any ground or underlying
leases, mortgages or deeds of trust now or hereafter affecting the Premises
or the Building and the rights reserved by Landlord hereunder.
40. LATE CHARGES: ADDITIONAL RENT AND INTEREST.
a. LATE CHARGES. Tenant acknowledges that late payment, by
Tenant to Landlord of Rentals or other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which are
impracticable or extremely difficult to ascertain. Such costs include, but
are not limited to, processing and accounting charges, and !ate charges which
may be imposed upon Landlord by the terms of any mortgage or trust deed
covering the Premises or any part of the Project. Accordingly, if any
installment of Rentals or any other sum due from Tenant is not received by
Landlord or Landlord's designee within three (3) business days after the due
date, then Tenant shall pay to Landlord, in each case, a late charge equal to
ten percent (10%) of such overdue amount. The parties agree that such late
charge represents a fair and reasonable estimate of the cost and damages that
Landlord will incur by reason of late payment by Tenant. Acceptance of any
late charges 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 other rights and remedies under this Lease.
b. ADDITIONAL RENT AND INTEREST. All taxes, charges, costs,
expenses and other amounts which Tenant is required to pay hereunder,
including without limitation Tenant's Percentage Share of Office Project
Taxes and Operating Expenses, and all interest and charges (including late
charges) that may accrue thereon upon Tenant's failure to pay the same and
all damages, costs and expenses which Landlord may incur by reason of any
default by Tenant shall be deemed to be additional rent hereunder. Upon
nonpayment by Tenant of any additional rent, Landlord shall have all the
rights and remedies with respect thereto as Landlord has for the nonpayment
of Base Rent. The term "Rentals" as used in this Lease is defined as Base
Rent and all additional rent. Any payment due from Tenant to Landlord,
including but not limited to Base Rent and all additional rent shall bear
interest from the thirtieth (30th) day after the same is due until paid, at
the Stipulated Rate. Payment of such interest shall not excuse or cure any
default by Tenant. In addition, Tenant shall pay all costs and attorneys'
fees incurred by Landlord in collection of such amounts. All Rentals and
other monies due under this Lease shall survive Lease Termination. Interest
on Rentals past due as provided herein shall be in addition to the late
charges levied pursuant to Article 40a. above. All Rentals shall be paid to
Landlord, in lawful money of the United States of America which shall be
legal tender at the time of payment, at the address of Landlord as provided
herein, or to such other person or at such other place as Landlord may from
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time to time designate in writing. If at any time during the Term Tenant pays
any Rentals due hereunder by check, which check is dishonored or is returned
for insufficient funds, Landlord shall have the right, in addition to any
other rights or remedies Landlord may have hereunder, to require that Rentals
thereafter be paid in cash or by cashier's or certified check.
41. PRIOR AGREEMENTS. This Lease contains all of
the agreements of the parties hereto with respect to the Premises, this Lease
or any matter covered or mentioned in this Lease, and no prior agreements or
understanding pertaining to any such matters shall be effective for any
purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective
successors in interest. This Lease shall not be effective or binding on
Landlord until fully executed by Landlord.
42. INABILITY TO PERFORM. This Lease and the
obligations of the Tenant hereunder shall not be affected or impaired because
the Landlord is unable to fulfill any of its obligations hereunder or is
delayed in doing so, if such inability or delay is caused by reason of
strike, labor troubles, Acts of God, or any other cause, similar or
dissimilar, beyond the reasonable control of the Landlord.
43. ATTORNEYS' FEES. If either party to this Lease shall bring an
action to interpret or enforce this agreement or for any relief against the
other, including, but not limited to, declaratory relief or a proceeding in
arbitration, the losing party shall pay to the prevailing party a reasonable
sum for attorney's fees, expert witness fees and other costs incurred in such
action or proceeding. Additionally, the prevailing party shall be entitled to
all additional attorney's fees and costs in enforcing and collecting any such
judgement or award. Any judgement or order entered in such action shall
contain a specific provision providing for the recovery of attorney's fees
and costs incurred in enforcing such award or judgement.
44. SALE OF PREMISES BY LANDLORD/LIMITATION OF LIABILITY Upon a
sale or conveyance by the Landlord herein named (and in case of any
subsequent transfers or conveyances, the then grantor) of Landlord's interest
in the Building other than a transfer for security purposes only, the
Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be relieved, from and after the date of
such transfer, of all obligations and liabilities accruing thereafter on the
part of Landlord, provided that any funds in the hands of Landlord or the
then grantor at the time of transfer and in which Tenant has an interest,
less any deductions permitted by law or this Lease, shall be delivered to
Landlord's successor. Following such sale or conveyance by Landlord or the
then grantor, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord in and to this Lease. This Lease shall not
be affected by any such sale or conveyance and Tenant agrees to attorn to the
purchaser or assignee. If the Landlord herein is a partnership, it is
understood and agreed that any claim by Tenant on Landlord shall be limited
as described in Article 29, and furthermore, Tenant expressly waives any and
all rights to proceed against the individual partners or the officers,
directors or shareholders of any corporate partner.
45. SUBORDINATION/ATTORNMENT. This Lease, at Landlord's
option, shall be subject and subordinate to all ground or underlying leases
which now exist or may hereafter be executed affecting any portion of the
Project and to the lien of any mortgages or deeds of trust (including all
advances thereunder, renewals, replacements, modifications, supplements,
consolidations, and extensions thereof) in any amount or amounts whatsoever
now or hereafter placed on or against any portion of the Project or on or
against Landlord's interest or estate therein, or on or against any ground or
underlying lease, without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effectuate such subordination.
Tenant covenants and agrees to execute and deliver upon demand and without
charge therefor, such further instruments evidencing the subordination of
this Lease to such ground or underlying leases and/or to the lien of any such
mortgages or deeds of trusts as may be required by Landlord or a lender
making a loan affecting the Project; provided that if Tenant attorns as
required below, then with respect to any ground or underlying leases,
mortgages or deeds of trust not existing as of the date this Lease is signed
by Landlord and Tenant, the lessor, mortgagee or beneficiary, as applicable,
under such mortgage or deed of trust or lessor under such ground or
underlying lease shall agree in writing that so long as Tenant is not in
default under this Lease, this Lease shall not be terminated upon any
foreclosure or any termination of the underlying lease (other than a
termination due to its natural expiration). Failure of Tenant to execute such
instruments evidencing subordination of this Lease shall constitute a default
by Tenant under this Lease. If any mortgagee, beneficiary or lessor elects to
have this Lease prior to the lien of its mortgage, deed of trust or lease,
and shall give written notice thereof to Tenant, this Lease shall be deemed
prior to such mortgage, deed of trust or lease, whether this Lease is dated
prior orsubsequent to the date of said mortgage, deed of trust or lease or
the date of the recording thereof.
If any proceedings are brought to terminate any ground or underlying
leases or for foreclosure, or upon the exercise of the power of sale, under
any mortgage or deed of trust covering any portion of the Project, Tenant
shall attorn to the lessor or purchaser upon any such termination,
foreclosure or sale and recognize such lessor or purchaser as the Landlord
under this Lease provided that such lessor or purchaser agrees that so long
as Tenant is not in default
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hereunder and attorns as required above, this Lease shall remain in full
force and effect for the full term hereof after any such termination,
foreclosure or sale.
46. NAME. Tenant shall not use any name, picture or
representation of the Building or Project for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
47. SEVERABILITY. Any provision of this Lease which proves to be
invalid, void or illegal shall in no way affect, impair or invalidate any
other provision of this Lease and all such other provisions shall remain in
full force and effect; however, if Tenant's obligation to pay the Rentals is
determined to be invalid or unenforceable, this Lease shall terminate at the
option of Landlord.
48. CUMULATIVE REMEDIES. Except as otherwise expressly provided
in this Lease, no remedy or election hereunder shall be deemed exclusive but
shall, wherever possible, be cumulative with all other remedies at law or in
equity.
49. CHOICE OF LAW. This Lease shall be governed by the laws of
the State in which the Premises are located.
50. SIGNS. Tenant shall not inscribe, paint, affix or place any
sign, awning, canopy, advertising matter, decoration or lettering upon any
portion of the Premises, including, without limitation, any exterior door,
window or wail, without Landlord's prior written consent.
51. GENDER AND NUMBER. Wherever the context so requires, each
gender shall include any other gender, and the singular number shall include
the plural and vice-versa.
52. CONSENTS. Whenever the consent of Landlord is required
herein, the giving or withholding of such consent in any one or any number of
instances shall not limit or waive the need for such consent in any other or
future instances. Any consent given by Landlord shall not be binding upon
Landlord unless in writing and signed by Landlord or Landlord's agents.
Except with respect to consent required in connection with an assignment or
subletting pursuant to Article 13 (which assignment or subletting shall be
governed by Article 13), but notwithstanding any other provision of this
Lease, where Tenant is required to obtain the consent of Landlord to do any
act, or to refrain from the performance of any act, Tenant agrees that if
Tenant is in default with respect to any term, condition, covenant or
provision of this Lease, then Landlord shall be deemed to have acted
reasonably in withholding its consent if said consent is, in fact, withheld.
53. BROKERS. Tenant warrants that it has had no dealing
with any real estate broker or agents in connection with the negotiation of
this lease excepting only the broker or agent designated in Article 1n., and
that it knows of no other real estate broker or agent who is entitled to or
can claim a commission in connection with this Lease. Tenant warrants that
with respect to the broker or agent designated in Article 1n., Tenant has not
incurred any obligation for the payment of any real estate brokerage
commissions which would be earned or due and payable by reason of the
execution of the Lease. Tenant agrees to indemnify and hold Landlord harmless
from and against any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including without limitation reasonable
attorney's fees) with respect to any alleged leasing commission or equivalent
compensation alleged to be owing on account of Tenant's dealings with any
real estate broker or agent. Landlord warrants that it will pay the
brokerage commission by separated agreement.
54. SUBSURFACE AND AIRSPACE. This Lease confers on Tenant no
rights either with respect to the subsurface of the Parcel or with regard to
airspace above the top of the Building or above any paved or landscaped areas
on the Parcel or Common Area and Landlord expressly reserves the right to use
such subsurface and airspace areas, including without limitation, the right
to perform construction work thereon and in regard thereto. Any diminution or
shutting off of light, air or view by any structure which may be erected by
Landlord on those portions of the Parcel, Common Area and/or Building
reserved by Landlord shall in no way affect this Lease or impose any
liability on Landlord. Landlord shall have the exclusive right to use all or
any portion of the roof, side and rear walls of the Premises and Building for
any purpose. Tenant shall have no right whatsoever to the exterior of
exterior walls or the roof of the Premises or any portion of the Project
outside the Premises except as provided in Article 55 of this Lease.
55. COMMON AREA. As used in this Lease, "Common Area" shall
mean that portion of the Building, Project and Parcel and all those
facilities within the Property boundary of Parcel and within the Building
designated by Landlord for the nonexclusive use of Tenant in common with
other authorized users, including, but not limited to, vehicle parking areas,
driveways, sidewalks, landscaped areas, toilets and lavatories, entrances,
lobbies, halls, atriums, corridors, stairways, passenger elevators and
service areas (collectively the '"Common Area"). Landlord hereby grants to
Tenant and Tenant's Agents the nonexclusive right to use the Common Area in
common with Landlord, Landlord's agents, tenants of the Building and the
Project, other authorized users and their agents, subject to the provisions
of this Lease. This right to use the
25
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Common Area shall terminate upon Lease Termination. As used in this Lease,
"Common Area" shall collectively mean the following:
a. RETAIL COMMON AREA. "Retail Common Area" shall mean that
portion of the Common Area reasonably determined by Landlord from time to
time to be of primary benefit to the Retail Space;
b. OFFICE COMMON AREA. "Office Common Area" shall mean that
portion of the Common Area reasonably determined by Landlord from time to
time to be of primary benefit to the Office Space; and
c. SHARED COMMON AREA. "Shared Common Area" shall mean that
portion of the Common Area which is neither Retail Common Area nor Office
Common Area.
d. EXTERIOR COMMON AREA. "Exterior Common Area" shall
mean that portion of the Common Area within the Project that is not located
within the Building.
56. LABOR DISPUTES. If Tenant becomes involved in or is the object
of a labor dispute which subjects the Premises or any part of the Project to
any picketing, work stoppage, or other concerted activity which in the
reasonable opinion of Landlord Is m any manner detrimental to the operation
of any part of the Project or its tenants, Landlord shall have the right to
require Tenant, at Tenant's own expense and within a reasonable period of
time specified by Landlord, to use Tenant's best efforts to either resolve
such labor dispute or terminate or control any such picketing, work stoppage
or other concerted activity to the extent necessary to eliminate any
interference with the operation of the Project or its tenants. To the extent
such labor dispute interferes with the performance of Landlord's duties
hereunder, Landlord shall be excused from the performance of such duties and
Tenant hereby waives any and all claims against Landlord for damages or
losses in regard to such duties. Nothing contained in this Article 56 shall
be construed as placing Landlord in an employer-employee relationship with
any of Tenant's employees or with any other employees who may be involved in
such labor dispute. Tenant shall hold Landlord harmless and indemnify
Landlord from any liability (including attorneys' fees) arising from any
labor dispute in which Tenant is involved and which affects the Premises or
any pan of the Project.
57. CONDITIONS. All agreements by Tenant contained in this
Lease, whether expressed as covenants or conditions, shall be construed to be
both covenants and conditions, conferring upon Landlord, upon a breach
thereof, the right to terminate this Lease.
58. TENANT'S FINANCIAL STATEMENTS. Tenant hereby warrants that
all financial statements delivered by Tenant to Landlord prior to the
execution of this Lease by Tenant, or that shall be delivered in accordance
with the terms hereof, are or shall be at the time delivered true, correct,
and complete, and prepared in accordance with generally accepted accounting
principles. Tenant acknowledges and agrees that Landlord is relying on such
financial statements in accepting this Lease, and that a breach of Tenant's
warranty as to such financial statements shall constitute a default by Tenant.
59. LANDLORD NOT A TRUSTEE. Landlord shall not be deemed to
be a trustee of any funds paid to Landlord by Tenant (or held by Landlord for
Tenant) pursuant to this Lease. Landlord shall not be required to keep any
such funds separate from Landlord's general funds or segregated from any
funds paid to Landlord by (or held by Landlord for) other tenants of the
Building. Any funds held by Landlord pursuant to this Lease shall not bear
interest.
60. 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
subtenancies, or may, at the option of Landlord, operate as an assignment to
it of any or all such subleases or subtenancies.
61. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall
be construed as creating a partnership or joint venture between Landlord,
Tenant, or any other party, or cause Landlord to be responsible for the debts
or obligations of Tenant or any other party.
62. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Except
as otherwise expressly provided herein, if Tenant at any time fails to make
any payment or perform any other act on its pan to be made or performed under
this Lease, Landlord may upon ten (10) days written notice to Tenant, but
shall not be obligated to, and without waiving or releasing Tenant from any
obligation under this Lease, make such payment or perform such other act to
the extent that Landlord may deem desirable, and in connection therewith, pay
expenses and employ counsel. All SUMS so paid by Landlord and all penalties,
interest and costs m connection therewith shall be due and payable by Tenant
to Landlord as additional rent upon demand.
63. PLANS. Tenant acknowledges that any plan of the Project which
may have been displayed or furnished to Tenant or which may be a part of
Exhibit "A" or Exhibit "B-1" is tentative; Landlord may from time to time
change the shape, size, location, number, and extent of
26
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the improvements shown on any such plan and eliminate or add any improvements
to the Project in Landlord's sole discretion.
64. RELOCATION.
a. RELOCATION PRIOR TO POSSESSION. Prior to delivery of
possession of the Premises to Tenant pursuant to Article 4a., the Landlord
shall have the right to elect to relocate the a Premises to another part of
the Building in accordance with the following:
(i) The relocated Premises shall be substantially the same in
size, dimensions, configuration, decor, and nature as the Premises described
in this Lease, and shall be placed in that condition at Landlord's cost.
(ii) The physical relocation of the Premises shall be accomplished
at Landlord's cost.
(iii) Landlord shall give Tenant at least fifteen (15) days notice
of Landlord's intention to relocate the Premises.
(iv) If the relocation has not been completed as of the
Commencement Date set forth in Article 3, Rentals shall be abated beginning
on the Commencement Date and continuing until the date that the relocated
Premises are delivered to Tenant.
(v) All reasonable costs incurred by Tenant which are directly
related to the relocation, including but not limited to the costs of
reasonable quantities of new stationery and business cards for which address
changes are required, customary advertising then in use, and the cost of
address changes to directories and similar items in which tenant is
customarily and actually advertising at the date of Landlord's notice to
Tenant of the proposed relocation, shall be paid by Landlord in a sum
not-to-exceed in the aggregate the amount designated in Article 1o.
(vi) If the relocated Premises are smaller or larger than the
Premises as they existed before the relocation, Base Rent shall be adjusted
to a sum computed by multiplying the Base Rent by a fraction, the numerator
of which shall be the Rentable Area in the relocated Premises, and the
denominator of which shall be the Rentable Area in the Premises before
relocation.
(vii) Tenant may not terminate this Lease as a result of Landlord's
election to relocate the Premises pursuant to this Article 64a.
b. RELOCATION AFTER POSSESSION. At any time after delivery of
possession of the Premises to Tenant pursuant to Article 4a., Landlord shall
have the right to relocate the Premises to another part of the Building in
the same manner and upon the same terms and conditions set forth in Section
64a. except:
(i) Landlord shall give Tenant sixty (60) days notice of
Landlord's intention to relocate the Premises.
(ii) Within said sixty (60) day period Tenant shall have the right
to accept or reject the proposed relocation.
(iii) If Tenant rejects the proposed relocation or fails to
unequivocally accept, in writing, the proposed relocation within said sixty
(60) day period, Landlord shall have the right, exercisable by written notice
to Tenant within thirty (30) days after the expiration of said sixty (60) day
period, to cancel and terminate this Lease; such termination to be effective
as of any date chosen by Landlord and specified in Landlord's notice of
termination but not less than sixty (60) days after the date of Landlord's
notice of termination. If Landlord does not deliver its notice of termination
within said thirty (30) day period, this Lease shall remain in full force and
effect for the balance of the Term remaining hereunder as to the Premises
then occupied by Tenant and Tenant shall not be required to relocate.
c. NEW PREMISES. Upon any relocation pursuant to Articles
64a. or 64b., the relocated Premises shall become the Premises leased by
Tenant hereunder and all references in this Lease to the "Premises" shall
refer thereto.
65. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR
RESPECTIVE RIGHT TO TRIAL BY JURY ON ANY CAUSE OF ACTION, CLAM, COUNTER-CLAIM
OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER
LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT.
66. MISCELLANEOUS. In order to accommodate the specialized
equipment, improvements, systems, and/or components (collectively,
"Specialized Improvements") of another
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tenant or tenants of the Building, Landlord shall from time to time, have
rise right to recapture those portions of the Premises which are, as Landlord
reasonably determines, necessary for the installation of such Specialized
Improvements, which right shall be subject to the following:
a. Landlord shall provide Tenant with thirty (30) days
prior written notice of Landlord's intent to install any Specialized
Improvements, within the Premises;
b. The recaptured area of the Premises shall not exceed
more than five percent (5%) of the Premises;
c. The recaptured area of the Premises shall be located
such that it will not unreasonably interfere with Tenant or Tenant's business
within the Premises;
d. The installation and operation of any Specialized
Improvements shall be carried out in a manner so as to provide the least
interference with Tenant's use and enjoyment of the Premises;
e. The installation of the Specialized improvements shall
be completed at Landlord's cost; and Landlord shall, subject to Article 20,
have the right to enter upon the Premises to install and maintain any
Specialized improvements; and
f. Upon any recapture as provided herein, Base Rent and
Tenant's Percentage Share of office Project Taxes and Operating Expenses
shall be proportionately reduced based upon the adjusted rentable square
footage of the Premises.
67. JOINT PARTICIPATION. Landlord and Tenant hereby
acknowledge that both parties have been represented by counsel in connection
with this Lease and that both panics have participated in the negotiation and
drafting of all of the terms and provisions hereof. By reason of this joint
participation, no term or provision of this Lease will be construed against
either party as the "drafter" thereof, which terms and provisions shall
include, without limitation, Section 14 hereof.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE LANDLORD OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTIONS RELATING THERETO.
"LANDLORD": EAGLE SQUARE PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
BY: SUNSET RIDGE DEVELOPMENT CO., INC.
A CALIFORNIA CORPORATION, ITS GENERAL PARTNER
By: PROM Management Group, Inc.,
a California corporation
as Agent for Owner
By:
------------------------------------------
Vicki R. Mullins
ADDRESS: Its Chief Financial Officer
2600 CAMPUS DRIVE
SUITE 200
SAN MATEO, CA 94403
"TENANT" QCS CORPORATION, A DELAWARE CORPORATION
By:
-----------------------------------
Title:
--------------------------------
ADDRESS:
650 CASTRO STREET
SUITE 210
MOUNTAIN VIEW, CA 94041
Dated:
------------------------------------
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EXHIBIT "A"
[MAP]
<PAGE>
"EXHIBIT B"
[MAP]
<PAGE>
"EXHIBIT C"
FINISH ALLOWANCE OFFICE WORK LETTER
CITY CENTRE
650 CASTRO STREET
MOUNTAIN VIEW, CALIFORNIA
Date: July 20, 1995
Gentlemen:
The undersigned (hereinafter referred to as "Landlord") and you (hereinafter
referred to as "Tenant") have executed that certain office lease covering the
premises known as City Centre, 650 Castro Street, Suite 210 Mountain View,
California (hereinafter referred to as the "Premises"). The purpose of this Work
Letter is to set forth our mutual obligations with regard to the alteration and
improvement of the Premises.
1. PLANS AND SPECIFICATIONS.
Within ten (10) days from the execution hereof, Tenant shall furnish to
Landlord an approved space drawing, including any such changes therein, and
any other information which Landlord's architect may require for the
preparation of working drawings and specifications relating to the
improvements to be constructed or installed upon the Premises to adopt them
for use by Tenant. Upon receipt by Landlord of such information, Landlord
shall cause to be prepared drawings and specifications for the improvement
and alteration of the Premises. Upon completion of said drawings and
specifications, Landlord shall furnish a copy thereof to Tenant. Any
improvements or changes beyond the approved working drawings and
specifications shall be at the sole cost and expense of the Tenant.
2. TENANT IMPROVEMENT ALLOWANCE.
Landlord will provide to Tenant improvements as per Addendum #1 of the
Addenda to Lease.
3. SUBSTITUTIONS AND ADDITIONAL IMPROVEMENTS.
Tenant shall pay Landlord any and all additional costs resulting from
the selection of different or additional materials not covered in the Tenant
Improvement Allowance, or requirements of improvements in excess of the
Tenant Improvement Allowance. The additional costs established by Landlord
are to include supervision and overhead.
Any and all costs for working drawings shall be included in the Tenant
Improvement Allowance. Any changes to the working drawings for specifications
requested by Tenant alter it has been approved by both parties as described
in paragraph I above, shall be paid for by the Tenant.
No changes shall be made in any work or materials until Landlord has
submitted an estimate to Tenant in writing of fire increased cost thereof,
and Landlord and Tenant have agreed in writing on the increased cost of such
different work or materials in excess of the cost of the Tenant Improvement
Allowance. If Tenant shall fail to approve such estimate in writing within
seven (7) days after the submission thereof, such failure is to be deemed a
disapproval thereof and Landlord's contractor shall neither proceed with the
proposed change or additional work nor with the work affected thereby. Tenant
acknowledges that the provisions of Paragraph 4 apply to all delays resulting
from Tenant's request for different work or materials, failure to approve the
cost thereof and such other causes all as more particularly set forth in
Paragraph 4 above.
All amounts payable by Tenant to Landlord or to Landlord's space planner
pursuant to rids Paragraph 3 shall be paid by Tenant promptly. Landlord may
require entire payment before work commences or materials and supplies are
ordered; progress payments during performance and/or furnishing and
installation of materials; or any combination thereof as Landlord may elect.
Landlord may discontinue performance of all work and installation of all
materials if Tenant fails to make any payments promptly after requested by
Landlord but in any event within ten (10) days after the rendering of bills
therefor by Landlord or its contractor or space planner to Tenant. All
improvements shall be surrendered by Tenant to Landlord at the end of the
initial or their expiration of the term of the Lease. No credit shall be
granted for the omission of materials where no replacement in kind is made.
<PAGE>
All amounts payable by Tenant to Landlord or to Landlord's architect
pursuant to this Paragraph 3 shall be paid by Tenant promptly. Landlord may
require progress payments during performance and/or furnishing and
installation or materials; or any combination thereof as Landlord may elect.
Landlord may discontinue performance of all work and installation of all
materials if Tenant fails to make any payments promptly after requested by
Landlord but in any event within ten (10) days after the rendering of bills
therfor by Landlord or its contractor or space planner to Tenant. All
improvements shall be surrendered by Tenant to Landlord at the end of the
initial pr other expiration of the term of the Lease. No credit shall be
granted for the omission of materials where no replacement kind is made.
4. COMPLETION AND RENTAL COMMENCEMENT DATE
If delivery of possession of the Premises to Tenant is delayed as a
result of delays in completion of the improvements to the Premises for any of
the following reasons:
(a) Tenant's failure to furnish the information specified if
Paragraph 1 hereof in a timely fashion; or
(b) Tenant's request for substitution or additional improvements
or changes in materials, finished or installations non-building standards
items requiring long lead time or installation; or
(c) Tenant's changes in the final drawings and specifications; or
(d) A delay in performance of building standard work as a result
of Tenant's failure to approve written estimates of the cost of non- building
work in accordance with Paragraph 3 hereof; or
(e) Tenant's failure to make any payments required to be made by
Tenant, pursuant to Paragraph 3 hereof,
then, Tenant shall pay to Landlord one day's pro rata Base Rent for each day
Tenant causes delay in delivery of possession beyond the Commencement Date
and one day's pro rata Base Rent for each day caused for by the impact of
such delay. In no event shall the expiration date of the Lease be excluded.
If Landlord shall be obstructed or delayed in the commencement of
completion of the work by flood or inclement weather, fire, earthquake, acts
of God, war, strike, picketing, boycott or lockouts, governmental or legal
intervention or other causes beyond the control of Landlord, then the date
for delivering possessions and/or for completion of the work, as the case may
be, shall be extended for that period of time necessary to make up for the
construction time loss for reason of any or all of the causes aforesaid and
Landlord shall have no liability of any kind whatsoever to Tenant as a result
of such delay.
If the foregoing correctly sets forth our understanding, kindly
execute and return one of the enclosed copies hereof.
"LANDLORD": EAGLE SQUARE PARTNERS,
A California Limited Partnership
By: Sunset Ridge Development Co., Inc.
a California corporation, its general partner
By: PROM Management Group, Inc.,
a California corporation
as Agent for Owner
By:
----------------------------------------
Vicki R. Mullins
Address: Its Chief Financial Officer
2600 Campus Drive
Suite 200
San Mateo, CA 94403
"TENANT": QCS CORPORATION, a Delaware corporation
Address:
650 Castro Street By:
Suite 210 ----------------------------------
Mountain View, CA 94041
Title:
-------------------------------
<PAGE>
EXHIBIT "D"
CITY CENTRE
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the
outside or inside of the Building with out prior written consent of
Landlord. Landlord shall have the right to remove any such sign, placard,
advertisement, name or notice without notice to and at the expense of the
Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of the Tenant by person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the Premises; covering at all exterior windows, Tenant shall
not, without prior written consent of Landlord cover or otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress or egress for their respective Premises.
3. Tenant shall return all keys issued for the Premises. Tenant shall pay
Landlord the cost of rekeying the Premises if all keys are not returned.
Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose agents,
officers, employees, contractors, servants, invitees or guests, shall
have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without prior notice to Landlord and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size, and position of all safes and other heavy equipment brought
into the Building. Safes and other heavy objects shall, if considered
necessary by Landlord, stand on supports if such thickness as is
necessary to properly distribute the weight, Landlord will not be
responsible for loss or damage of any such safe or property from any
cause, and all damage done to the Building by moving or maintaining and
such safe or other property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to the Landlord and other occupants of the Building by reason of noise,
odors and/or vibrations, or interference in any way with other tenants
or those having business therein, not shall any animals or birds be
brought in or about the Premises or Building.
8. No cooking shall be done or permitted, except with a microwave oven, by
any Tenant on the Premises, nor shall the Premises be used for the
storage of merchandise, for washing clothes, for lodging, or for any
improper, objectionable or immoral purpose.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or
any method of heating or air conditioning other than supplied by
Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for the wires
will be allowed without the consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the approval of Landlord.
11. Tenant shall not install any wiring above the ceiling tiles that does not
comply with the fire codes. Any such wiring shall be removed immediately
at the expense of Tenant .
12. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 PM and 8:00 AM the following day, access to the Building,
or the halls, corridors, elevators or stairways in the Building, or the
Premises may be refused unless the person seeking access is known to the
person or employee of the Building in charge and has a pass or is
properly identified. The Landlord shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the
Building of any person. In case of invasion, mob, riot, public
excitement, or other commotion, the Landlord reserves the right
<PAGE>
to prevent access to the Building during the continuance of the same by
closing the doors or otherwise, for the safety of the tenants and
protection of the Building and of property in the Building.
13. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgement of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
the Landlord.
15. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the
Building of which the Premises are a part.
16. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent the same.
17. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the
business of Tenant except at Tenant's address.
18. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
tenants, in such manner as it deems best for the benefit of the tenants
generally.
19. All entrance doors in the Premises shall be left locked when the Premises
are not is use, and all doors opening to public corridors shall be kept
closed except for normal ingress or egress from the Premises.
20. Tenant shall place pads under all desk chairs, or have carpet coasters to
protect carpet.
21. Landlord shall approve, in writing, the method of attachment of any
objects affixed to walls, ceilings or doors.
<PAGE>
ADDENDA TO LEASE
This Addendum to Lease is made on July 20, 1995, between EAGLE SQUARE
PARTNERS, a California limited partnership ("Landlord") who address is 2600
Campus Drive, Suite 200, San Mateo, California 94403 and QCS CORPORATION, a
Delaware Corporation, whose address is 650 Castro Street, Suite 210, Mountain
View, California, who agree as follows:
ADDENDUM NO. 1
Landlord at his sole cost and expense shall construct the following
improvements:
a. Carpet throughout entire suite, color to be chosen by Tenant.
b. Paint walls throughout entire suite, color to be chosen by Tenant.
c. Replace all broken or damaged ceiling tiles.
d. Blinds for all interior and exterior windows.
e. Construct four private offices with two foot wide sidelights.
f. Install glass wall to the existing conference room.
Except for the improvements set forth above (a. through f.), the Premises
shall be accepted in its "as is" condition.
ADDENDUM NO. 2
OPTION TO EXTEND TERM. Tenant is given the option to extend the term on all
provisions contained in this Lease, except for the "monthly rental value"
(more specifically defined as Base Rent, Project Taxes and Operating
Expenses) for a period of five (5) years ("Extended Term") following
expiration of the initial term, by giving notice of exercise of the option
("Option Notice") to Landlord at least six (6) months but no more than one
(1) year before the expiration of the term. Such monthly rental value shall
be at ninety-five percent (95 %) of the then current market rate for
comparable space in the Mountain View City Centre at the time of the
commencement of the Extended Term. Provided that, if Tenant is in default on
the date of giving the Option Notice, the Option Notice shall be totally
ineffective, or if Tenant is in default on the date the Extended Term is to
commence, at the option of Landlord, the Extended Term shall not commence and
this Lease shall expire at the end of the initial term.
The parties shall have thirty (30) days after Landlord receives the Option
Notice in which to agree on the monthly rental value during the Extended Term
with an additional thirty (30) days upon mutual agreement of Landlord and
Tenant. If the parties agree on the monthly rental value for the Extended
Term during that period, they shall immediately execute an amendment to this
Lease stating the monthly rental value effective upon the expiration of the
original lease term. If the parties are unable to agree on the monthly rental
value for the Extended Term within that period, the Option Notice shall be of
no effect or force and this Lease shall expire at the end of the initial
term. Neither party to this Lease shall have the right to have a court or
other third party set the monthly rental value. Tenant shall have no other
right to extend the term beyond the initial term.
ADDENDUM NO. 3
AMERICANS WITH DISABILITIES ACT COMPLIANCE. Landlord and Tenant acknowledge
that, in accordance with the provisions of the Americans with Disabilities
Act (the "ADA"), responsibility for compliance with the terms and conditions
of Title III of the ADA may be allocated as between Landlord and Tenant. In
this regard and notwithstanding anything to the contrary contained in the
Lease, Landlord and Tenant agree that the responsibility for compliance with
the ADA (including, without limitation, the removal of architectural and
communications barriers and the provision of auxiliary aids and services to
the extent required) shall be allocated as follows: (i) Tenant shall be
responsible for compliance with the provisions of Title I of the ADA, and of
Title II and Title III of the ADA as Titles II and III relate to any
construction,
<PAGE>
renovations, alterations and repairs made within the Premises if such
construction, alterations and repairs are made by Tenant, at its expense
without the assistance of Landlord; (ii) Landlord shall be responsible for
compliance with the provisions of Title II and Title III of the ADA for all
construction, renovations, alterations and repairs which Landlord is
required, under this Lease, to make within the Premises, whether (pursuant to
the relevant provisions of the Lease) at Landlord's or Tenant's expense; and
(iii) Landlord shall be responsible for compliance with the provisions of
Title III of the ADA for all exterior and interior areas of the Building not
included within the Premises. Landlord agrees to indemnify and hold Tenant
harmless from and against any claims, damages, costs and liabilities arising
out of Landlord's failure, or alleged failure, as the case may be, to comply
with the ADA, to the extent such compliance has been allocated to Landlord
herein, which indemnification obligation shall survive the expiration or
termination of this Lease if the Lease has not been terminated by reason of a
default by Tenant. Tenant agrees to indemnify and hold Landlord harmless from
and against any claims, damages, costs and liabilities arising out of
Tenant's failure, or alleged failure, as the case may be, to comply with the
ADA to the extent such compliance has been allocated to Tenant herein, which
indemnification obligation shall survive the expiration or termination of
this Lease. Landlord and Tenant each agree that the allocation of
responsibility for ADA compliance shall not require Landlord or Tenant to
supervise, monitor or otherwise review the compliance activities of the other
with respect to its assumed responsibilities for ADA compliance as set forth
in this paragraph. Landlord shall, in complying with the ADA (to the extent
such compliance has been allocated to Landlord herein), be entitled to rely
upon representations made to, or information given to Landlord by Tenant in
regard to Tenant's use ofthe Premises, Tenant's employees, and other matters
pertinent to compliance with the ADA. The indemnity of Tenant set forth above
shall apply as to any liability arising against Landlord by reason of any
misrepresentations or misinformation given by Tenant to Landlord. The
allocation of responsibility for ADA compliance between Landlord and Tenant,
and the obligations of Landlord and Tenant established by such allocations,
shall supersede any other provisions of the Lease that may contradict or
otherwise differ from the requirements of this paragraph.
<PAGE>
IBM/QCS Confidential
Exhibit 10.12
SERVICES AGREEMENT
BETWEEN
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND
QCS CORPORATION
NOVEMBER 23, 1996
Services Agreement between IBM and QCS Page 1 of 12 11/22/96
<PAGE>
IBM/QCS Confidential
This Services Agreement is by and between International Business Mechines
Corporation ("IBM"), a New York corporation having an office at 500 Columbus
Avenue, Thornwood, New York 10594, and QCS Corporation ("QCS"), a Delaware
corporation, having a principal place of business at 650 Castro Street, Suite
210, Mountain View, California 94041.
Certain IBM or its suppliers Services, custom solutions, and revenue based
payment provisions are described in the applicable Attachments and Transaction
Documents to this Agreement.
This Agreement and its applicable Attachments and Transaction Documents are
the complete agreement regarding this transaction, and replaces any prior
oral or written communications between us.
By signing below for our respective Enterprises, each of us agrees to the
terms of this Agreement.
Once signed,
1) any reproduction of this Agreement, an Attachment, or Transaction
Document made by reliable means (for example, photocopy or facsimile)
is considered an orginal and
2) all Services and Products you order under this Agreement are subject
to it.
AGREED TO: QCS CORPORATION AGREED TO: IBM CORPORATION
BY: /s/ [illegible] BY: /s/ [illegible]
--------------------------- ---------------------------
QCS
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
NAME (PRINT): [illegible] NAME (PRINT): [illegible]
------------------ ------------------
DATE: 11/23/96 DATE: 10:27AM 11/23/96
After signing, please return a copy of this Agreement to the following
address:
IBM Corporation
500 Columbus Avenue
Thornwood, NY 10594
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<PAGE>
IBM/QCS Confidential
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
------- ----- ----
<S> <C> <C>
Part 1 - General 4
1.1 Definitions 4
1.2 Agreement Structure 5
1.3 Electronic Communications 5
1.4 Prices and Price Changes 5
1.5 Invoicing, Payment, and Audit 5
1.6 Patents and Copyrights 6
1.7 Limitation of Liability 6
1.8 Your Additional Rights 7
1.9 Changes to and Termination of Services 7
1.10 Changes to the Agreement Terms 7
1.11 Agreement Termination 7
1.12 Geographic Scope 8
1.13 Governing Law 8
1.14 Notice 8
Part 2 - Responsibilities of the Parties 8
2.1 Mutual Responsibilities 9
2.2 Our Responsibilities 9
2.3 Your Other Responsibilities 9
Part 3 - Warranties 10
3.1 The IBM Warranties 10
3.2 Extent of Warranty 10
3.3 Items Not Covered by Warranty 10
Part 4 - Equipment Provided by IBM 10
Part 5 - Customer Transmitted Data 11
</TABLE>
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<PAGE>
IBM/QCS Confidential
QCS has a Lotus Notes-based multimedia software product which links Retailers
with their Suppliers in many locations offering a "business to business"
retail services network. IBM has an extensive worldwide marketing base which
includes Retailers, and the ability to provide networking services through
the IBM InterConnect Service for Lotus Notes. QCS and IBM have decided
therefore to work together as provided in this Agreement in order to deliver
a service which links Retailers with their Suppliers worldwide, and have
agreed to the following:
PART 1 - GENERAL
1.1 DEFINITIONS
"AGREEMENT" shall mean this Agreement, together with any applicable
Attachments and/or Transaction Documents.
"END USER" is any party whom you authorize, by any means, for example, a
USER IDENTIFICATION, to access the Service. It also means any party whom you
authorize to access programs, data, or equipment within the Service.
"ENTERPRISE" is any legal entity (such as a corporation) and the
subsidiaries it owns by more than 50 percent.
"EQUIPMENT" is a machine, its features, conversions, upgrades, elements, or
accessories, or any combination of them. The term "Equipment" includes IBM
Equpiment and any non-IBM Equipment we may provide to you.
"MATERIALS" are work product (such as programs, program listings,
programming tools, documentation, reports, and drawings) that we may deliver
to you during a project. The term MATERIALS does not include Programs.
"PRODUCT" is a Program or Equipment.
"PROGRAM" is the following, including features and any whole or partial
copies:
1. machine-readable instructions;
2. a collection of machine-readable data, such as a database; and
3. related licensed materials, including documentation and listings, in
any form.
The term PROGRAM includes an IBM Program and any non-IBM Program that we may
provide to you. The term does not include licensed internal code or
MATERIALS.
"SERVICES" are described in the applicable Transaction Documents and
include access to, and use of, Equipment, Programs, networking facilities,
and associated enhanced communication and support services. Except for the
right to use programs that we authorize you to access through the Services,
we grant no other rights to those programs to you or End Users. Initially,
the "IBM InterConnect for Lotus Notes" Service described in the Exhibit 01
hereto is made part of this Agreement.
"START DATE" of a Service is the day on which we make it available to you.
"SYSTEM" is the Services and Products we provide together under this
Agreement that we identify to you as a "System."
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IBM/QCS Confidential
1.2 AGREEMENT STRUCTURE
ATTACHMENTS
Some Services and Products have terms in addition to those we specify in
this Agreement.
We provide the additional terms in documents called "ATTACHMENTS," which
are also part of this Agreement. For example, we may describe the additional
terms for Programs in an Attachment. We make the Attachments available to you
for signature.
TRANSACTION DOCUMENTS
For each business transaction, we will provide to you the appropriate
"TRANSACTION DOCUMENT(S)" that confirm the details of the transaction. Some
Transaction Documents require signature, and others do not. Supplements are
an example of Transaction Documents that must be signed by both of us.
Supplements may contain descriptions of custom solutions and associated
special charges or descriptions of project schedules, responsibilities, and
associated charges. Exhibits and Fee Schedules are unsigned Transaction
Documents that explain in detail standard Services, Programs, and
associated charges. Initially Supplement 01 and Exhibit 01 are made a part
of this Agreement.
CONFLICTING TERMS
If there is a conflict among the terms in the various documents, those of
an Attachment prevail over those of this Agreement. The terms of a
Transaction Document prevail over those of both of these documents.
1.3 ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means, such as IBM;
Mail Exchange and Information Exchange. Each of us agrees to the following
for all electronic communications:
1. a User Identification contained in an electronic document is legally
sufficient to verify the sender's identity and the document's
authenticity;
2. an electronic document that contains a User Identification is a
signed writing; and
3. an electronic document, or any computer printout of it, is an original
when maintained in the normal course of business.
1.4 PRICES AND PRICE CHANGES
The payment terms and conditions described in: (i) Section 3, entitled
"Set-up Costs and Frame Relay Surcharges" of Exhibit 01; and (ii) Section
2, entitled "Revenue Based Payments" of Supplement 01 sets forth our
payment and price terms and are made part of this Agreement.
1.5 INVOICING, PAYMENT AND AUDIT
Payments shall be made monthly and shall be deemed to be made on the date
of electronic funds transfer to the following IBM account of amounts due.
Account information such as account number, identification codes and
address, will be provided with 30 days after the Effective Date.
QCS will maintain relevant records to support payments made to IBM and to
demonstrate to IBM that QCS has otherwise complied with this Agreement. QCS
will retain and make available such records for three (3) years from the
date of the related transaction or payments. If IBM requests, QCS will make
financial records available to an independent auditor chosen and
compensated by IBM. IBM's requests will be in writing and will not occur
more than twice each year. The auditor will sign a confidentiality
agreement and will only disclose to IBM any amounts due and payable for the
period examined.
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<PAGE>
IBM/QCS Confidential
If an audit discovers that QCS underpaid IBM, QCS will pay the amount due
plus interest. Interest accrues from the payment due date. The interest
rate is the lower of two percent (2%) per month or the highest interest
rate allowed by law. If QCS underpaid IBM by more than five percent (5%).
QCS will immediately reimburse IBM for all expenses associated with the
audit. IBM may also have other remedies under the law and this Agreement.
1.6 PATENTS AND COPYRIGHTS
For purposes of this Section only, the term "Product" includes Materials
alone or in combination with Products we provide to you as a System.
If a third party claims that a Product we provide to you infringes that
party's patent or copyright, we will defend you against that claim at our
expense and pay all costs, damages, and attorney's fees that a court
finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If such a claim is made or appears likely to be made, you agree to permit
us to enable you to continue to use the Product, or to modify it, or
replace it with one that is at least functionally equivalent. If we
determine that none of these alternatives is reasonably available, you
agree to return the Product to us on our written request and we may
terminate the affected Service.
This is our entire obligation to you regarding any claim of infringement.
NOTICE OF INFRINGEMENT
All notices of patent or copyright infringement permitted or required by
this Agreement will be in writing, will be sent to the following address,
and will take effect upon receipt.
IBM Corporation
Internet Division Counsel
Route 100, Box 100
Somers, NY 10589
CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE
We have no obligation regarding any claim based on any of the following:
1. your modification of a Product, or a Program's use with equipment and
programs other than the Equipment and Programs with which the Program
is designed to operate;
2. the combination, operation, or use of a Product with any product,
data, or apparatus that we did not provide; or
3. infringement by a non-IBM Product alone, as opposed to its combination
with Products we provide to you as a System.
1.7 LIMITATION OF LIABILITY
Circumstances may arise where, because of a default on our part or other
liability, you are entitled to recover damages from us. In each such
instance, regardless of the basis on which you are entitled to claim
damages from us, we are liable only for:
1. payments referred to in our patent and copyright terms described above;
2. bodily injury (including death), and damage to real property and
tangible personal property; and
3. the amount of any other actual loss or damage, up to the greater of
$100,000 or the charges (if recurring or usage, 12 months' charges
apply) for the Service or Product that is the subject of the claim.
Services Agreement between IBM and QCS Page 6 of 12 11/22/96
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IBM/QCS Confidential
This limit also applies to any of our subcontractors and Program
developers. It is the maximum for which we are collectively responsible.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances are we, our subcontractors, or Program developers
liable for any of the following:
1. third-party claims against you for losses or damages (other than those
under the first two items listed above);
2. loss of, or damage to, your records or data; or
3. economic consequential damages (including lost profits or savings) or
incidental damages, even if we are informed of their possibility.
1.8 YOUR ADDITIONAL RIGHTS
You may have additional rights under certain laws (such as consumer laws)
which do not allow the exclusion of implied warranties, or the exclusion or
limitation of certain damages. If these laws apply, our exclusions or
limitations may not apply to you.
1.9 CHANGES TO AND TERMINATION OF SERVICES
We will give you three months' written notice if we increase Service
charges or change invoicing procedures, or when a planned change would
substantially alter a Service from its current description. We will give
you 12 months' written notice if we terminate a Service (or if we change
this 12-month notice period). However, if a third party claims that a
Product we provide as part of a Service infringes a patent or copyright, we
reserve the right to terminate the Service effective immediately.
1.10 CHANGES TO THE AGREEMENT TERMS
In order to maintain flexibility in our Services, Products, and options, we
may change the terms of IBM's standard Services Agreement by giving you
three months' written notice. However, these changes are not retroactive.
They apply, as of the effective date we specify in the notice, only to new
orders (those we receive on or after the date of the notice) and to
on-going transactions, such as licenses and Services.
Otherwise, for a change to be valid, both of us must sign it. Additional
or different terms in any order or written communication from you are void.
1.11 AGREEMENT TERMINATION
Subject to the next sentence, either party may, for its convenience,
terminate this Agreement upon ninety (90) days' written notice to the other
party. However, IBM will give you 12 months' written notice if such
termination for convenience is based on the termination of the Service (or
if we change this 12-month notice period). This Agreement will terminate
either on the date specified in the notice, which shall be in compliance
with the time periods for notice contained in this Section, or at a
later date specified in the notice. Upon the receipt of notice of
termination, the parties will stop work under this Agreement in an orderly
manner and return the other's property in its possession, less one (1)
archival copy of any Code delivered to the other party, including QCS
Software solely for dispute resolution and internal account record purposes
for a period not to exceed three (3) years, and which will be treated as
confidential information pursuant to the terms of our Agreement for
Exchange of Confidential Information for the entire period of such use.
Services Agreement between IBM and QCS Page 7 of 12 11/22/96
<PAGE>
IBM/QCS Confidential
Notwithstanding the foregoing, if QCS terminates, QCS' obligations
contained in the "Revenue Based Payments" Section of Supplement 01, shall
survive and continue, as provided in that Section.
If IBM terminates for convenience, IBM will receive no share of Revenue
earned after the date of termination, and QCS will pay IBM 100% of its
share of the revenue through the date of termination.
Either party may terminate this Agreement for cause, effective on receipt
of notice to the other party, when that other party:
a) becomes insolvent;
b) becomes the subject of any proceedings seeking relief,
reorganization, receivership or rearrangement under any laws relating
to insolvency;
c) makes an assignment for the benefit of creditors;
d) begins the liquidation, dissolution or winding up of its business;
e) consolidates, merges, sells, leases, exchanges or transfers 50% or
more of its assets or otherwise changes control without IBM's consent
which shall not be unreasonably withheld unless such a change of
control involves an entity engaged in similar activities as IBM's
contemplated activities under by this Agreement, in which case, IBM's
consent shall be in IBM's sole and absolute discretion;
f) commits a material breach which is not remedied within 30 days after
notice, such as continued failure to make payment or knowing
violation of intellectual property rights.
The parties will promptly apprise each other if any such cause appears
imminent.
Termination of this Agreement does not affect previously granted paid-up
rights and licenses to Retailers and Suppliers authorized by this Agreement.
Any terms of this Agreement that by their nature extend beyond its
termination (for example, with respect to Revenue, Intellectual Property,
Indemnification, Limitation of Liability and Term and Termination) will
survive. These terms will apply to either party's successors and assigns.
1.12 GEOGRAPHIC SCOPE
All your rights, all our obligations, and all obligations are valid only in
the country in which the transaction is performed or, if we agree, the
country where the Product is placed in productive use, except that all
licenses are valid as specifically granted.
1.13 GOVERNING LAW
The laws of the State of New York govern this Agreement. The parties hereby
expressly waive any right to a jury trial and agree that any action to
resolve disputes relating to this Agreement shall be tried by a judge
without a jury and that any proceeding, counterclaim or action arising out
of or from this Agreement shall be commenced in the state of New York. The
United Nations' Convention on International Sale of Goods does not apply.
1.14 NOTICE
All notices permitted or required by this Agreement, except for notices of
patent and copyright infringement which will be sent to the address
specified in section 1.6, "Patents and Copyrights," will be sent to the
following address and will take effect upon receipt:
IBM Corporation
Internet Division Counsel
Route 100, Box 100
Somers, NY 10589
PART 2 - RESPONSIBILITIES OF THE PARTIES
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IBM/QCS Confidential
2.1 MUTUAL RESPONSIBILITIES
Each of us agrees that under this Agreement:
1. neither of us grants the other the right to use its trademarks, trade
names, or other designation in any promotion or publication, other
than as provided in this Agreement or in the Transaction Documents;
2. all information exchanged by both of us is nonconfidential unless
covered by a signed confidentiality agreement or as otherwise
provided in this Agreement or in the Transaction Documents. Part 5 of
this Agreement describes our responsibilities for handling data and
information you transmit using the Services;
3. each is free to enter into similar agreements with others provided no
conflict exists between such agreements and this Agreement;
4. each grants the other only the licenses specified. No other licenses
(including licenses under patents) are granted;
5. each will promptly notify the other if it becomes aware of any unsafe
conditions or hazardous materials to which the other's personnel
would be exposed at any of its facilities;
6. neither of us will bring a legal action more than two years after the
cause of action arose; and
7. neither of us is responsible for failure to fulfill its obligations
due to causes beyond its control.
2.2 OUR RESPONSIBILITIES
We will:
1. inform you of Service descriptions, charges, discounts, allowances,
and other terms in Transaction Documents;
2. provide to you necessary User Identifications to enable access to the
Services and;
3. perform in accordance with the obligations set forth in the
Transaction Documents.
2.3 YOUR OTHER RESPONSIBILITIES
You agree:
1. not to assign, or otherwise transfer, this Agreement or your rights
under it, delegate your obligations, or resell any Service, without
prior written consent. Any attempt to do so is void;
2. to allow us to install mandatory engineering changes (such as those
required for safety) on Equipment;
3. that you are responsible for the results obtained from the use of the
Services and Products;
4. to provide us with sufficient, free, and safe access to your
facilities for us to fulfill our obligations;
5. to control and be responsible for User Identifications and their
distribution to End Users;
6. to obtain, install, and maintain suitable equipment as necessary to
access the Services;
7. to comply with all applicable laws, regulations, or conventions
including those related to data privacy, international
communications, and exportation of technical or personal data. You
are responsible for obtaining all necessary governmental, regulatory,
or statutory approvals for your use of the Services;
8. to obtain all required permissions if you use a Service to copy,
download, display, distribute, or execute programs or perform other
works;
9. to be responsible for data, programs, or other material that you
provide for use with a Service, and ensure that
1) we do not violate anyone's rights in providing the Service, and
2) the disclosure or use of the material through the Service does
not breach any contractual relationship;
10. to inform, in writing, those whom you authorize to access a Service,
of the applicable terms of the Agreement and that we have no
liability to them. You may use the name "IBM" when informing them
that your products are available through the Services; and
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IBM/QCS Confidential
11. to authorize us to include your name, contact information, and other
mutually-agreed-to information in a directory of IBM customers,
unless you notify us otherwise in writing within one month of your
first order for the Services.
PART 3 - WARRANTIES
3.1 THE IBM WARRANTIES
Warranty for IBM Services
For each IBM Service, we warrant that we perform it:
1. in a workmanlike manner; and
2. according to its current description contained in this Agreement, an
Attachment, or a Transaction Document.
Warranty for IBM Programs
We specify the warranty for warranted IBM Programs in an Attachment.
Warranty for Systems
Where we provide a System (for example, when we provide Services, Equipment,
and Programs according to our marketing proposal), we warrant that its
components are compatible and will operate with one another. This warranty
is in addition to our other applicable warranties.
3.2 EXTENT OF WARRANTY
Misuse, accident, modification, unsuitable physical or operating
environment, operation with equipment and programs other than the Equipment
and Programs with which a Program is designed to operate, improper
maintenance by you, or failure caused by a product for which we are not
responsible, may void the warranties.
THESE WARRANTIES REPLACE ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
3.3 ITEMS NOT COVERED BY WARRANTY
We do not warrant uninterrupted or error-free operation of a Service or
Product.
We will identify IBM Services and Products that we do not warrant.
Unless we specify otherwise, we provide Materials, non-IBM Services and
non-IBM Products on an "AS IS" basis. However, non-IBM manufacturers,
suppliers, or publishers may provide their own warranties to you.
PART 4 - EQUIPMENT PROVIDED BY IBM
We may provide Equipment to be installed on your premises for the purpose
of providing a Service. The Equipment is and will remain the asset of IBM or
its lessor and will not become a fixture or realty.
Certain Equipment may contain licensed internal code. We will identify this
Equipment to you.
No right, title, or interest in or to the Equipment, or licensed internal
code associated with it, or any related planning information, is passed to
you. However, we will use such Equipment to provide Services to you.
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IBM/QCS Confidential
As appropriate, we will provide you physical planning information for the
Equipment. You agree to comply with that information in order to provide an
environment meeting our specifications.
OUR RESPONSIBILITIES
We will:
1. install the Equipment we provide at your site unless we specify
otherwise;
2. maintain the Equipment; and
3. be responsible for all return, removal, and shipping charges for the
Equipment.
YOUR RESPONSIBILITIES
You agree to:
1. provide and pay for the physical space and electrical power for the
Equipment at your site;
2. be responsible for loss of or damage to the Equipment caused by your or
your employees' or your agents' intentional acts or negligence;
3. provide us or our designee with all assistance reasonably necessary to
permit us access to your site to perform inspection, installation,
preparation for return, or maintenance as is appropriate;
4. provide at no cost to us, adequate security to protect the Equipment
from theft, loss, damage, or misuse;
5. return to us, or permit us or our designee to remove at our discretion,
the Equipment, any licensed internal code associated with it, and
physical planning documentation at the expiration or termination of
the Service;
6. not alter the Equipment in any manner, not move it to other locations,
and not transfer it to anyone else without our prior written approval;
7. keep the Equipment free from all liens, charges, or encumbrances; and
8. affix and keep in a prominent place on the Equipment any marking or
label we require.
PART 5 - CUSTOMER TRANSMITTED DATA
We agree not to disclose your confidential information, including programs
and data, transmitted using the Services. However, we have no obligation of
confidentiality relating to your information, including programs and data,
which is not confidential. Information that is not confidential includes
information which is:
1. either currently publicly available or becomes publicly available in
the future without our breach of any obligation or responsibility
described in this Agreement;
2. rightfully received by either of us from a third party, where the
information was received without any obligation of confidentiality
associated with it;
3. already in our possession without an obligation of confidentiality;
4. independently developed by us;
5. approved for disclosure by you; or
6. treated by you as nonconfidential.
We also have no liability for any disclosure of information that occurs as
the result of our delivery of your information, at your direction and to a
recipient you designate, when the delivery is made in the normal course of
Service provision (for example, to an incorrect delivery address provided
by you to us). We may disclose information to the extent required by law.
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Handling of your information
You are responsible for selection and use of the security facilities and
options that we provide.
You are responsible to develop and maintain procedures (apart from the
Services) to protect your information. You are responsible for backup and
restoration of your information.
For the purposes of operation and maintenance we may use, copy, display,
store, and distribute internally your information. We agree not to reverse
assemble or reverse compile your information.
We do not guarantee that these procedures will prevent the loss of,
alteration of, or improper access to, your information. You agree that
access to your information will not prohibit or prevent us from developing
or marketing any Service or Product.
For transmission carried over interexchange carriers' and local exchange
carriers' facilities, IBM is not responsible for transmission errors, or
corruption or security of data.
We reassign to other customers data storage that you return to us. We do
not erase data storage and, in some cases, the next customer accessing a
disk may be able to read residual data. We are not responsible for your
failure to erase sensitive data from disk space returned to us.
Working Contract 11/23
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EXHIBIT 01 TO THE SERVICE AGREEMENT BETWEEN IBM CORPORATION AND QCS
CORPORATION DATED NOVEMBER 23, 1996
IBM INTERCONNECT FOR LOTUS NOTES EXHIBIT
THE TERMS OF THE AGREEMENT APPLY TO THIS EXHIBIT
1. BACKGROUND
Under the terms of this Exhibit, we provide to you the "Basic Offer" version
of IBM InterConnect for Lotus Notes Service (the "Service"). As part of this
Service, IBM Corporation, or its suppliers ("we" or "us") will provide QCS
Corporation ("you") space on our premises where your Lotus Notes applications
and data bases will be resident and can be accessed by both you and users
within your enterprise that you authorize. Additionally, the Service provides
your authorized users with the capability to perform selected Lotus Notes
functions. We provide you the use of the facilities under this Service,
including those for loading, replicating and maintaining your applications
and data bases, through a dial connection to the Service in the United
States. We restrict the use of the facilities under this Service to your
Lotus Notes administrator and to Lotus Notes client IDs and users whom your
administrator has certified (and to whom your administrator has provided the
appropriate network connection scripts).
Access to this Service is available through selected networks that are
interconnected to the Service. Network interconnect access availability is
subject to change without prior notice.
If either party terminates this Service, we will return to you your
information and data content. We reserve the right to maintain one copy for
archival purposes only, solely for dispute resolution and internal account
record purposes for a period not to exceed three (3) years, and which will be
treated as confidential information pursuant to the terms of our Agreement for
Exchange of Confidential Information for the entire period of such use.
Both of us agree that neither party is a legal representative, partner, joint
venturer, franchisee, or agent for any purpose of the other, unless both
parties have signed a separate written business partner agreement. Other than
as specified in this Exhibit or the Agreement, neither party makes any
representations, or assumes or creates any obligations, on behalf of the
other.
OUR RESPONSIBILITIES
We provide the hardware and software on our premises and the network
connectivity, and are responsible for maintaining the Service and its
operational status in support of your applications and data bases that are
resident on our premises. We are responsible for licensing the software that
we provide. We, in our sole judgment, provide the hardware, software and
network connectivity we deem appropriate.
We are responsible for maintaining the network interconnect access, which is
subject to change without prior notice. We will provide you a list of current
interconnected networks upon request.
We will provide you with an "800" number for help desk support solely
related to the Service.
YOUR RESPONSIBILITIES
You are responsible for the evaluation, selection, authorization, use and
results obtained from the Lotus Notes security facilities and security
procedures provided under this Service.
You are responsible for providing your own servers and/or workstations on
your premises and for licensing, installing and maintaining on your servers
and/or workstations the Lotus Notes program.
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Your are responsible for invoicing and collecting any fees which you charge
to users that access your information and data content.
You shall not use this Service to send or receive any information in the form
of text, graphics, or programs (whether or not provided by IBM) which
infringes any patent, copyright, trademark, trade secret, or other
intellectual property right, or any privacy or similar right of another.
Immediately upon written notice we may terminate your authorization to
maintain your information and data on our facilities if you infringe any
intellectual property right, copyright, patent, trademark, privacy right, or
similar right of another in conjunction with the information and data content
you provide.
You are responsible for promptly notifying us of any event or circumstance,
and will provide all information relating to such event or circumstance if
requested by us, related to this Service or your information and data which
could lead to a claim or demand against us by any third party.
You are solely responsible for the accuracy of all your information and data
content, including but not limited to the applications and data bases you
place or have placed on the Service. You are responsible for ensuring that
your information and data content does not violate any law or regulation.
You will:
1. be solely responsible for those who you permit to make
modifications to your information and data, and any content
contained therein, including but not limited to the accuracy
and availability of the information and data content you provide
to your users; and
2. provide assistance to those who access your information and data
content regarding its use.
INDEMNIFICATION
You shall defend, indemnify, and hold us harmless against any liabilities
arising out of: a) any injury to persons or property caused by any item sold
or advertised in connection with your information and data, b) any claim that
any item sold or advertised in connection with your information and data does
not comply with all local and international safety and labeling requirements
and all other relevant local and international laws, treaties, regulations,
ordinances, and the like, c) any defamatory, libelous or illegal, or
allegedly defamatory, libelous or illegal material contained within your
information and data, d) any material infringing or allegedly infringing on
the proprietary rights (including but not limited to intellectual property
rights) of a third party, e) any third party claim arising out of third party
access or use of your information and data, and f) any claim by you that your
data was compromised because of a failure to provide adequate security.
THIRD PARTY SOFTWARE
All third party software used to provide this Service is provided "as is."
Notwithstanding Section 1.6, "Patents and Copyrights," of the Agreement, we
do not provide you with any patent or copyright indemnification with regard
to such third party software.
AVAILABILITY
Our objective is to make this Service available 24 hours per day 7 days per
week except for scheduled maintenance. Maintenance is currently scheduled
daily. However, access to the Service may be dependent upon resources not
under the control of IBM. We reserve the right to interrupt the Service to
perform emergency maintenance as needed.
2. INTERCONNECT BASIC OFFER - SERVICE: DETAILED DESCRIPTION
The Service provided to you hereunder is the "Basic Offer" of the IBM
InterConnect for Lotus Notes Service only and is made up of the following
components, each of which is discussed in detail below:
- - Transport
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- - Network and Server Management
- - Performance Management
- - Security
- - Mail & Replication Services
- - Implementation Support
- - Help Desk Support
- - Administrator Registration
- - Set-up Costs and Frame Relay Surcharges
TRANSPORT
FLEXIBLE ACCESS OPTIONS: Access to the Service is available through a
variety of IBM options. IBM will help QCS determine the best access method
for each specific location.
DIAL-UP ACCESS: Dial-up access to the Service is available through a
Global X.25 network. IBM provides a local dial node or 800 number by which a
customer can establish a dialed modem connection. The network works with all
modem manufacturers at a variety of speeds. The current maximum supported
rate is [*] . QCS will provide its own analog phone line and
modem to access the network. Note: Mobile or remote endpoints running Notes
release 3.X typically use the X.PC protocol provided in Lotus Notes to
connect with the Service's server complex.
DEDICATED ACCESS: Customers may also select a dedicated frame relay
connection from the IBM frame relay service. This service provides greater
bandwidth, with speeds of up to [*]
SLIP/PPP (IP) ACCESS: IBM will also offer PPP and SLIP dial in the
future. The release 3.X client of Lotus Notes requires an external utility to
establish the PPP connection, but this feature is built into Lotus Notes
Release 4.
NETWORK MANAGEMENT
TWENTY-FOUR HOUR NETWORK SURVEILLANCE: IBM provides 7x24 coverage of
the Service's access facilities to ensure maximum availability of the
Service's environment. Network services are proactively monitored for alarms
(faults).
NETWORK LOAD BALANCING: IBM will analyze the Service's network
configuration to assure maximum utilization of access facilities.
NETWORK REDUNDANCY: The Service utilizes "the best of breed" Global
X.25 and Frame Relay networks available. The redundant routing and
intelligent networking built into these networks ensures the highest
availability and quality.
NETWORK CAPACITY MANAGEMENT: IBM proactively monitors network
utilization to ensure that appropriate capacity is available for QCS'
networking needs. If deficiencies are detected, IBM will contact QCS and take
appropriate steps to remedy the situation.
SERVER MANAGEMENT
STORAGE: IBM provides customers with 500 megabytes in the basic offer
and options in increments of 1 gigabyte of disk space for storage of QCS'
information.
MIRRORED DISKS: IBM utilizes mirrored disks to assure the integrity of
QCS' data and to prevent loss of information.
NIGHTLY BACKUPS: IBM performs regularly scheduled nightly backups of
QCS' data to provide a recovery source in case of data corruption.
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
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SERVER CAPACITY MANAGEMENT: IBM proactively monitors the Service's
servers to help assure that adequate disk space and simultaneous user
capacity is available to support the QCS' data requirements.
LOAD BALANCING: IBM provides proactive monitoring of the Service's
server environment. Additional servers may be added to ensure appropriate
application performance.
SURVEILLANCE AND MAINTENANCE: IBM provides proactive, 7 x 24
surveillance and maintenance of the Service's server environment. This
includes monitoring server tasks and alarms to assure smooth and efficient
operations.
SECURITY MANAGEMENT
DIAL-UP LOG-IN AND PASSWORD: The Service users who access the service
via dial-up connection use a pre-scripted log-in, password and user
authentication for security purposes. This dial-up security supplements the
security inherent in Lotus Notes that is, Access Control Lists (ACLs), user
authentification and RSA encryption.
APPLICATION FILTERING: Customers who access the Service via frame
relay have the option of added security of specially administered routers
that filter non-Notes messages. Such filters exclude non-Notes messages or
data (such as Telent or FTP) from the Service's network.
SECURE IBM SERVER COMPLEX: IBM takes several measures to help keep
its server complex as physically secure as possible. The Service's server
complex is located in a data center in which access is restricted to
operational personnel.
MAIL & REPLICATION SERVICES
MAIL: Intra and Inter-domain Notes mail is managed via the Service's
server environment. IBM provides the transport, directory and server
environment to support intra-domain mail and inter-domain Notes mail.
INTER- AND INTRA-DOMAIN REPLICATION: The Service provides a secure
environment for replication between and among domains. The replication
schedule, domain environment and communications (if required) are managed by
IBM. Inter-domain replication is available.
MAIL GATEWAY: Mail can be sent to the Internet through a SMTP
(Simplified Mail Transfer Protocol) gateway. Binary attachments to mail are
supported through MIME (Multi-purpose Internet Mail Extension).
HELP DESK SUPPORT
NOTES END USER SUPPORT: IBM provides multinational and multilingual
support for Lotus Notes End Users. Domestic support is provided on a 24x7
basis. International support is available during business hours in the
following languages: French, German, Italian and Spanish.
NETWORK TROUBLE HOTLINE: IBM provides a toll-free hotline for server
complex-related problem resolution. All network or server complex problems
are solved free-of-charge.
NOTES ADMINISTRATOR SUPPORT VIA PHONE: IBM provides Notes and network
technical support via phone seven days per week, 24 hours per day.
TROUBLE TICKET SYSTEM: The IBM Trouble Ticket System allows customer
problems to be tracked from initial report through satisfactory resolution.
As IBM staff works to resolve problems, current status is updated in the
Trouble Ticket System. This allows IBM staff to discuss ticket history with
customers if required.
FAULT ISOLATION AND PROBLEM RESOLUTION: Fault isolation involves
coordination among network operations and technical staff. Depending on the
QCS' specific configuration, line testing and router reconfiguration may be
used. The IBM staff works to pinpoint problems, track repair progress and
resolve problems.
INTERNATIONAL SUPPORT
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Access numbers, hours of availability and native language support will vary
based on geography. In all cases, an option will be available after hours to
call into the domestic support center for support in English.
<TABLE>
<CAPTION>
LOCATION LANGUAGE TELEPHONE # SUPPORT HOURS
<S> <C> <C> <C>
International English 617-251-6881 7 x 24
Canada English 617-251-6881 7 x 24
France French 33-1-3067-2995 9:00AM-6:00PM M-Th 9:00AM-
5:30PM F
Germany German 49-89-4513-4950 8:30AM-5:30PM M-F
Italy Italian 33-1-3067-2995 9:00AM-6:00PM M-Th 9:00AM-
5:30PM F
Latin America Spanish 617-251-6881 8:30AM-5:30PM M-F
7 x 24
English
South America Spanish 617-251-6881 8:30AM-5:30PM M-F
7 x 24
English
Spain Spanish 33-1-3067-2995 9:00AM-6:00PM M-Th 9:00AM-
5:30PM F
UK English 44-181-4790050 9:00AM-5:30PM M-F
USA English 800-820-2336 7 x 24
</TABLE>
IMPLEMENTATION SUPPORT
IMPLEMENTATION SUPPORT SERVICE
The InterConnect Implementation Support Service helps to assure that
each End Point is registered and successfully connects to QCS' InterConnect
application. It facilitates rapid deployment of the customers IBM-based
solution.
ENDPOINT IMPLEMENTATION SUPPORT: The End Point enablement service
provides customers with the basic support necessary to get End Points
registered on the Service. IBM provides direct End Point support via phone to
assure the first successful connection and replication to QCS' IBM-based
application. The End Point enablement is offered on a 24x7 basis and is free
of charge.
QCS is responsible for contacting each Retailer endpoint to assess
each End Point's interest and readiness to engage in the Service. QCS is
responsible for sending InterConnect Registration and Welcome Kit materials to
each Retailer endpoint. QCS is also responsible for providing any necessary
hardware, software or analog phone services necessary to bring the End Point
up on InterConnect.
IBM is responsible for contacting each Supplier endpoint to assess
each End Point's interest and readiness to engage in the Service. IBM is
responsible for sending InterConnect Registration and Welcome Kit materials
to each Supplier endpoint. IBM is also responsible for providing any
necessary hardware, software or analog phone services necessary to bring the
End Point up on InterConnect.
ADMINISTRATOR REGISTRATION
INSTALLATION MANAGEMENT: IBM will work with QCS' designated
InterConnect administrator to assure that initial implementation of QCS' IBM
InterConnect for Lotus Notes server and transport meets scheduled due dates.
QCS' IBM InterConnect for Lotus Notes server will be provisioned, databases
loaded and transport ordered and provisioned according to QCS'
specifications. QCS will be notified if dates are in jeopardy.
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ADMINISTRATOR REGISTRATION: IBM will work with QCS' designated
InterConnect administrator to assure proper cross certification and
registration. QCS' designated InterConnect administrator is responsible for
registering all other administrators and End Points. QCS' designated
InterConnect administrator is required to have a Lotus Notes workstation and
access to the network in order to perform InterConnect registration duties.
COORDINATE INITIAL TEST AND TURN-UP: IBM will work with QCS'
designated InterConnect administrator to ensure successful access to and
connection with the Service once registration has been completed. QCS'
designated InterConnect administrator is responsible for working with each
additional administrator to assure successful test and turn-up.
PROVIDE WELCOME KITS: IBM will provide two versions of IBM
InterConnect for Lotus Notes Welcome Kits to QCS' designated InterConnect
administrator; an administrator version and an End Point version. It is the
responsibility of QCS' designated InterConnect administrator to distribute
End Point welcome kits. Welcome kits contain dial-up connect scripts and safe
IDs.
ADMINISTRATOR TRAINING CALL: IBM conducts one free IBM InterConnect
for Lotus Notes administrator training call per customer. The purpose of this
call is to give QCS' administrator the training necessary to act as a central
point of contact for all customer registration and initial connectivity
needs. It is assumed that QCS' designated InterConnect administrator has
attended the Lotus Notes Systems Administration I and II courses provided by
Lotus and/or its designated training providers.
AUTOMATED REGISTRATION TOOL: IBM provides tools for QCS'
administrator which will enable him/her to add or delete the Service's End
Points; to create, delete or modify the Service's Group Lists; to add another
administrator; and to add and delete databases from the Service.
3. SET-UP COSTS AND FRAME RELAY SURCHARGES
A. In addition to payments and price terms as may be specified elsewhere in
the Agreement, QCS shall make the following payments to IBM in the first
billing month after the Effective Date:
Set up fee - which includes server installation, End Point enablement, domain
registration and help desk registration.
<TABLE>
<CAPTION>
COMPONENT ONE TIME COST
<S> <C>
Enterprise setup fee [*]
</TABLE>
B. QCS shall also pay IBM additional "Frame Relay Surcharges" as specified in
invoices or similar documents, as follows:
<TABLE>
<CAPTION>
SPEED MONTHLY COST
<S> <C>
[*]
</TABLE>
Frame Relay Network Charges - based on bandwidth and distance from Point of
Presence
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
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You will initially be provided with 500 megabytes of storage capacity as part
of the Service. Additional units of storage will be made available to you in
increments of 1 gigabyte (GB) for an additional charge of [*] .
Requests for additional storage will require a minimum of thirty (30) days
written notice and are subject to availability.
IBM is a registered trademark of the International Business Machines
Corporation. Lotus and Lotus Notes are registered trademarks of the Lotus
Development Corporation.
Exhibit 1 11/23
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
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SUPPLEMENT 01 TO THE SERVICE AGREEMENT BETWEEN IBM CORPORATION AND QCS
CORPORATION DATED NOVEMBER 23, 1996 (THE "AGREEMENT")
The Parties agree that for good and valuable consideration, the sufficiency
of which the parties hereby acknowledge, the following terms and conditions
shall apply to the Agreement.
1) DEFINITIONS
a) "CONSUMER" is a member of the public who purchases goods and/or services
from a Retailer.
"EFFECTIVE DATE" is the later date on which both IBM and QCS have signed
this Agreement or December 2, 1996.
"END POINT" is the point of contact with the IBM network (it may be a
workstation with a single user, a mobile workstation or a server on a LAN
with many users behind it). End Points run__________ QCS Lotus Notes based
software.
"END USER" is an individual who employs the QCS Lotus Notes based software
for his or her business purposes.
"EXISTING SUPPLIERS" are those Suppliers which have licensed the QCS Lotus
Notes based software and are connected to the QCS server as of the Effective
Date.
"NETWORK SERVICE PROVIDER" is the IGN network service provided by IBM or
"Other" network services provided by SITA and/or AT&T.
"RETAILER" is an entity that sells goods and/or services to Consumers.
This definition includes the associated units of a Retailer. A Retailer is
not a government agency.
"SUPPLIER" is an entity that primarily sells goods to a Retailer and/or to
another Supplier. A Supplier is not a government agency.
"SUPPLIER LEVEL" shall mean a number of Suppliers equal to one hundred
fifty percent (150%) of the Existing Suppliers.
"QCS SOFTWARE" is QCS' Lotus Notes-based multimedia software provided to
IBM under this agreement. QCS Software may be Supplier, Retailer, or other
End-User designated, or may be that which QCS provides to IBM for
installation on the Service.
b) The following terms shall be used to describe QCS' revenue sources which
are the basis for revenue based payments under the Agreement:
[*]
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
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[*]
2) REVENUE BASED PAYMENTS
REVENUE BASED PAYMENTS FORMULA:
In exchange for providing the Service specified in Exhibit 01, and for the
mutual obligations set forth in the Agreement as of the Effective Date, QCS
shall make payments to IBM as follows:
<TABLE>
<CAPTION>
NETWORK PAYMENT
REVENUE SERVICE TO
SOURCE PROVIDER IBM SPECIAL RULES
<S> <C> <C> <C>
[*]
</TABLE>
*percentages shall be of contracted revenue collected by or for QCS for the
applicable Revenue Source
Effective at the time when the parties have connected a number of Suppliers
equal to one hundred fifty percent (150%) of the number of Existing Suppliers
("Supplier Level") IBM will share in the revenue from the Existing Suppliers
Subscription Revenue.
Notwithstanding the above, IBM's share of the Retailer Usage Revenue will in
no event be less than twenty-nine dollars ($29.00) per End Point and eight
dollars ($8.00) plus international surcharges per megabyte transmitted for
each Retailer per month if the Retailer has migrated to the IBM service.
Prior to the time when the Supplier Level has been achieved, QCS will pay IBM
twenty-nine dollars ($29.00) per End Point and eight dollars ($8.00) plus
international surcharges per megabyte transmitted for each Existing Supplier
per month if the Existing Supplier has migrated to the IBM Service.
QCS will pay IBM twenty-nine dollars ($29.00) per End Point and eight dollars
($8.00) plus
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
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international surcharges per megabyte transmitted for each QCS End Point used
by QCS employees, QCS' service providers and QCS' business partners.
Periodically the parties may elect to revise the End Point rate and the base
per megabyte rate subject to a separate written agreement and signed by both
parties.
Other than as specified in this Agreement, no other transfers of revenue,
shipping costs, taxes, tariffs, duties and the like will occur between the
parties, and each party will bear its own expenses necessary to perform its
obligations under this Agreement.
3) TERMINATION
If QCS terminates for convenience or, if IBM terminates for cause (as
provided in the Agreement). QCS will continue to make payments to IBM as
provided in this Supplement for five (5) years from the termination date,
based on the following schedule:
("Years" are defined as the periods commencing on the termination date and
each anniversary thereafter)
Year1 = 100%; Year 2 = 80%; Year 3 = 60%; Year 4 = 40%; and Year 5 = 20%
4) INTELLECTUAL PROPERTY
QCS hereby grants to IBM the irrevocable right and license to use the
trademarks, service marks or trade names ("Marks") of QCS for marketing and
related purposes in order to market and conduct the activities necessary or
advisable under and for the duration of this Agreement.
Unless expressly stated otherwise in this Agreement or in an identified
separate agreement:
a) IBM does not grant QCS any licenses to IBM trademarks, service
marks, copyrights, patents or other intellectual property in the
Service, Products or Materials under this Agreement;
b) IBM does not grant QCS' Retailers or Suppliers any license under
other IBM patents; and
For any materials (including code, documentation and related materials) which
QCS provides to IBM hereunder, you hereby grant to IBM a non-exclusive,
worldwide, irrevocable, license to use, reproduce, display, prepare
derivative works and distribute all of the foregoing QCS Software in order to
market and conduct the activities necessary or advisable under and for the
duration of this Agreement.
5) FREEDOM OF ACTION
a) Each party may have similar agreements with others. Each party may design,
develop, manufacture, acquire or market competitive products and services and
conduct its business in whatever way it chooses provided there is no conflict
with this Agreement. IBM does not guarantee the success of its marketing
efforts or the availability of any information through or performance of the
Service. Each party will independently establish prices for its products and
services.
b) This Agreement shall not be construed to limit either party's right to
obtain services or software programs from other sources, to prohibit or
restrict either party from independently developing or acquiring materials
competitive with those items developed or licensed hereunder, to restrict
either party from making, having made, using, leasing, licensing, selling or
otherwise disposing of any products or services whatsoever, nor to limit
either party's right to deal with other vendors, suppliers, contractors or
customers.
6) IBM AND QCS RESPONSIBILITIES
a) IBM RESPONSIBILITIES
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IBM will:
a) install the QCS Software on the Service no later than ninety (90)
days following the Effective Date;
b) in IBM's sole and absolute discretion, market and install the QCS
Software to Suppliers worldwide;
c) in IBM's sole and absolute discretion, assist QCS in marketing to
Retailers;
d) assume responsibility for the acquiring the contents of, and
packaging of the QCS Supplier Installation kit, which may
include items such as digital camera, image-edit software,
modem, and other hardware and software, no later than six (6)
months after the Effective Date. During this transition
period, IBM will refund QCS the expenses incurred for
providing this service.
e) provide telephone support maintenance for Lotus Notes and QCS
software to Suppliers;
f) regularly, but at least weekly, update the supplier customer
database;
b) QCS RESPONSIBILITIES
QCS will:
a) within two (2) business days following the Effective Date, deliver
to IBM a complete list of Existing Suppliers comprising the
pertinent information related to each Existing Supplier
including, but not limited to, their names and addresses;
b) for each Retailer that licenses the QCS Software prior to the
Effective Date or anytime thereafter, provide to IBM current
and timely pertinent information related to such Retailer's
Suppliers including, but not limited to, their names and
addresses;
c) deliver to IBM, in an agreed to format(s) (i.e. tape, diskettes,
CD-ROM or electronically) copies of the QCS Software
sufficient to enable IBM to perform its obligations hereunder;
d) at mutually agreed to times and locations, provide training and
education to IBM personnel and IBM business partners related
to the QCS Software to enable such personnel to train and
educate third parties ("teach the teachers program");
e) for a minimum of six (6) months following the Effective Date,
maintain its existing sales, marketing, and technical
personnel force to assist, support and educate IBM personnel
in the sales and marketing of the QCS Supplier Software;
f) provide to IBM a written or electronic monthly report containing
all End User and other Customer escalations and complaints
related to any products, offerings or services provided
hereunder which QCS becomes aware of;
g) continue acquiring the contents of, and packaging of the QCS
Supplier Installation kit for a period up to six (6) months
after the Effective Date;
h) provide to mutually agreed to IBM Personnel, unlimited,
twenty-four (24) hours, seven (7) days per week access to all
the Lotus Notes based monitoring tools of those Retailers and
Suppliers that are connected to the Service for network usage
and revenue tracking purposes; and
i) be responsible for all billing and collection activity associated
with any products, Offerings or services provided hereunder
and remit to IBM, in a timely manner any payments due to IBM
in accordance with the Agreement.
c) IBM AND QCS RESPONSIBILITIES
IBM and QCS agree to use best efforts to:
a) cooperate and migrate the QCS Software and related databases from
QCS servers located at QCS facilities in Mountain View, California
and London, England ("QCS Servers") to IBM servers located in
facilities chosen by IBM in its sole discretion ("IBM Servers");
b) within thirty (30) days following the Effective Date, form a
Review Committee consisting of individuals representing each
party, which will be responsible for setting the strategic
Services Agreement between IBM and QCS - Supplement 01 Page 4 of 5 11/22/96
<PAGE>
IBM/QCS Confidential
direction of the overall project under this Agreement, making
policy, setting targets and reviewing performance, obtaining
the approval of the respective parties for press releases,
publicity, advertising and other significant marketing
activities; and
c) create a plan and cooperate in its execution to migrate Existing
Suppliers and Retailers to the Service.
Supplement 1 11/23
Services Agreement between IBM and QCS - Supplement 01 Page 5 of 5 11/22/96
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Company's wholly-owned subsidiary is as follows:
QCS Development Company S.A.
BP 037
06901 Sophia Antipolis Cedex
France
<PAGE>
EXHIBIT 23.1
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and
Stockholders of QCS.net Corporation (dba SourcingLink.net):
Our report on the consolidated financial statements of QCS.net Corporation
is included on page F-1 of this Form 10-KSB. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule on page F-21 of this Form 10-KSB.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
San Jose, California
May 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
FROM THE NINE MONTH FISCAL YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,267
<SECURITIES> 0
<RECEIVABLES> 258
<ALLOWANCES> (35)
<INVENTORY> 0
<CURRENT-ASSETS> 1,497
<PP&E> 328
<DEPRECIATION> (143)
<TOTAL-ASSETS> 1,695
<CURRENT-LIABILITIES> 750
<BONDS> 0
0
4
<COMMON> 23
<OTHER-SE> 918
<TOTAL-LIABILITY-AND-EQUITY> 1,695
<SALES> 0
<TOTAL-REVENUES> 741
<CGS> 0
<TOTAL-COSTS> 462
<OTHER-EXPENSES> 1,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18)
<INCOME-PRETAX> (1,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,492)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
